Insurer Uses Its Muscle on 2 Bills;

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Measures opposed by activists and regulators advance. Firm has been a big campaign donor.

Los Angeles Times

SACRAMENTO – A Los Angeles insurance company that has contributed millions of dollars to California politicians over the years is trying to use its influence with lawmakers to overturn regulatory and court decisions that threaten its financial interests.

Bills sponsored by Mercury Insurance Group, one of California’s largest automobile insurers, unanimously passed committees in both houses of the Legislature on Wednesday despite strong opposition from consumer groups and the state’s Department of Insurance.

The bills would make it easier for insurance vendors to add a broker fee to the cost of a policy and allow companies to offer discounts to customers who have bought automobile coverage for years.

The two bills — AB 1297, written by Assemblyman Dario Frommer (D-Los Feliz), and SB 841, by Sen. Don Perata (D-Alameda) — would strike down an insurance commissioner’s regulation and effectively nullify a recent decision by a San Francisco Superior Court judge.

The votes on both bills came after emotional hearings before insurance committees, most of whose members had received substantial contributions from Mercury in the last three years. In the Senate, tensions got so high at one point that committee Chairwoman Jackie Speier (D-Hillsborough) ordered that the microphone be taken away from a consumer advocate and that he be escorted to the back of the room.

Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights, in a rare breach of protocol had just suggested to the committee that its interest in the legislation was driven by campaign contributions rather than public policy.

“Why are we here doing this?” he asked. “Is this bill really about good policy or is this bill about helping an insurance company that has given $1 million to the Democratic Party since 2001?”

“Mr. Court, you’re done,” snapped Speier.

‘Cheap Shots’

Minutes later, Perata, the author of the legislation that would permit the discounts, took umbrage at the remarks, calling them “cheap shots” aimed at President Pro Tem John Burton (D-San Francisco), the Senate’s biggest money raiser.

“I resent the implication on his behalf,” Perata said. “Any day of the week I will stack up his record on behalf of the poor and dispossessed over anybody here.”

Afterward, Court said it was not Burton he had in mind, but all the Democratic legislators.

In the Assembly, emotions swirled around a bill that would remove the legal underpinnings of a judge’s decision in April that said Mercury had “engaged and continues to engage in false advertising … by advertising rate comparisons without disclosing that broker fees may be added in addition to the premium advertised.”

The Assembly hearing was held in a tiny meeting room so packed with insurance industry representatives that members of the public could not attend. A spokesman for the panel said later that committee members regretted the lack of public access but had not realized the industry was going to pack the room.

The ruling that was the catalyst for the legislation had found Mercury at fault for stepping over the legal line that differentiates between agents who sell insurance and brokers who market the same product. Under the law, the judge said, agents work directly for insurance companies and are paid a commission on policies they sell. Brokers, however, sell insurance independently and are

allowed under law to add a “broker fee” to every policy they sell.

In Mercury‘s case, he ruled, the company was calling those who sold its products “brokers” but maintaining control over them as if they were agents. Consumers who would read the company’s advertisements comparing its rates with other carriers, he wrote, would not be told that a “broker fee” might be charged on top of the advertised rate.

Frommer said his bill would change the law by letting anyone act as a broker as long as he or she discloses to consumers that they might be charged a broker fee.

“This bill seeks to clear up some of the confusion in the marketplace,” he said.

Independent brokers, who filled the committee room and were sternly rebuked several times for loud outbursts, told lawmakers that they feared the San Francisco ruling would put them out of business.

“We provide a service to underserved people, thousands and thousands of them,” said David Nielsen, owner of two agencies with 130 employees. “We cannot stay in business without charging a modest fee.”

‘Extra Fee’ Criticized

But Norman Goldman, one of the lawyers who brought the lawsuit against Mercury, said he feared Frommer’s bill would allow agents to not only receive a commission but also charge a broker fee.

“What this bill does is legalize an extra fee that is otherwise illegal and acts as a surcharge to many consumers who buy automobile insurance,” he said.

A Mercury representative sat in the front row in the Assembly hearing room but did not speak. In the Senate, company lobbyist Kathleen Snodgrass defended Perata’s bill as a way for all insurance companies to offer an additional discount if they choose.

Last year, Mercury was forced to stop offering a discount to customers after former Insurance Commissioner Harry Low outlawed the practice. The regulations said it was legal for companies to offer discounts only to their own longtime customers, not to those switching from other firms. Mercury‘s discounts made it more enticing for people to change insurers.

Perata said his bill would allow consumers to shop around for coverage and still get the discount even if they switched companies.

“I don’t care how many consumer groups come up here today to speak against this bill,” Speier said. “Consumerism is about shopping around for the best deal.”

But the best deal, Court said, would come at the expense of people who were buying coverage for the first time or were purchasing it again after financial circumstances forced them to let their policies lapse. When one group gets a discount, he said, the loss in revenue has to be made up by those who don’t get it.

Norma Garcia, a lobbyist for Consumers Union, said the measure would discourage the uninsured from buying coverage by increasing the costs of a policy. “Those who are going to benefit from shopping around are those who already have the shopping bag — not the uninsured,” she said.

The Legislature passed a similar bill last year only to have it vetoed by Gov. Gray Davis.

Mercury campaign contributions

Two legislative committees unanimously approved measures Wednesday sought by Mercury Insurance Group to effectively overturn some regulatory and court decisions. Over the last three years, Mercury has given campaign contributions to 12 of the 19 Assembly committee members and all nine Senate members.

Assembly Insurance Committee

Juan Vargas (D-San Diego), chairman

$2,000 … 10/17/02

$1,000 … 9/10/02

$1,000 … 5/4/01

Ken Maddox (R-Garden Grove), vice chairman

$1,000 … 10/3/02

$750 … 3/14/02

$750 … 11/15/01

Dario Frommer (D-Los Feliz)

$5,000 … 10/7/02

$1,000 … 5/23/02

$2,000 … 2/5/02

$1,000 … 6/8/01

Edward Chavez (D-La Puente)

$2,000 … 10/3/02

$1,000 … 2/11/02

$1,000 … 6/8/01

$1,000 … 2/22/01

Ronald S. Calderon (D-Montebello)

$3,000 … 9/30/02

$500 … 8/16/01

John Dutra (D-Fremont)

$2,000 … 9/30/02

$1,000 … 7/25/01

Manny Diaz (D-San Jose)

$1,000 … 9/10/02

$1,000 … 2/5/02

$500 … 12/12/01

$500 … 7/25/01

$500 … 2/22/01

Jerome Horton (D-Inglewood)

$1,000 … 9/10/02

$2,000 … 4/9/02

$1,000 … 7/25/01

Russ Bogh (R-Cherry Valley)

$1,000 … 9/10/02

$1,000 … 5/23/01

John Campbell (R-Irvine)

$1,000 … 9/10/02

$750 … 2/11/02

$1,000 … 8/16/01

$750 … 5/4/01

George Nakano (D-Torrance)

$1,000 … 2/5/02

Keith Richman (R-Northridge)

$750 … 12/12/01

Senate Insurance Committee

Don Perata (D-Alameda)

$10,000 … 9/16/02

$25,000 … 6/14/02

Ross Johnson (R-Irvine)

$3,000 … 3/14/02

$3,000 … 7/25/01

Nell Soto (D-Pomona)

$3,000 … 6/18/02

$1,000 … 8/16/01

$1,000 … 2/22/01

Bill Morrow (R-Oceanside)

$1,000 … 9/10/02

$1,000 … 3/14/02

$1,000 … 6/8/01

Rico Oller (R-San Andreas)

$1,000 … 11/15/01

$1,000 … 5/4/01

Jack Scott (D-Altadena)

$3,000 … 4/9/02

$3,000 … 7/25/01

Liz Figueroa (D-Fremont)

$3,000 … 6/14/02

Jackie Speier (D-Hillsborough)

$1,000 … 7/25/01

$1,000 … 5/4/01

Martha Escutia (D-Whittier)

$3,000 … 3/14/02

Note: These Assembly committee members did not receive Mercury contributions:

John Benoit (R-Palm Desert), Lou Correa (D-Anaheim), Robert Dutton (R-Rancho Cucamonga), Paul Koretz (D-West Hollywood), Sally Lieber (D-Mountain View), Dennis Mountjoy (R-Monrovia) and Mark Ridley-Thomas (D-Los Angeles).

Source: California Secretary of State

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