Insurer, a Prop 17. Backer, Alleges Bias

SACRAMENTO — Less than two months before voters will be asked to
decide on a controversial auto insurance initiative sponsored by Mercury
Insurance, Insurance Commissioner Steve Poizner on Monday alleged the
company “has disregarded California’s consumer protection statutes and
overcharged consumers.”

Poizner said that Department of Insurance examiners discovered
thousands of cases in which Mercury illegally overcharged for auto and
homeowners insurance policies — in some instances, he alleged, repeating
violations the company had agreed in the past to correct.

Among the allegations are that Mercury did not properly apply credits
that were due on homeowners’ policies, did not abide by state law in
evaluating policyholders’ driving records, and subjected people in
certain occupations such as cocktail waitresses, bartenders and artists
to standards that did not apply to others.

In a statement, the company denied the allegations and said they
arise from disagreements in the interpretation of state laws and
regulations. “We don’t engage in practices that would overcharge our
customers,” the statement read.

The statement further accuses Poizner, who is seeking the GOP
nomination for governor on June 8, of orchestrating the release of the
report “to further the political interests of the commissioner, not the
people of California.”

Department of Insurance spokesman Darrell Ng responded that Mercury
“should be less concerned about any imagined conspiracy theories and
more concerned about following the law. The department is taking strong
action against a company that we believe illegally overcharged their
customers.”

The charges come as Mercury is pushing a ballot measure, Proposition
17, that would establish in California a surcharge that critics say has
resulted in premium hikes as high as 90 percent for Mercury customers in
other states who have experienced a lapse in coverage.

Mercury is the sponsor of the initiative and has contributed $2.5
million to the campaign, about 70 percent of all the money the campaign
has raised.

“This ought to be the nail in the coffin for Proposition 17 for any
voter who’s paying attention,” said Harvey Rosenfield, founder of
Consumer Watchdog and author of California auto insurance regulatory
law, Proposition 103. “It’s a recognition by the Department of Insurance
that Mercury is a particularly bad actor. Voters and the public need to
understand more about this company.”

Kathy Fairbanks, spokeswoman for the Yes on 17 campaign, said the
violations alleged by the Department of Insurance “are not related to
what Proposition 17 would do and how it would operate. For opponents to
claim otherwise is another attempt by them to direct attention away from
the fact they are opposed to a measure that will benefit 80 percent of
California drivers.”

Under Proposition 17, companies that recruit policyholders from other
companies would be allowed to offer “persistency” discounts to those
who have had continuous auto insurance coverage. Under current law, a
company can offer such discounts only to customers based on their years
of coverage with that company.

Consumers would be eligible for such discounts as long as their auto
insurance coverage had not lapsed for more than 90 days for any period
over the previous five years.

Rosenfield of Consumer Watchdog argues that the driving motivation
behind the initiative is the desire of Mercury to be able to levy
premium surcharges on any drivers who have not had continuous coverage
for the previous five years, such as new drivers, those who have had
prolonged medical conditions that prevented them from driving, or those
who have gone for periods of time without a car.

“When was the last time an insurance company put a proposition on the
ballot to lower people’s insurance rates?” asked Rosenfield. “Answer:
Never.”

Ng said the timing of the Department of Insurance allegations is
coincidental to the proximity of the vote on the Mercury-sponsored
initiative. “The enforcement action was filed when it was ready,” he
said. “It would have been improper to withhold this until after the
election.”