State regulators on Monday ordered Mercury Insurance to pay a nearly $27.6 million fine for improperly collecting unapproved broker fees from its auto customers.

The fine, issued by the Department of Insurance, was the culmination of years of litigation that involved more than 180,000 transactions conducted from 1999 through 2004.

“Justice has finally been done. Companies need to be punished and realize they can’t just engage in these practices,” said Pamela Pressley, litigation director for Consumer Watchdog, an advocacy group. “A penalty in this range sends a strong message to companies … that you can’t get away with violating the law year after year.”

Consumer Watchdog was behind Proposition 103, the 1988 voter-approved initiative that prevents auto, home and business insurers from charging excessive rates and requires the insurance commissioner to approve them. The complaint against Mercury accused the insurer of failing to obtain the commissioner’s approval.

The fees themselves were also against the law, state investigators found. Independent brokers are allowed to charge fees, but Mercury’s “brokers” were agents of the company, which made those fees improper. The fees ranged from $100 to $150 per customer.

The fine was among the largest the Department of Insurance has issued against an auto or home insurer.

“While the $27.5 million fine against Mercury is significant, it is commensurate with the amount of money that was unlawfully collected from Mercury policyholders,” Insurance Commissioner Dave Jones said in a statement.

Mercury officials said they were “highly disappointed” and “strongly disagree” with the commissioner’s decision.

“We strongly believe that this decision is contrary to California’s rate laws, due process, and basic notions of fairness,” the company said. “We intend to vigorously litigate this matter of law and we intend to ultimately prevail on the merits in a court of law.”

The commissioner’s decision affirmed the findings of an administrative law judge after a lengthy hearing, according to Insurance Department officials.

Victoria Colliver is a San Francisco Chronicle staff writer. E-mail: [email protected] Twitter: @vcolliver