Mercury Insurance Tries Legislative End-Run Around Court Loss

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Bill Takes Power From Insurance Commissioner To Stop Illegal Practices

Santa Monica, CA –Fast tracked legislation in the State Senate would allow insurance companies to implement illegal and discriminatory practices, if the practice had previously been approved for another company by the Insurance Commissioner. The Mercury Insurance-supported bill is meant to allow the company to surcharge drivers who were previously uninsured, even though a Los Angeles Superior Court struck down another Mercury-backed law in January allowing such surcharges on the grounds that it was illegal discrimination in violation of voter-approved Proposition 103. The bill is scheduled for a “Special Consent” vote on Thursday on the Senate floor.

The legislation, SB 1291 (Burton), would allow Mercury Insurance to impose illegal surcharges because the bill requires that any insurer shall receive automatic approval of any surcharge if it was previously approved by a commissioner for another company and has not yet been formally and finally disallowed. (The administrative process could take years as companies fight in court to maintain the illegal practice.) Disgraced Insurance Commissioner Chuck Quackenbush allowed some insurers to slap surcharges on motorists whose coverage has lapsed, but current Commissioner John Garamendi has found such surcharges to be discriminatory, and a court has agreed.

“This bill would authorize all companies to break the law — because in years past Quackenbush approved a discriminatory filing by one company — until either another commissioner or the courts were able to bring them to justice,” said Harvey Rosenfield, the author of Proposition 103.

In addition, SB 1291 strips the Insurance Commissioner of the ability to regulate the practices of individual insurance companies in order to protect policyholders and stockholders from unfair rates and from the danger of insolvency. Under certain circumstances, the Commissioner may allow a specific insurer to undertake certain restrictive practices, such as a homeowner insurer requiring a certain type of home construction in order to provide coverage, that would be inappropriate or improper for another insurer. Voter-approved Proposition 103 empowers the Insurance Commissioner to make such individualized decisions for each company. Indeed, the California Supreme Court has ruled that individual regulatory treatment is a requirement of the California and U.S. Constitutions. CalFarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805.

“This legislation violates Proposition 103 by taking the power from the elected insurance commissioner to regulate insurers individually. Consumers cannot be protected by the one-size-fits-all insurance regulation proposed in this bill,” said Rosenfield.

While neither Mercury nor other insurer supporters of the bill have provided any explanation of the need for the bill, there are numerous examples of how the law could be used to allow unfair or illegal insurance practices in the marketplace. For example:

The Commissioner might allow one homeowners’ insurer to surcharge policyholders with older homes, because of an unsustainable concentration of older homes in that insurer’s book of business. Under SB 1291, however, the Commissioner would be required to allow every insurer to add such a surcharge, which would raise rates particularly in low-income communities that tend to have older homes.

If an insurer were to surreptitiously add consumer credit scoring, which the current Commissioner deems to be unfairly discriminatory, into a filing in a manner that was not noticed by the Department of Insurance, and the filing was approved, this bill would require the commissioner to allow any company to use the banned practice, until it was no longer allowed for the first company. This could take months or even years of regulatory and legal proceedings.

In recent years, the bill’s chief advocate, Mercury Insurance, has donated approximately $2 million to lawmakers and their political causes since 2001. Last year, despite active opposition from low-income advocates, consumer groups and the Insurance Commissioner lawmakers passed and Governor Davis signed Mercury-sponsored SB 841, the surcharge law that was later invalidated by the Los Angeles Superior Court as an illegal amendment by the Legislature to Prop. 103.

“It is not the job of the legislature to give one of its biggest donors a get-out-of-court-free pass or allow companies to skip over the regulatory approval process mandated by the voters through Proposition 103,” said Rosenfield.

FTCR today called upon Senator leader John Burton to take the legislation off consent calendar and allow for a full floor debate in the Senate.


Consumer Watchdog
Consumer Watchdog
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