One of California’s largest insurers has sunk upward of $10 million
into ads and efforts supporting Proposition 17, the auto insurance
measure on the June 8 ballot, in what consumer advocates are calling a
“David and Goliath” battle that they say could affect consumers for
years.

The complex measure would allow drivers to keep their discount for
maintaining coverage when they change insurers, while giving companies
the authority to raise rates for motorists whose insurance has lapsed.
Such practices are illegal under Prop. 103, a landmark insurance measure
that voters approved in 1988.

For months, Prop. 17 has been the subject of charges and legal
battles between Consumer Watchdog, the Santa Monica advocacy group
opposed to the measure, and the group backed by Mercury Insurance Group
that supports the measure.

Kathy Fairbanks, spokeswoman for Californians for Fair Auto Insurance
Rates, the Mercury-funded effort, says the proposition will result in
more competition and lower car insurance rates for many Californians by
allowing drivers to keep their “continuous coverage discount” even if
they change insurers.

Warning of surcharges

But opponents including Harvey Rosenfield, who authored Prop. 103 and
founded Consumer Watchdog, argue that the measure would allow Mercury
to impose “huge” surcharges – as much as $1,000 – on drivers who have
not had continuous auto insurance coverage for one reason or another.

Those drivers may include people with low incomes, students living
away from home or even military personnel on duty in other states.

Virtually all of California’s major newspapers and editorial boards
have recommended a vote against the measure, which is backed by the
California Chamber of Commerce.

The controversy over the measure comes as Mercury, the state’s
third-largest auto insurer, has been in the headlines in recent months
for practices that state officials have called questionable or even
illegal. The group includes Mercury Insurance Co., Mercury Casualty Co.
and California Automobile Insurance Co.

A state report, obtained by The Chronicle in February through
California’s Public Records Act, alleged that Mercury may have engaged
for years in illegal practices including deceptive pricing and
discrimination against consumers, including active members of the
military, drivers of emergency vehicles and “those employed in the
entertainment industry,” including actors and dancers.

Last month, The Chronicle reported that Mercury faces potentially
costly fines in the wake of the latest state report alleging that it
violated state laws “despite agreements with the state to terminate
illegal behavior.”

State Insurance Commissioner Steve Poizner, in a statement
accompanying the report on April 12, said Mercury apparently violated
the insurance code, “resulting in consumers being overcharged or denied
coverage.”

Report disputed

Mercury spokesman Coby King disputed the report, saying that the firm
“takes very seriously our responsibilities to consumers” and “strictly
adheres to the rules set forth by the Department of Insurance and
current law.”

This week, Consumer Watchdog filed a new complaint with the federal
Securities and Exchange Commission, charging that the firm’s founder and
chairman, George Joseph, had hired his nephew as actuary of the firm
without disclosing the family relationship to investors.

Doug Heller, a spokesman for the consumer group, said the allegation
“presents a significant potential conflict of interest” and raises
questions about the “accuracy and completeness” of the firm’s securities
filings as well as its projections about Prop. 17’s financial impacts
on consumers.

The firm’s actuary “is in a position to be controlled in a way that
could undermine the accuracy of his projections,” Heller argued.

In a statement Tuesday, Mercury said “it is widely known” that Joseph
and the firm’s actuary are related. He insisted that the firm is “in
full compliance with SEC rules.”

E-mail Carla Marinucci at [email protected].