New State Report Alleges Repeat Violations and Discrimination By Mercury Insurance, Prop. 17 Backer

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Mercury Insurance Group, the high-profile firm that has put up $3.5 million to back a ballot measure that consumer advocates say would raise insurance rates for some Californians, continues to violate state laws, has engaged in discriminatory practices and may have illegally overcharged thousands of consumers, according to a new report from the state Department of Insurance to be released today.

The report, obtained by The Chronicle, "appears to show that Mercury Insurance has disregarded California’s consumer protection statutes and overcharged consumers," said a statement accompanying the report from State Insurance Commissioner Steve Poizner, a GOP candidate for governor who is charged with oversight and enforcement of state insurance firms. "Mercury Insurance has apparently continued to violate the law despite agreements with the state to terminate its illegal behavior," Poizner added.

The report on the firm, which has taken a key role in the campaign for Proposition 17 on the June 8 ballot, is the result of the most recent state investigation of the firm, from March 2007 through May 2007.

The so-called "market conduct examination" of Mercury is the second to be issued by state investigators this year alleging the firm has engaged in questionable practices. The Chronicle filed a request under the state Public Records Act earlier this year for records of state investigations of Mercury’s practices, and in February published the results of a state report going back several years that alleged the insurance company engaged in practices that may have been illegal, including deceptive pricing and discrimination against consumers such as active members of the military and drivers of emergency vehicles.

Poizner’s report, to be released today, found that Mercury Insurance Group — Mercury Insurance Company, Mercury Casualty Company and California Automobile Insurance Company — "violated the insurance code, resulting in consumers being overcharged or denied coverage," according to a report summary.

Among the 35 categories of alleged violations detailed in the report was one that Mercury "failed to correct violations of state law identified by the Department of Insurance" dating back to 1998 and 2002. The company also "barred from coverage people in certain occupations — bartender, liquor store owner, painter, cocktail waitress/waiter and artists — who didn’t meet additional underwriting standards that were not applied to people in other occupations," the summary of the report states.

The report also found "Mercury did not collect the right information about a driver’s prior accidents" during its auto insurance application and underwriting process so that consumers were charged correctly and were "not charged for bodily injury accidents when no injuries had occurred.”

In addition, "homeowners’ insurance premium credits were not being consistently applied when they were due, resulting in insureds being overcharged,” Poizner’s report stated.

The February report revealed by The Chronicle alleged that Mercury Insurance Group may have violated Proposition 103, the landmark consumer protection law approved by voters in 1988. The measure limited rate increases and made civil rights and antitrust laws apply to the insurance industry.

The latest investigation comes as Mercury has ramped up efforts to pass Prop. 17, which consumer advocates say would dramatically change state auto insurance laws. Mercury put up $3.5 million last year to back a group called "Californians for Fair Auto Insurance Rates" to support passage of the measure, which it contends would increase competition for state consumers and thereby result in auto insurance discounts for many.

But Harvey Rosenfield, founder of Consumer Watchdog and the author of Prop. 103, said Monday that in decades of consumer advocacy he has never seen such an appalling record from an insurance firm. He said the latest report provides more evidence that consumers cannot trust Mercury’s claims that the measure would cut insurance rates.

"Proposition 17 is the bastard progeny of a company that has consistently broken California law,” Rosenfield said. "The Department’s announcement that Mercury Insurance continued to illegally surcharge motorists and homeowners — even after it promised state regulators it would stop — shows that Mercury cannot be trusted when it peddles a proposition that its ads claim will lower premiums but in fact will allow insurance companies to raise auto insurance premiums on millions of Californians."

Mercury officials could not be reached for comment this morning, but we will post their response as soon as we get it.

State insurance officials say Mercury Insurance Group now has 10 days to correct each violation found in the latest exam or it could face a $5,000 fine for each individual violation, in addition to penalties for past uncorrected violations — a fine that could potentially total millions.

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