Mercury Insurance has agreed to pay a $1 million penalty to settle a long-running case involving its underwriting practices, state Insurance Commissioner David Jones announced Tuesday.

The settlement stemmed from a regularly scheduled market-conduct exam in 2007. Based on that exam, the state Department of Insurance alleged that Mercury Insurance Co. and two affiliated companies – Mercury Casualty Co. and California Automobile Insurance Co. – engaged in more than 50 illegal rating and underwriting practices. All three companies are subsidiaries of Mercury General Corp., headquartered in the Park Mile section of Los Angeles.

The exam concluded, among other things, that Mercury failed to provide reasons for policy non-renewals and cancelations, used unapproved and unfiled rates, failed to consistently follow its own rating and underwriting rules and failed to make certain required disclosures in Spanish.

“This routine market conduct exam of Mercury Insurance resulted in payment of a penalty and business practice reforms, and serves as an important reminder to all insurers to uphold commitments made to policyholders,” Jones said.

In addition to the $1 million fine, Mercury agreed to reform some of its practices.

A Mercury spokesperson said the company chose to settle the department’s claims rather than face costly legislation.

“Mercury’s agreement with the Department to settle this matter was purely a business decision,” the spokesman said. “While we strongly believed we followed California law, the cost of litigation outweighed the benefit of prevailing in court, so we chose to negotiate a settlement and put this matter to rest.”

Mercury General shares closed at $54.04 Tuesday, down about 1 percent.