Mid-Wilshire-based Mercury General Corp. lost its bid to overturn a $27.6 million state fine over auto insurance surcharges as the state Supreme Court declined to review the case, the state Department of Insurance announced Aug. 15.
In 2015, then-state Insurance Commissioner Dave Jones fined Mercury $27.6 million for allowing its auto insurance agents to charge consumers $50 to $150 in fees on top of the premium approved by the Department of Insurance. Proposition 103, passed by voters in 1988, prevents auto insurers from charging excessive rates and requires that rates be approved by the insurance commissioner.
According to the Department of Insurance, under the scheme, Mercury illegally labeled its “agents” as “brokers,” implying that they worked for the consumers rather than Mercury, and allowed them to charge and collect unapproved fees on more than 180,000 transactions from 1999 to 2004, improperly collecting at least $27,593,562 from consumers. The department alleges the scheme created an incentive for Auto Insurance Specialists, Mercury’s largest independent agent, to place virtually all of its policies with Mercury to the exclusion of other insurers. The Insurance Department also said it resulted in different Mercury customers paying different amounts for the same policy, depending on what the agent charged in fees.
“Since Proposition 103 was enacted, Mercury has looked for ways to evade the Insurance Commissioner’s regulation of its rates,” current Insurance Commissioner Ricardo Lara said in a statement. “The Department repeatedly told Mercury to stop this scheme … but Mercury refused to do so. This is a victory for consumers that sends a message to insurers that they cannot circumvent Proposition 103’s consumer protection laws in an effort to increase their profits.”
In an emailed statement sent early on Aug. 16, Mercury General said, the company was disappointed with the state Supreme Court’s decision not to review its case.
The company added it thinks the appellate court erred in reinstating the fine. “(The trial court) found that Mercury didn’t benefit from the fees in question because they were never collected by Mercury,” the insurance company said. “These fees were charged and collected by independent brokers for the services they provided to their customers. The fees were disclosed upfront and customers agreed to pay those fees.”
After Jones — the former insurance commissioner — levied the $27.6 million fine, Mercury filed suit in state Superior Court in Orange County, and the fine was struck down in 2016. The Insurance Department then filed an appeal, and in May of this year, the Fourth District Court of Appeal in Santa Ana reinstated the fine. Mercury appealed that ruling to the state Supreme Court in June.
Education, energy, engineering/construction and infrastructure reporter Howard Fine can be reached at [email protected]. Follow him on Twitter @howardafine.
