U.S. Supreme Rules Against Insurer’s Appeal Challenging Profits in Rate Setting

March 5, 2018

The U.S. Supreme Court in late February declined to hear Mercury Insurance Co.’s appeal to overturn a February 2017 California Court of Appeal ruling that held Insurance Commissioner Dave Jones’ 2013 order requiring the insurer to reduce its homeowner insurance rates by 5.4 percent did not infringe on the insurer’s constitutional rights.

This case is the latest in a number of efforts by Mercury and other insurers to address limits on insurance rates in the state’s Proposition 103.

Mercury lawyers said the carrier should be allowed to disregard a state-mandated 30-year-old rate formula, and argued the company should be allowed to argue over how to calculate the fair rate of return in every case.

The court of appeal agreed with Jones that Mercury was bound by the formula. The court also agreed with the commissioner that Mercury could seek a variance from the formula if Mercury established the rate would cause deep financial hardship, which Mercury did not attempt to do.

Mercury also argued unsuccessfully to the court of appeal it had a constitutional right under the first amendment to charge ratepayers for brand advertising.

After Mercury’s petition challenging the February 2017 decision was denied by the California Supreme Court in May 2017, Mercury petitioned to the U.S. Supreme Court arguing that Jones’ ruling violated the company’s Fifth and 14th Amendment rights.

Mercury argued that the company had a right to determine its own profit with each rate filing proceeding versus using the commissioner’s rate formula, which was approved by the California Supreme Court in 1994.

The commissioner’s original order that Mercury lower its homeowner rates by 5.4 percent in 2013, saved policyholders $11,745,102, according to the California Department of Insurance.

“After Mercury’s repeated assaults on Proposition 103, we have prevailed once again in protecting consumers from excessive and unjustified insurance rates,” Jones said in a statement.

From This Issue

Insurance Journal West March 5, 2018
March 5, 2018
Insurance Journal West Magazine

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