California regulators say a ruling by the state’s highest court means a $27.6 million fine imposed against Mercury Insurance Co. for improperly tacking fees onto auto insurance policies will stand.
The California Department of Insurance reported on Aug. 15 that the California Supreme Court has denied a petition for review by Mercury Insurance, thereby keeping in place a $27.6 million fine the department imposed on Mercury for charging illegal fees in violation of Proposition 103.
The fine is the largest in the department’s history against a property/casualty insurer.
In 2015, Mercury was fined $27.6 million for charging consumers unapproved and unfairly discriminatory rates. Despite being advised for years by the insurance department not to do so, Mercury continued to allow its auto insurance agents to charge consumers $50 to $150 in illegal fees on top of the premium the department approved.
Proposition 103, passed by the voters in 1988, prevents auto insurers from charging excessive rates and requires that rates be approved by the commissioner.
“Since Proposition 103 was enacted, Mercury has looked for ways to evade the Insurance Commissioner’s regulation of its rates,” Insurance Commissioner Ricardo Lara said in a media release. “The Department repeatedly told Mercury to stop this scheme, where Mercury implied its agents were brokers working for the consumers, 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 and that the Department will stay the course — even if it takes twenty years — to penalize insurers for illegal conduct.”
The department said that 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.
Mercury issued the following statement:
“We are disappointed that the California Supreme Court declined our petition to hear our appeal of the appellate court’s reversal of the trial court’s decision. We believe the appellate court erred in overruling the trial court, as the trial court’s ruling was based upon the merits of the case. It found that Mercury didn’t benefit from the fees in question because they were never collected by Mercury.”
In the statement Mercury notes the fees were charged and collected by independent brokers for the services they provided to their customers, and that the fees were disclosed upfront and customers agreed to pay those fees.
“However, for more than a decade, Mercury has prohibited anyone who sells our products from charging broker fees,” the statement continues. “This is still our policy today and we continue to focus on providing our customers with high quality service and products at competitive rates.”
The scheme created a major incentive for Auto Insurance Specialists (AIS), Mercury’s largest independent agent, to place virtually all of its policies with Mercury to the exclusion of other insurers, and resulted in different Mercury customers paying different amounts for the same policy, depending on what the agent charged in fees, according to the CDI media release.
During this time, AIS placed most of its California automobile business — approximately 90% — with Mercury, nearly doubling the placed premium from $225 million in 1999 to $400 million in 2003 and 2004, premium that other insurers might have received if Mercury had complied with the law, the release alleges.
Consumer Watchdog, which had intervened in the case, hailed the victory.
“Mercury’s illegal scheme resulted in tens of millions in overcharges to California consumers who purchased a Mercury policy,” Pamela Pressley, senior staff attorney for Consumer Watchdog and its lead lawyer on the case, said in a media release. “The California Supreme Court’s decision sends a strong message that insurance companies cannot evade the law by tacking on extra fees on top of approved premiums.”
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