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Donabedian v. Mercury Insurance Company

Los Angeles Superior Court No. BC249019
Court of Appeal: Donabedian v. Mercury Insurance Company (2004) 116 Cal.App.4th 968

Consumer Watchdog Protects Public and Voters in Decade-Long Battle Against Overcharges by Mercury Insurance Company

 

UPDATE: Victims of Mercury's overcharges must redeem coupons by April 2010. (See more at bottom of this page.)

For nearly ten years, Los Angeles-based Mercury Insurance Company overcharged customers who did not have prior insurance, or who had a lapse in coverage. Such overcharges are a violation of the insurance reform law approved by California voters in 1988, Proposition 103. (More info on the anti-surcharge law here.)

Mercury's effort to evade having to repay the overcharges is unprecedented, consuming eight years and countless taxpayer resources.

The saga began with a lawsuit brought in 2001 by private law firms on behalf of one of the people Mercury overcharged. Donabedian v. Mercury Insurance Co. (Case No. BC249019). Mercury argued that insurance companies cannot be sued in the courts when they overcharge the public. The Los Angeles Superior Court judge agreed, and the case was dismissed. The plaintiff, Donanedian, took the case to the Court of Appeal, where numerous insurance companies joined in defense of Mercury's position.

Consumer Watchdog Files Brief in Court of Appeal

Though not involved in the case, Consumer Watchdog (then known as The Foundation for Taxpayer and Consumer Rights, FTCR) filed an exhaustive fifty-page "friend of the court" brief before the Court of Appeal in December, 2003, defending the right of consumers to sue an insurance company under Proposition 103. The California Insurance Commissioner also submitted an amicus brief in support of that position.

Adopting many of the arguments set forth in Consumer Watchdog's and the Commissioner's briefs, the Court of Appeal upheld consumers' right to enforce Proposition 103, and allowed the lawsuit against Mercury to go forward.

Read the news release here.
Read the May 2004, Court of Appeal decision.

During the same time, Consumer Watchdog also got involved in an identical appeal in a case against State Farm for similar overcharges. Read Consumer Watchdog's brief in Poirer v. State Farm and the Court of Appeal decision also upholding Proposition 103's right to sue.

Mercury Gets State Legislature to Legalize Surcharges

The Court of Appeal decision did not stop Mercury. The company went to the Legislature and shoveled $895,000 into the campaign coffers of legislators and then Governor Gray Davis between 2002 and 2003. Sacramento legislators then passed, and Governor Davis ultimately signed, a bill to override Proposition 103's protections and legalize Mercury's overcharges. Proposition 103 bars state lawmakers from enacting such changes to its provisions, and Consumer Watchdog and other organizations successfully sued in court to invalidate the legislation, a two-year battle. (Read more about that case.)

Having lost all its gambits in the courts, Mercury finally stopped the illegal surcharges late in 2005.

Consumer Watchdog Objects to Inadequate Settlement of Case

After the Court of Appeal decision upholding the right to sue Mercury Insurance for its overcharges, the case went back to the Superior Court to proceed to trial in 2005. Lawyers for Consumer Watchdog decided to formally intervene in the case. Mercury tried unsuccessfully to keep Consumer Watchdog out of the case. When the Superior Court judge rejected Mercury's efforts, the company went to lawyers for the original plaintiff, Donabedian, and offered to settle the case.

In October 2006, attorneys for Mercury and the plaintiff announced that they had reached a settlement of their class action lawsuit. After carefully reviewing the proposed settlement, Consumer Watchdog filed objections to the proposed settlement, on the grounds that it offered inadequate relief to the 1.3 million people who were overcharged. Consumer Watchdog's main concern was the fact that the settlement allowed Mercury to issue coupons, instead of cash refunds. (In similar cases brought by Consumer Watchdog, we have secured cash refunds of more than $20 million for policyholders). The coupons could only be used to pay for homeowners insurance, and could not even be applied to the renewal of a person's auto insurance. Consumer Watchdog also objected to other provisions of the settlement.

The Los Angeles Superior Court rejected the proposed settlement on the ground that the coupons could not be used to cover Mercury's auto insurance premiums, and on other issues raised by Consumer Watchdog. Mercury and lawyers for Donabedian proposed a second settlement that Consumer Watchdog also opposed, and it was again rejected by the court. A final settlement approved by the court addressed most of Consumer Watchdog's concerns, though permitted the use of coupons.

Read Consumer Watchdog's Objections to the First Rejected Settlement.
Read Consumer Watchdog's Objections to Second "Coupon" Settlement, and its press release
here.
Read Consumer Watchdog's Response to Third Settlement.
Read the Official Notice of the Settlement.

UPDATE: Many Mercury Coupons Remain Outstanding - Must Be Redeemed by April 2010

Under the terms of the settlement, coupons worth $25 (for people who were Mercury policyholders for longer than one year) to $45 (for those who were with Mercury for less than a year) were issued in 2008 to people overcharged by Mercury between 1997 and 2005. They may be used to renew an existing policy or to buy a new policy. Recipients are free to sell or give away the coupons to anybody they choose.
As part of the settlement, Consumer Watchdog asked the Superior Court to order Mercury to report
how many of the coupons were redeemed. The reports show that
only a small number of consumers have used the coupons. These coupons must be redeemed by April 2010. Consumers who wish to use the coupons should do so promptly.