Consumer Watchdog – History of Discrimination Cited Against Mercury Insurance

SACRAMENTO, CA -- Mercury Insurance Corp. has a history of discriminatory practices against an array of groups, including military personnel, that led to unfair surcharges or outright denial of coverage, according to a 275-page report released by the Department of Insurance.

The document, which is being used as part of an administrative case the department is building against the company, was touted Monday by a leading consumer advocate as proof that Mercury intends to "legalize what is now illegal," with Proposition 17, the ballot measure underfunded largely by Mercury.

"The breadth of Mercury's discrimination against people is really astonishing to me," said Harvey Rosenfield, founder of Consumer Watchdog and author of Proposition 103, the 1988 voter-approved law that governs insurance rates. "Here you have an insurance company that broke the law (that is now) using the people's initiative power to pass a measure that would penalize people just because they didn't have coverage or had a lapse in coverage."

A spokeswoman for Proposition 17, Californians for Fair Auto Insurance Rates, said past charges against Mercury are unrelated to the ballot measure.

"We're talking about a preliminary report issued six years ago that reviews things that are 12 years old which have no bearing on Proposition 17," said Kathy Fairbanks.

A Department of Insurance spokesman said it stood by its report, and noted that the department has fined Mercury $550,000 in the last five years for claims handling practices and underwriting violations.

"We do market conduct exams every five years at least and will continue to examine their behavior," said Darrel Ng. "We will continue to be tough on them and any insurers who do not follow the rules."

The release of the document in late January by Insurance Commissioner Steve Poizner could have gubernatorial campaign implications. Poizner is running for governor as a GOP candidate, while presumed Democratic nominee Jerry Brown, as attorney general, has been criticized for writing a favorable title and summary for Proposition 17. Brown has received $13,000 in contributions from Mercury.

Consumer Watchdog sent a letter to Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, requesting an investigation into Mercury's policies toward members of the armed services.

Specifically, the internal Department of Insurance report found that Mercury refused to cover, or make policies available to, military personnel.

"When an American insurance company is unjustly and perhaps illegally targeting men and women who are willing to shed blood for our country, we believe the Joint Chiefs of Staff should investigate the matter and take official action to stop further discrimination by the company against American troops," the letter said.

Fairbanks said the military is better off under Proposition 17 than under current law, saying that if a member of the military discontinues insurance in another state, he or she can get the continuous coverage discount when moving back to California. But that's at the discretion of the insurer.

In cases dating back to the 1990s through 2004, the Department of Insurance cites numerous instances in which Mercury overcharged, canceled, refused to sell insurance or made insurance more difficult to buy. Customers who were in the military, were unmarried adults living together, had jobs in the entertainment industry, were artists, longshoreman, "domestics" and other "unacceptable" occupations, were refused coverage, the report said.

In many of the cases, Mercury claimed to have corrected the problems, but follow-ups showed they hadn't, according to the department's report.

The company charged penalties or surcharges to drivers who had prior accidents that were not the driver's fault, for traffic violations when the customer was not convicted or who had no prior insurance coverage or who had lapses in coverage.

Mercury required that some diabetics, cardiovascular patients and people who "suffered from some other medical condition" would be denied coverage unless they provided Mercury with a medical examination report.

People who worked out of their homes, had one source of income, or were self-employed and working out of their homes would face hurdles in obtaining coverage.

Mercury also refused to provide immediate coverage to people who were unemployed. Underwriters for Mercury were encouraged with incentives to deviate from company rules to reject certain applications. And Mercury overcharged policyholders by denying them discounts they were entitled to, the report said.

Reach Steven Harmon at 916-441-2101.