Consumer Watchdog – Affordable Car & Home Insurance - Action 6: Don't Trust Mercury

Top 10 Reasons Why You Cannot Trust Mercury Insurance Company

(Got your own reason? E-mail your story to: mercury@consumerwatchdog.org or submit your complaint here. )

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For years, Consumer Watchdog has heard from consumers who felt they were mistreated by Los Angles-based Mercury Insurance Company. Our advocates and attorneys have observed Mercury's efforts to cheat consumers and avoid accountability through the Legislature, before state insurance regulators, and in the courts. For these reasons, Consumer Watchdog believes that consumers cannot trust Mercury Insurance. Here are the top 10 reasons why you cannot trust Mercury.

1. Mercury Insurance is described by state insurance regulators as an abusive anti-consumer company.

The California Department of Insurance recently made this statement before an Administrative Law Judge in an agency enforcement action against Mercury:

Mercury's lengthy history of serious misconduct, and its attitude - contempt towards and/or abuse of its customers, the Commissioner, its competition, and the Superior Court - are all relevant to determining the penalty needed to best ensure the protection of the public from future violations and wrongdoing...

Among Department [of Insurance] staff, consumer attorneys, and consumer victims of its bad faith, Mercury has a deserved reputation for abusing its customers and intentionally violating the law with arrogance and indifference.

The statement came in a brief submitted by the Department of Insurance in February 2009 in response to a motion by Mercury to exclude evidence of the company's past conduct.

See key pages from that brief here. See, particularly, page 4.
Read the "Notice of Noncompliance" in the administrative proceeding filed by the Department of Insurance here.

2. An internal training manual produced in a civil trial shows Mercury Insurance trained employees to mistreat, neglect and even threaten customers who file claims.

A Mercury instructional guide for employees told claims processors how to delay and lowball claims, and to "remind" customers that if they tried to hold Mercury accountable in court for such mistreatment, they could end up losing. Some of the training provided to Mercury claims staff in the manual included:

• "Never use your top dollar to begin negotiations"
• "Use time as your ally"
• "Remind claimants that a judge or jury would find them at comparative fault"

A portion of the instructional guide was disclosed as part of a 2006 lawsuit against the company by a Los Angeles business that sued Mercury for failing to properly pay a claim. During the lawsuit, a Mercury employee asserted that the company no longer uses the training manual. As the Daily Journal reported on February 29, 2008:

Mark Volper and Boris Smorodinski claimed their Sherman Oaks business suffered a slow “death by asphyxiation” while Mercury repeatedly denied their claims and ignored pleading letters for help.

The unanimous decision came last week after jurors were shown internal training guides instructing Mercury adjustors to low-ball customers, drag out their claims and remind them they could be found at fault in a trial. Amerigraphics Inc. v. Mercury Casualty Company BC331524 (L.A. Super. Ct., Feb. 21, 2008).

Read the Daily Journal article about the lawsuit here.

3. Mercury had to be forced by a California court to stop its insurance agents from charging illegal broker fees to unsuspecting customers.

In 2003, the San Francisco Superior Court found that Mercury was deceiving customers through its advertising by suggesting that consumers would pay less for auto insurance from Mercury than from other insurance companies. What its ad campaign failed to disclose was that Mercury customers (unlike the comparison companies) would often be required to pay an additional broker fee that is illegal under California law, driving up the actual price. The court issued an injunction ordering Mercury to change its practices.

Read the judge’s conclusions about how Mercury deceived customers here.
Read the judge’s refusal to lift the injunction against Mercury over this practice here.

4. In 2008, Mercury paid the California Department of Insurance a quarter-million dollar settlement for alleged claims handling violations.

People often buy insurance by looking at price. But if a company has a history of failing to handle consumers' claims properly after an accident or a loss -- the moment they need their insurance most -- then a low premium isn't such a great deal. The California Department of Insurance investigated Mercury's claims handling practices, a matter Mercury settled by paying $250,000 (plus the Department's enforcement and legal costs) and agreeing to pay more penalties if they didn't improve their practices in six months. The Department of Insurance explained the problem with Mercury in a June 2008 news release:

The California Department of Insurance (CDI) conducted a review of consumer complaints filed with the Department against Mercury Insurance, Mercury Casualty, and California Automobile Insurance Companies, collectively known as Mercury Insurance Group. Of the 121 files reviewed, a total of 258 violations were discovered to have occurred from January 2004 through December 2005. These violations involved several of the company's claims-handling practices, including unreasonable delays in affirming or denying coverage and issuing claim payments.

Read the Department of Insurance news release here.

5. Mercury Insurance was ordered by Florida regulators to pay $2 million to consumers and $1 million to the state for improperly denying legitimate claims and repeatedly flouting the law.

Mercury is not only in the crosshairs of California regulators. In 2006, Mercury was investigated and punished by the Florida Office of Insurance Regulation "after receiving a steady increase in complaints from Florida Mercury policyholders." As the state regulator's news release explains:

The examination found a multitude of violations relating to the companies' business practices including the unwarranted termination of policies upon the filing of a claim, failing to pay the full amount on covered claims, failing to deliver policies within 60 days, failing to provide specific reasons for denial of claims, and the use of unappointed agents. However, it was the use of unfiled forms and rates to improperly deny claims that the Office considered to be the most egregious violation.

Read the news story from the insurance publication Best Week: “Florida Orders Mercury General Units to Pay More than $2 Million to Policyholders.”

6. According to a smoking gun document, Mercury pays its repair shops incentives to use aftermarket parts.

Consumer Watchdog has obtained an internal Mercury document that exposes the company's practice of paying its recommended auto repair shops incentives -- up to $750 -- to use aftermarket and reconditioned parts and penalizes its repair shops for using original manufacturer parts. According to the Rate Agreement, Mercury pays body shops 20% more than the shop paid for non-manufacturer parts, while it pays 5% less than the body shop's own cost for original manufacturer's parts. Incentivizing repair shops to use inferior parts when repairing policyholders' cars endangers policyholders even if it may save Mercury money and increase profits. Consumer Watchdog believes that the internal document was issued recently and reflects the current arrangement between Mercury and its body shops.

Read the document here.

7. Mercury Insurance has a long history of trying to thwart consumer protections and the will of the voters in the state legislature.

Ever since California voters enacted the landmark insurance reform initiative Proposition 103 in 1988, Mercury Insurance has led a series of efforts to undermine or repeal its consumer protections.

Over the years Mercury has sponsored at least eight bills in the California Legislature to repeal or override key consumer protections approved by the voters. These include attempts to gut the 20% Good Driver Discount requirement, to re-impose discriminatory ZIP Code-based auto insurance pricing, to add new surcharges on customers, and to prevent courts and the Insurance Commissioner from ordering refunds when insurers violate the law.

Read more about Mercury's efforts in Sacramento to dismantle Prop 103 here.

8. Mercury Insurance tries to deceive citizens into dismantling consumer rights through ballot measures.

Mercury's commitment to undermining California's consumer protections was summed up in June 2009 by Los Angeles Times columnist Michael Hiltzik, who wrote:

No one's been more determined to rewrite Proposition 103 than Mercury and its founder and chairman, George Joseph. The 87-year-old Joseph is known for detesting Proposition 103, and for not being reluctant to spend millions of dollars to rewrite it.

In 2006, Mercury proposed an initiative to gut parts of California's landmark insurance reform measure, Proposition 103. It would have allowed, among other things, insurers to rate drivers primarily on their ZIP Code rather than driving safety record. After sparking a public outcry, the proposal was withdrawn.

In July 2009, Mercury began another initiative campaign, this time to allow insurers to penalize drivers who reenter the insurance market after having stopped driving and let the insurance lapse for a time. The proposal would also let insurers raise rates on customers solely because they filed an innocent insurance claim, even when they were not at fault, such as being rear-ended at a stop light or sideswiped by a drunk driver.

Read the Los Angeles Times column analyzing Mercury’s campaign here.

9. Mercury Insurance is a leader among California auto insurers in one respect: political contributions.

For a long time, Consumer Watchdog has watched and criticized the corrupting effect of campaign contributions on public policy, and Mercury Insurance has often been one of our prime examples. Over the past ten years, Mercury has given more money directly to California state politicians and to California political parties than any of the four other largest auto insurers (State Farm, Farmers, Allstate, and Auto Club of SoCal), according to data available from the California Secretary of State. In fact, just considering donations directly from these insurers, Mercury has given more to individuals and parties between 1999 and 2008 ($2,746,600) than all four companies combined ($2,266,750), even though State Farm, Farmers and Allstate are substantially larger insurance corporations.

Download a spreadsheet summarizing the donations by California's largest auto insurers here and a pivot table for a detailed comparison here.

In our view, a key reason that Mercury has been such a prolific political donor in California is that it has hoped to wield influence over state politicians as part of its ongoing efforts to undermine the state's insurance consumer protection laws, such as Proposition 103 (see #6 above).

In 2000, around the time that it was facing a potential enforcement action by the California Department of Insurance, Mercury made a major donation to then-Commissioner Chuck Quackenbush. As Insurance Journal reported the story:

California Insurance Chuck Quackenbush received a $50,000 campaign contribution from the head of Mercury Insurance Group less than two weeks after regulators froze a proposed enforcement action against the company. Both George Joseph, Mercury CEO, and Deputy Commissioner Dan Edwards agreed that the contribution was not linked to the proposed enforcement action.

The Wall Street Journal reported that in January, California Department of Insurance (CDI) officials in January threatened Mercury and five related insurance units with fines. Authorities alleged that some of Mercury's independent brokers improperly charged customers fees, mostly for the purchase of auto-liability and property-damage coverage. According to Joseph, the fines were put on the back burner during a meeting between Mercury and department officials.

Chuck Quackenbush resigned in disgrace later that year in the wake of this and other improprieties that were revealed in the news media. Nine years later, Mercury is finally facing a Department hearing on the broker fee practices that were going to be the subject of the canceled 2000 proceeding.

10. Mercury Insurance and its Chairman have been mentioned during two FBI investigations into California political corruption.

In 1991, when the FBI was investigating corruption in the California Capitol that later led to the imprisonment of State Senator Alan Robbins and insurance lobbyist Clay Jackson, wiretaps of conversations between the two often referred to Mercury's founder and Chairman George Joseph. In one frank exchange, Mercury's chief was suggested as a possible donor, because he needed some legislative help from the Senator in his campaign to undermine provisions of Proposition 103, the voter approved reform initiative:

Senator Alan Robbins (AR): Okay. 'Cause it would be...very, very...helpful if, uh, the check were here when I, uh, got back Tuesday night. Were here Wednesday morning.

Lobbyist Clay Jackson (CJ): Maybe. But, uh, I've been doing a lot of talking to George Joseph lately. He just applied for membership in the AIA [American Insurance Association, an industry lobbying group]. Which is just to get me.

AR: A wise move on his part.

CJ: Yes. And, uh, but aside from that, George is ready to do something, maybe George is the angel to ride to the rescue here.

AR: Maybe. What is George, uh, looking for?

CJ: Help. And when you're flat on your back, you'll grasp for anything you got. And right now, uh, you know, what he has done in the last six months, what he's tried to do up here, remember years and years ago we always had uh, a couple little George Joseph bills that tinkered here and tinkered there.

AR: Yeah

CJ: He's back to that.

AR: Okay.

From transcript of September 5, 1991 8:28 am meeting between Alan Robbins & Clayton Jackson

That wouldn't be the last time Mercury and George Joseph's name came up in federal investigations. As the San Francisco Chronicle reported in 2004, Mercury's sponsorship of a bill to repeal a provision of Proposition 103 was raised in the context of an FBI inquiry into Senator Don Perata:

George Joseph, the chief executive of Mercury, acknowledged in an interview Tuesday that a Sacramento investment fund in which he is a partner has received a federal subpoena related to the Perata inquiry. But he said Mercury itself has not received a subpoena.

At Mercury's request, Perata carried legislation in 2003 that allowed insurers to impose surcharges on drivers who previously lacked insurance or had allowed their coverage to lapse. Though the measure was signed into law, it was thrown out by a judge because it conflicted with the state Constitution.

It is noteworthy that Mercury donated at least $175,000 to then-Governor Davis's anti-recall campaign a few weeks after he signed the 2003 bill on Mercury's behalf. Consumer Watchdog's news release on the donation to Davis can be viewed here.