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Legal Update

Mercury Insurance Company Losing Its War Against Consumers

Mercury Insurance – the company that California regulators say “has a deserved reputation for abusing its customers and intentionally violating the law with arrogance and indifference” – is infamous for playing every angle in its effort to avoid accountability for cheating its customers. Mercury has spent tens of millions of dollars over the last fifteen years on ballot initiatives, politicians, and lawyers in its quest to get away with picking consumers’ pockets.

When California voters back in 1988 barred Mercury from imposing surcharges on previously uninsured consumers, Mercury brazenly broke the law anyhow. When it got caught by consumers and state regulators, it went to Sacramento in 2004 and paid the politicians to pass a bill immunizing it from responsibility. When the courts threw that legislation out, Mercury went to the ballot box and spent $17 million on a proposition to legalize the surcharges. When the voters rejected Mercury’s self-serving initiative in 2010, it’s multibillionaire chairman George Joseph spent another $17 million on an identical initiative in 2012, and the voters flushed that one down the toilet, too.

Eventually, justice always catches up with Mercury Insurance…as it did over the last few weeks in three legal cases brought against Mercury by the Department of Insurance.

First, an Administrative Law Judge refused Mercury’s request to delay or dismiss a case brought against the company in 2004, charging that Mercury forced customers to pay illegal “broker fees” on top of the prices Mercury advertised.  (Read more about the administrative lawsuit against Mercury here.) At $10,000 for each illegal fee it imposed on someone, Mercury could face hundreds of millions of dollars in penalties. Mercury’s lawyers managed to delay the case for years – using procedural maneuvers to stop the hearing on its rating violations before it began. But in March, 2012, the Insurance Commissioner issued a decision ordering the case against Mercury to go forward.

Desperate to avoid responsibility, Mercury went to the courts, filing a lawsuit against the Insurance Commissioner to get the case dismissed. Last September, a Superior Court judge rejected Mercury’s lawsuit. On January 3, 2013, Mercury asked the Court of Appeal to issue an unusual order temporarily blocking the Department from proceeding with the case. The Court of Appeal rejected that request as well two weeks ago. The agency’s hearing on the charges against Mercury is now scheduled to begin in April, 2013.

In a second victory for consumers, the Insurance Commissioner refused to give Mercury permission to use a “separate” company owned by Mercury so it could charge some good drivers more than it is allowed to now.  Consumer Watchdog intervened in the case to object to Mercury’s proposed rating plan and explained to the Department how Mercury’s scheme to shift unsuspecting consumers into higher-priced insurance is illegal under state law. After regulators informed Mercury that they were going to hold a hearing on Mercury’s proposal, the company withdrew its plan last week.

Finally, in another challenge by Consumer Watchdog to a Mercury rate request, an Administrative Law Judge rejected the company’s proposed 8.8% increase in homeowner insurance rates, recommending that the Commissioner approve an overall rate decrease of 8.8%. In a thorough, 144 page written opinion that was extremely critical of the company’s request as well as its litigation practices, the judge faulted Mercury for submitting incomplete and inconsistent information, noting that some of Mercury’s data were of “questionable accuracy” and its admissions were “evidence of  its substandard recordkeeping and careless supervision” and a violation of state regulations. The judge’s decision also noted that in their legal briefs, Mercury’s lawyers “repeatedly misquote” California Supreme Court decisions in “what can only be interpreted as a desperate attempt to support [their arguments]”.

Contrary to the rosy picture Mercury routinely paints for Wall Street analysts, Mercury had insisted it was in “deep financial hardship” and entitled to a special exemption from the state formula that limits excessive profits and expenses. But the judge found that Mercury had tried to make its customers pay for nearly a million dollars worth of political contributions to Mercury’s ballot propositions and payments to Sacramento lobbyists, plus $83 million in general advertising of the Mercury logo, including its sponsorship of a tennis tournament – all of which under state law are the responsibility of Mercury’s stockholders, not customers. In response to Mercury’s argument that its investors would “flee from Mercury” if the company didn’t get the rate increase, the judge noted that George Joseph and his family own more than 51% of the company, and concluded it “seems unlikely” that they would remove money from their own firm.

A final decision is expected soon.

As a party in all three Department of Insurance proceedings, Consumer Watchdog will continue to work to protect the public against Mercury’s abuses.

(Read more about the administrative lawsuit against Mercury here)