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Santa Monica, CA -- For the second time, a proposed settlement of a class action lawsuit against an insurance company for tens of millions of dollars in illegal overcharges was rejected by the Los Angeles Superior Court on Tuesday in part because it would have allowed the company to pay in the form of coupons that required the policyholders to buy more insurance from the company.

Superior Court Judge Victoria G. Chaney acted after lawyers for the Foundation for Taxpayer and Consumer Rights submitted a brief opposing the proposed settlement as unfair, inadequate and unreasonable. It was the second coupon-based settlement agreement between the parties to be opposed by FTCR and rejected by the court.

The case, Donabedian v. Mercury Insurance (BC249019), charges that beginning in 1995, Mercury surcharged policyholders because they were previously uninsured or had had a lapse in coverage. Such surcharges are specifically prohibited by Proposition 103. Proposition 103 also permits consumers to sue insurance companies for refunds when they violate its requirements.

Rather than require Mercury to refund the overcharges, estimated to be at least $76 million, the proposed settlement would have allowed the company to send out $45 coupons that could only be used toward the purchase of additional Mercury insurance policies or extra coverage. They could not be used to offset the cost of an existing insurance policy. That and other flaws in the proposal led FTCR, which intervened in the case in 2005, to object.

"Class action lawsuits are a crucial instrument of justice. They enable consumers to join together to stop abusive practices and get their money back when they have been overcharged," said Harvey Rosenfield, one of FTCR's lawyers in the case and the author of Proposition 103. "Coupon settlements that have no real value and come with conditions that make them impossible to use undermine public confidence in the system of justice and encourage the defendants' lobby in its campaign to shut the courthouse doors to legitimate suits. The Superior Court's decision protects the integrity of the legal process and the rights of Mercury's current and former customers."

FTCR's Litigation Project is directed by Pamela Pressley. The Bay area firm of Chavez and Gertler are FTCR's co-counsel in this case.
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Read FTCR's briefs opposing the latest settlement and the previous proposal.

Read FTCR's 2003 brief to the Court of Appeal explaining the right to sue under Proposition 103.

Read more about the ban on insurance company surcharges.

Read more about FTCR's Litigation Project.

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FTCR is California's leading public interest watchdog. For more information, visit us on the web at www.ConsumerWatchdog.org.