Consumer Watchdog – Tapegate and the Mercury initiative flip-flop

“Tapegate” – that’s how the news media is describing the scandal that arose last week after Attorney General Jerry Brown decided to change the Title and Summary of Mercury Insurance Company’s ballot initiative so it no longer discloses that the initiative will increase auto insurance premiums for millions of Californians. In an earlier Title and Summary, for a prior version of the same initiative, the Attorney General concluded that Mercury's initiative would allow insurers to raise rates. After Consumer Watchdog exposed the flip-flop, Brown’s office called reporters to discredit us – and tape-recorded some of their calls with reporters.

Both Mercury Insurance and Attorney General Jerry Brown’s office are defending the AG’s rewrite on the ground that Mercury changed the wording of its proposal.  You can compare the two different Summaries here. 

Let’s compare the key lines of the two Mercury initiatives.

As you can see, the two sections are identical.

The key word in all this insurance company legalese is the phrase “notwithstanding section 1861.02(c).”  Section 1861.02(c) is the part of Proposition 103 that currently prevents insurance companies from surcharging motorists if they have a lapse of coverage, say, because they had to go to another state for military service, were temporarily unemployed, missed a payment, stopped driving after a major surgery, etc. “Notwithstanding section 1861.02(c)” makes it very clear that Mercury’s proposal, if the company can fool the voters into passing it, will supersede Proposition 103.

The Mercury/Attorney General people try to make a big deal of the fact that Mercury’s latest initiative no longer strikes out the Proposition 103 ban:

That makes no difference, as Mercury’s sharp lawyers know all too well. When Mercury uses the phrase “notwithstanding Proposition 103,” it means that 103 will no longer apply to block the insurance companies from making people pay more for auto insurance.

After all, there’s no free lunch, especially when it comes to auto insurance companies. Do you think an insurance company would go to all this trouble to change the law if it couldn’t raise your premiums?

This isn’t the first time Mercury tried this trick. A Court of Appeal reviewed virtually identical legislation sponsored by Mercury a few years ago, which also did not strike the Proposition 103 prohibition. The court ruled that Mercury’s language would automatically lead to premium increases for motorists who the insurance company decided did not qualify for the so-called “discounts.”

The Court said: "The premiums for policyholders who, because of their characteristics, do not qualify for a particular discount must be surcharged in an amount equal to the total of the discounts given to the policyholders that qualified for the discount."

The case was Foundation for Taxpayer and Consumer Rights v. Garamendi (2005)132 Cal. App. 4th 1352 (pages 1367-1369) in case you want to look it up.

What I don’t get is how the lawyers for the AG – who are among the best and the brightest – can argue with a straight face that they aren’t sure what the Mercury language means. After all, they got it right the first time.