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Mercury Insurance May Face Millions In Fines

Insurance Commissioner Steve Poizner issued the report.

Mercury Insurance Group, a major backer of a
hotly contested insurance measure on the June ballot, faces potentially
costly fines in the wake of a new state report alleging that
California's third-largest insurer is violating state laws "despite
agreements with the state to terminate illegal behavior."

The report, released Monday by the state Department of Insurance,
says Mercury apparently has violated the insurance code, "resulting in
consumers being overcharged or denied coverage," according to a
statement from Insurance Commissioner Steve Poizner.

Poizner's report on the company - which includes Mercury Insurance
Co., Mercury Casualty Co. and California Automobile Insurance Co. -
comes two months after state insurance officials made similar
allegations against the firm.

Mercury officials strongly denied the new allegations. In a statement
Monday, the company said it "takes very seriously our responsibilities
to consumers and our customers" and added: "We don't engage in practices
that would overcharge our customers."

The report, a survey of the company's practices between March and May
2007, alleges 35 violations. Among them:

-- Mercury failed to correct information about accidents to charge
consumers correctly.

-- The company routinely "barred from coverage people in certain
occupations - bartender, liquor store owner, painter, cocktail
waitress/waiter and artists who didn't meet additional underwriting
standards that were not applied to people in other occupations."

In addition, state investigators found that Mercury "failed to
correct violations" of state law, some of which date back more than a
decade. Officials say Mercury Insurance Group has 10 days to correct
each violation found in the latest exam.

If the violations are not corrected, the firm faces a $5,000 fine for
each violation and an additional $5,000 fine for each violation if it
is found to be willful - fines that could total millions of dollars.

Backs Prop. 17

The company has spent $3.5 million to back Proposition 17, a measure
that consumer advocates say would raise insurance rates for some
Californians. Poizner, who as insurance commissioner is charged with
oversight and enforcement of home and automobile insurance companies in
the state, is a Republican candidate for governor.

In its statement, Mercury charged that there were "politics involved"
in the release of the document. In two months, state voters will decide
Prop. 17 and the Republican nominee for governor.

But the firm acknowledged that "as with any individual or business
who must deal with a government agency, Mercury does not always
interpret changing insurance law and regulations in the same manner as
the staff at the Department, despite the best intentions of parties on
both sides."

Prop. 17 is the so-called Continuous Coverage Auto Insurance Measure
on the June ballot. Mercury officials and the pro-Prop. 17 advocacy
group funded by the firm, Californians for Fair Auto Insurance Rates,
contend that the measure will increase competition and thereby lower
auto insurance rates in California.

Against the measure

Consumer advocates including Harvey Rosenfield, founder of Consumer
Watchdog of Santa Monica, oppose Prop. 17, arguing that the measure will
raise insurance rates for some Californians and allow the firm to
legalize discriminatory practices and price increases that are currently
barred by Prop. 103, the landmark insurance reform law approved by
state voters in 1988.

Rosenfield, reacting to the new state report, called on California
regulators to lift Mercury's license to do business in California -
saying he has never seen "such a brazen and widespread series of
violations" in an industry that he has monitored for decades.

"It's an insult to every law-abiding citizen in the state. It's
beyond any rational excuse the company could make."

Mercury paid the state fines of $200,000 in 2008 and $300,000 in 2006
for violations of insurance law, Insurance Department officials
confirmed.

Second time this year

The latest "market conduct examination" of Mercury is the second to
be issued by state investigators this year alleging that the firm has
engaged in questionable practices.

The Chronicle filed a request under the state Public Records Act
earlier this year for records of state investigations of Mercury's
practices.

In February, the newspaper published the results of a state report
going back several years that alleged the insurance company engaged in
practices that may have been illegal, including deceptive pricing and
discrimination against consumers such as active members of the military
and drivers of emergency vehicles.

Rosenfield said Poizner's continued aggressive enforcement of
insurance laws and his oversight of Mercury deserve kudos because the
firm has been historically one of the state's most generous political
donors.

The company and its chairman, George Joseph, have donated more than
$7.2 million to state political campaigns in the past decade. In 2009,
Mercury donated $13,000 to the gubernatorial campaign of Attorney
General Jerry Brown but has not donated to Poizner's campaign for
governor.

 

E-mail Carla Marinucci at cmarinucci@sfchronicle.com.