HomestoryCalifornia Department of Insurance › Mercury Slapped With $27.5M Fine Over Improper Premiums

News Story

Mercury Slapped With $27.5M Fine Over Improper Premiums

LAW360

Law360, Los Angeles (January 12, 2015, 6:33 PM ET) -- California’s insurance commissioner has ordered Mercury Insurance Co. to pay a fine of $27.5 million for charging customers excessive premiums in violation of a state law regulating insurance rates, the commissioner’s office said Monday.

Insurance Commissioner Dave Jones on Jan. 7 adopted the recommendation of the fine by an administrative law judge who found Mercury willfully violated Proposition 103, which requires the commissioner to approve auto insurers’ rates.

Administrative Law Judge Michael A. Scarlett of the Office of Administrative Hearings of California’s Department of General Services had determined that Mercury charged California consumers unapproved and illegal agent fees when they bought new policies between 1996 and 2006, according to court records.

Mercury consumers paid higher rates than the ones the commissioner had approved, even though the California Department of Insurance advised the company from 1999 through 2004 not to do so, according to Jones’ statement.

"While the $27.5 million fine against Mercury is significant, it is commensurate with the amount of money that was unlawfully collected from Mercury policyholders,” Jones said.

Mercury said in a statement Monday that it strongly disagrees with Jones’ determination that Mercury broke California’s rate laws and his decision to impose a penalty.

“We strongly believe that this decision is contrary to California’s rate laws, due process and basic notions of fairness,” the auto insurer said. “We intend to vigorously litigate this matter of law and we intend to ultimately prevail on the merits in a court of law."

Jones kicked off the long-running fight by accusing Mercury of improperly letting its agents charge broker fees and collecting premiums that were higher than approved, in violation of Proposition 103, which bars unfairly discriminatory charges.

After Mercury ignored a court’s 2003 order to stop charging the fees, the CDI filed an administrative noncompliance complaint in February 2004, according to a statement Monday by nonpartisan consumer advocacy group Consumer Watchdog, which was granted intervention in the case in May 2007.

An administrative law judge proposed dismissing the claims after finding the commissioner violated due process principles and the Administrative Procedure Act. Jones later set aside that ruling and called for an evidentiary hearing and a decision on the merits of the regulator's claims.

The appeals court ruled in April 2013 that Mercury couldn't challenge the commissioner's order because it needed to exhaust its administrative remedies first.

Mercury unsuccessfully argued that it didn't have to exhaust administrative remedies because the commissioner did not have power to reject the administrative law judge's decision.

The appeals court found the commissioner had authority to adopt, change or reject the ruling, even if the administrative law judge found the commissioner violated due process rights and Administrative Procedure Act. The administrative law judge had found that the CDI did not keep its investigative, prosecutorial, rule-making and adjudicative functions separate.

The department said Monday that Jones’ decision came after a hearing with 15 days of testimony, extensive exhibits and legal briefs before Judge Scarlett, who found at least 180,000 transactions in which Mercury customers were charged unapproved fees.

Harvey Rosenfield, author of Proposition 103 and counsel for Consumer Watchdog, said in Monday’s statement that Mercury has hit customers with millions of dollars in illegal agent fees over the past 10 years.
"The $27.5 million fine shows that justice has finally been served against Mercury for years of flagrant violations of the law,” he said.

Pamela Pressley, Consumer Watchdog's litigation director and an attorney who helped the CDI prosecute the case, added, “Mercury Insurance is infamous for playing every angle in its effort to avoid accountability for cheating its customers, and the commissioner's decision marks a victory for both consumers and California.”
The CDI is represented by Jennifer McCune, Alec Stone and James Stanton Bair III. Consumer Watchdog is represented by Pamela Pressley and Laura Antonini, and Arthur D. Levy of the Law Office of Arthur D. Levy.

Mercury is represented by Steven H. Weinstein and Spencer Y. Kook of Hinshaw & Culbertson LLP.

Mercury declined to provide counsel information for its planned appeal of the $27.5 million fine.

The case is In the Matter of Mercury Insurance Co., Mercury Casualty Co. and California Automobile Co., CDI file number NC-03027545, Office of Administrative Hearings case number N2006040185.

--Editing by Brian Baresch.