California Insurance Commissioner Ricardo Lara said the California Department of Insurance and Mercury Insurance have settled their long-time dispute and feud. It took two decades and ends up as the largest P&C insurance settlement and payment in the state’s history.
The settlement total is $41 million.
It took close to 20-years and the dispute between the department and Mercury ended up before the California Supreme Court. The insurer says early decisions on the case ruled in its favor and wanted the court to look at those reversals.
The judges refused.
Originally the penalty was $27.6 million. Interest racked up another $8.1 million. And then there was a second issue of $5.4 million that hasn’t gotten to court yet. It involved false advertising claims and Lara said the department was considering prosecuting under the Unfair Insurance Practices Act.
“Today is a testament to the tenacity of the Department of Insurance team who won this in court and kept the pressure on Mercury, which profited by skirting the law and taking advantage of consumers,” Lara said. “This was a hard fought legal battle to protect consumers, defend Proposition 103 and make sure all insurers play by the rules in California. No insurance company is above the law.”
The Mercury issue started in 1998. The California Department of Insurance accused Mercury of telling its agents to represent themselves as brokers to their clients. That — Lara said — implies that the agents work for consumers and not for Mercury. It also allows the agents to collect fees from their insureds for the services a broker would provide.
This happened — the department notes — on 180,000 transactions that took place between 1999 and 2004. The commissioner said Mercury also — during that time — advertised that it offered lower rates than the competition but failed to disclose those illegal broker fees.
The department said those fees and the profits from them encouraged — even pushed — agents into placing more policies with Mercury. Not knowing about the extra fees, the consumers that picked up Mercury policies might have saved money if they purchased insurance from other insurers.
Mercury is also accused of using unapproved fees to unfairly push competitors out of the auto insurance market. “Mercury’s illegal actions misled consumers and undercut competitors, which gave them an unfair advantage in the insurance marketplace,” Lara said.
As for the false advertising. Lara said in its marketing efforts Mercury advertised that its premiums were lower than the competition when their premium rates were actually higher than they advertised. That’s — again — because of the illegal fees charged by the agents placing the business.
Mercury disagrees with the department’s accusations and issued its own statement.
“The Superior Court of California resoundingly ruled in Mercury’s favor on three different grounds,” the statement said. “This ruling was later inappropriately reversed by the appellate court, but we have decided to settle this case so that we can move forward to focus on providing California consumers the tremendous value they’ve come to expect for the past 58-plus years from Mercury.”
The Mercury’s statement also defended itself against the department’s accusations:
• The Court of Appeal, in an unprecedented and poorly-reasoned opinion, reversed the Superior Court’s decision, allegedly because the Superior Court did not give proper deference to the Commissioner, even though the Superior Court expressly acknowledged its requirement to give a “strong presumption of correctness” to the Commissioner’s findings.
• In spite of that presumption, the Superior Court found that the Commissioner’s allegations were not supported by the evidence and ruled in Mercury’s favor.
• Without justification, the Court of Appeal disregarded the trial court’s findings and reversed the judgment.
• Although appellate courts are required to uphold a trial court’s factual determinations if they are supported by substantial evidence, the Court of Appeal here ignored that standard of review: Instead of remanding the case back to the Superior Court to confirm that proper deference was given to the Commissioner, the Court of Appeal simply stepped into the trial judge’s shoes and substituted its own factual conclusions.
• Although Mercury and the California Superior Court agree that Mercury did nothing wrong, Mercury has decided to put an end to this 20-year-old plus dispute in the best interests of its customers, employees and other stakeholders.
• It’s also important to note that the fees at the heart of this dispute were charged and collected by independent brokers for the services they provided to their customers. The fees were disclosed upfront and customers agreed to pay those fees, and no portion of these fees was ever collected by Mercury.
Of the $41 million paid by Mercury, $36,227,000 of the penalties and interest will go into the California General Fund. The $5.4 million from the advertising issue will go to the Proposition 103 Fund.
Lara said the return of the $5.4 million to the Proposition 103 Fund means that Mercury Insurance — and not ratepayers — paid for the prosecution of the case.
“This historic settlement shows the Department of Insurance is steadfast in its fight to protect consumers, defend Proposition 103 and make sure insurers play by the rules,” Lara said. “When something sounds too good to be true, it usually is. Mercury made profits by ignoring the rules, and in California no insurance company gets a free pass.”
Source links: California Department of Insurance, Insurance Journal