Mercury Insurance Fined $27.5 Million for Illegal Auto Insurance Fees
Jan. 13, 2015—Mercury Insurance has been ordered by the California Insurance Commissioner to pay a $27.5 million penalty for willfully violating Proposition 103, by charging California consumers illegal auto insurance fees between 1996 and 2006.
In Feb. 2004, the California Department of Insurance (CDI) filed an administrative noncompliance complaint against Los Angeles–based Mercury Insurance Co. for "willfully misrepresent[ing] the actual price insurance consumers could expect to pay" for auto insurance, charging premium in excess of the rates approved for Mercury by the Insurance Commissioner.
The complaint also charged that Mercury willfully subjected consumers to unfair rate discrimination in violation of Proposition 103, the California insurance regulation law that requires companies to obtain the approval of the Commissioner for the rates and premiums they charge consumers, and that prohibits unfair discriminatory charges.
Under Proposition 103, auto insurance companies are prohibited from charging agent fees without obtaining prior approval of the fees from the Insurance Commissioner. Mercury circumvented Proposition 103 for over 10 years by creating a sham "broker" system whereby it charged unapproved agent fees, called "broker" fees, to California consumers purchasing new Mercury auto insurance policies. California consumers were required to pay the $100–$150 fee in order to get the policy.
On Jan. 7, 2015, the Insurance Commissioner adopted an Administrative Law Judge's 66-page Proposed Decision, finding that Mercury willfully violated Proposition 103 by charging California consumers unapproved and illegal agent fees when they purchased new Mercury auto insurance policies between 1996 and 2006.
The Proposed Decision found that a penalty of $27.5 million "against Mercury is reasonable given the totality of the evidence in this noncompliance proceeding."