Mercury Insurance Group violated state laws meant to regulate how coverage is priced and sold and, as a result, overcharged perhaps thousands of Californians for homeowner and automobile insurance, the state Department of Insurance said Monday.
The state’s fourth-largest auto insurer failed to ensure drivers were not charged more after accidents in which they were not at fault, and refused to cover bartenders, artists and others unless they met stricter underwriting standards than other customers, a state investigation alleges.
Mercury could face fines of at least $5,000 for each violation under an enforcement action filed Friday, Insurance Commissioner Steve Poizner said. The company continued a number of activities that it had been ordered to stop years earlier, he said.
“Mercury Insurance has disregarded California’s consumer protection statutes and overcharged consumers,” Poizner said. “In addition, the department’s examination finds that Mercury Insurance has apparently continued to violate the law despite agreements with the state to terminate its illegal behavior.”
Mercury spokesman Coby King said the company had not overcharged customers or violated the law. He said the practice of restricting customers in certain occupations, such as artists and bartenders, was ended more than 10 years ago. In a statement, King intimated that Poizner released the report to further his campaign for the Republican gubernatorial nomination.
“This report appears to have been leaked to reporters in a manner designed to further the political interests of the commissioner, not the people of California,” the statement said.
Darrel Ng, a department spokesman, denied any political motives for the department’s action.
“The Department of Insurance takes very seriously its role in ensuring that insurance companies follow the law,” Ng said. “Mercury should spend less time imagining conspiracy theories against them and more time following California’s consumer protection statutes.”
The report comes at a time when Mercury is battling to rewrite some of the state’s insurance regulations through an initiative on the June ballot. The company spent $3.5 million backing Proposition 17, which would allow insurers to offer discounts to new customers who have no gaps in their previous insurance coverage. Supporters say the initiative would result in better rates for many customers, but opponents say it would bring higher costs for those already paying the most for insurance.
Kathy Fairbanks, a spokeswoman for the Yes on Proposition 17 campaign, said the report would have little influence on the ballot measure. But consumer groups heralded the report as evidence that the initiative is aimed at raising profits by legalizing practices that are currently outlawed.
“I think the insurance commissioner’s report is a huge red flag saying, ‘Here’s a company that doesn’t play by the rules, so what it wants to do is buy an election and through the initiative process create its own rules,” said Christopher Dolan, president of Consumer Attorneys of California.
The inquiry into policies issued during a three-month period in 2007 found 35 categories of alleged violations, including barring coverage of people in certain occupations, including liquor store owners and cocktail servers, unless they met additional underwriting standards. The insurer did not say why those professions were singled out.
Regulators also alleged problems with how the company dealt with customers who had been in accidents before applying for a policy.
“Mercury did not collect the right information about a driver’s prior accidents during its application and underwriting process to make sure that surcharges are only applied for those accidents where the insured is at fault,” the report says.
The report also says Mercury required people with certain medical impairments to undergo increased underwriting scrutiny and boosted premiums for applicants with certain alcohol-related convictions dating back longer than the 10-year period the law allows.
Poizner’s office filed an administrative lawsuit against the insurer last week, giving the company 10 days to correct the violations, which would include refunds to those overcharged for their coverage.
The company, which has already been fined $500,000 for other violations over the last five years, could face additional per-policy fines of as much as $5,000 if the violations are found to be willful.
The Insurance Department has not yet estimated how many of Mercury’s 1.4 million customers were affected by the alleged violations because the investigation has so far been focused on the single three-month period in 2007, Ng said.
He also said it takes years to review and analyze each insurer’s compliance with its approved rate plan, explaining the three-year lag between the market conduct investigation in 2007 and the enforcement action.
The report makes no mention of Proposition 17, which most consumer groups fear would make insurance too expensive for drivers the companies don’t want to cover -- and potentially lead to more uninsured drivers on the roads.
“This troubling report shows Mercury has overcharged its customers for a decade and a half but wants us to believe Proposition 17 will lower premiums,” said Harvey Rosenfield, who spearheaded the landmark insurance reforms under Proposition 103, some provisions of which would be repealed if Proposition 17 passes.
“That’s like Bernie Madoff backing a ballot measure to protect investors.”