State regulators have issued a record $27.5-million fine against Mercury Insurance Group for charging customers fees that had not been approved by the Department of Insurance.
The order closes a long-running case that involved charges made in 180,000 automobile insurance transactions between 1999 and 2004.
A 1988 voter-approved initiative, Proposition 103, prohibits insurers from charging “excessive” rates and requires that all rate proposals be approved by the elected insurance commissioner.
“Mercury auto insurance consumers paid $27.5 million in unapproved fees,” said Commissioner Dave Jones. “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.”
The fine was the largest levied on an automobile or property and casualty insurer, a Jones spokeswoman said.
The penalty was proposed by a state administrative law judge after holding a 15-day hearing with extensive testimony, exhibits and legal briefs.
In a statement, Mercury said it was disappointed by the commissioner’s action and intends to challenge the fine in the courts.
“We strongly believe that this decision is contrary to California’s rate laws, due process and basic notions of fairness,” the company said.
The dispute focused on a somewhat esoteric dispute over whether the people who sold the auto policies were independent brokers or agents of the Los Angeles-based insurance company.
Independent brokers are allowed to charge broker fees, while direct company employees are not. The department alleged that the company collected the fees even on sales made by Mercury employees.
The fees ranged from $100 to $150 per policy, according to Consumer Watchdog, the group that successfully passed Proposition 103.
“For 10 years, Mercury enabled and promoted a system to avoid Proposition 103’s prohibition against illegal agent fees and bilk consumers out of millions of dollars,” said Harvey Rosenfield, who wrote the auto insurance initiative."The $27.5-million fine shows that justice has finally been served against Mercury for years of flagrant violations of law.”