CA regulators allege Mercury Insurance overcharges drivers

The California Department of Insurance announced Monday that it’s taking legal action against Mercury Insurance over a variety of tactics the company uses to overcharge drivers, homeowners and businesses.

In the department’s legal complaint, Insurance Commissioner Ricardo Lara alleges Mercury steered motorists with good driving records into the company’s highest-priced policies, rather than low-priced policies they qualified to receive.

“Failing to sell good drivers the lowest-priced policy for which they qualify is illegal, and my department will act on behalf of consumers and pursue the maximum penalties against Mercury for acting in bad faith,” said Insurance Commissioner Ricardo Lara.

A spokesperson for Mercury Insurance emailed a statement to The Bee Monday evening, saying company leaders strongly disagrees with the allegations presented in the Insurance Department’s administrative enforcement action.

“The company has been working in good faith with the CDI to address their concerns, and despite the company’s belief that it has not violated any laws, the company has implemented numerous operational changes at the request of the CDI,” the statement read. “Mercury Insurance will continue to work with the (Department of Insurance) in order to resolve any outstanding issues and settle the matter, but if that is not possible it will defend itself through the judicial process.”

In 1988, California voters passed Proposition 103, which mandated a discount of 20% for drivers who had a clean driving record with no moving violations, accidents, driving-related convictions, or points from the prior three to seven years.

Lara said in its complaint that Mercury has used a number of creative strategies to steer so-called good drivers into buying its expensive policies. Among the alleged tactics:

▪ The company does not offer monthly payment plans on its lowest-priced policies.

▪ It directs agents to refuse to write lower-priced policies when drivers have had their insurance canceled for nonpayment or when drivers have been involved in car accidents that were not deemed to be their fault.

▪ It sells identical policies under two different company names and tells drivers that the low-priced policies sold by one subsidiary have somewhat less coverage and more restrictive payment options than those charged by the other subsidiary. The coverage, however, is the same.

▪ In the case of commercial drivers, Mercury charged them as though they were new drivers if they were not listed as the named policyholder at a company where they’d worked for the previous two years. The company did this though the drivers had previously held a Mercury policy.

“My message to Mercury and other insurance companies that try to evade the law is clear,” Lara said: “Unfair and illegal practices will not be tolerated and I will fight to ensure consumers get the discounts they are entitled to under the law.”

The commissioner said he believed Mercury also benefited from actions it had taken with homeowners. For instance, the legal complaint alleged Mercury failed to resolve discrepancies in square footage between customer applications and Mercury’s inspection reports. Because square footage is used to determine premiums, the complaint noted, these discrepancies may have resulted in rates that are “excessive, inadequate or unfairly discriminatory.”

In total, the insurance commissioner made 34 allegations against Mercury Insurance. Lara’s team and Mercury will have to present evidence to an independent administrative law judge. The administrative law judge issues a proposed decision, and that decision is then accepted or rejected by the commissioner. Mercury has the right to appeal the commissioner’s decision by filing a writ with the superior court.

In August 2019, Mercury paid a $27.6 million fine to the California Department of Insurance for findings that it had violated Proposition 103. It was the largest fine against a property and casualty insurer in the agency’s history. The California Supreme Court upheld the department’s action, finding that Mercury had charged consumers unapproved and unfairly discriminatory rates.

This story was originally published August 1, 2022 6:04 PM.

Cathie Anderson covers health care for The Bee. Growing up, her blue-collar parents paid out of pocket for care. She joined The Bee in 2002, with roles including business columnist and features editor. She previously worked at papers including the Dallas Morning News, Detroit News and Austin American-Statesman.