Mercury Insurance Loses Appeal in Broker Fees Case

Mercury Insurance Company producers acting as brokers are considered agents and not brokers, and thus are not entitled to collect any broker fees, according to the California Court of Appeals’ ruling in Krumme v. Mercury Insurance Company.

The Appeals court said that Mercury brokers are considered agents because they have binding authority for Mercury. The appellate court also stated that both brokers and appointed agents used the same application form and rating and underwriting guidelines supplied by Mercury, and that both brokers and appointed agents advertise that they represent Mercury.

“Brokers and appointed agents were functionally indistinguishable in their relationship to Mercury,” read the court’s opinion. “In view of the substance of their dealings with Mercury, because these ‘brokers’ have transacted, and do transact, insurance on behalf of Mercury, they cannot be considered ‘insurance brokers’ for licensing purposes … and are instead ‘insurance agents.'”

Mercury argued that the California Insurance Code does not specify between a broker and an agent but uses the term “broker-agent.”

“I was disappointed in the ultimate result of the affirmation of the trial court’s opinion primarily because I believe the trial court focused on some tests pertaining to a rather murky area, which is the distinction between a broker and an agent,” said Alan Frederick, an attorney with Marrone, Robinson, Frederick and Foster that is familiar with the case.

The case began when Robert Krumme, an attorney, filed the lawsuit on behalf of the general public. The suit stated that Mercury did not disclose the broker fees charged in addition to auto insurance premiums to the DOI and that the fees had not been approved as required by Prop. 103.

The appellate court affirmed a permanent injunction issued against Mercury. The insurance company was prohibited from selling any policy through a broker-agent that has not been appointed an agent or through a broker-agent that charges a broker fee. Mercury representatives were not available for comment.