Mercury Insurance May Have Illegally Overcharged Consumers, Regulator Says

A California Department of Insurance examination has found that Mercury Insurance violated the state insurance statutes and as a result, Mercury Insurance may have illegally overcharged thousands of Californians for auto and homeowners insurance.

“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,” Insurance Commissioner Steve Poizner said.

The California Department of Insurance (CDI) conducted a Market Conduct Exam covering the period of March 1, 2007 to May 31, 2007. During that timeframe, CDI found that Mercury Insurance Group, comprising Mercury Insurance Co., Mercury Casualty Co. and California Automobile Insurance Co., violated the insurance code, resulting in consumers being overcharged or denied coverage. The 35 categories of alleged violations include:

• Mercury Insurance failed to correct violations of state law indentified by the DOI from exams conducted in 1998 and 2002.
• Mercury did not collect the right information about a driver’s prior accidents during its auto insurance application and underwriting process to make sure that surcharges are only applied for those accidents where the insured is at fault, and to make sure people are not charged for bodily injury accidents when no injuries had occurred.
• The auto insurance applicant is required by Mercury Insurance to provide “lifetime” experience regarding certain major convictions, while the law only allows insurers to charge for such convictions for “10 years” for specific alcohol-related offenses and “three years” for the others.
• Homeowners’ insurance premium credits were not being consistently applied when they were due, resulting in insureds being overcharged.
• Mercury’s auto insurance non-renewal notices and procedures required the Good Driver to take additional steps, beyond what is provided for in the law, to obtain coverage when another person on the policy no longer qualified for coverage.
• Mercury’s auto insurance underwriting guidelines required individuals with certain medical impairments to undergo additional underwriting scrutiny before a policy could be issued.
• Mercury barred from coverage people in certain occupations — bartender, liquor store owner, painter, cocktail waitress/waiter and artists – who didn’t meet additional underwriting standards that were not applied to people in other occupations.
• Mercury Insurance Group has 10 days to correct each violation found in the latest exam. Should the violations not be corrected, Mercury Insurance Group faces a $5,000 fine for each violation and an additional $5,000 fine for each violation if it is found to be willful. The insurer also faces additional penalties for the past violations, and its failure to implement corrections following the previous exam.

Interested persons can download a copy of the Market Conduct Exam and the Notice of Noncompliance and Order to Show Cause.

Mercury has denied the allegations and told The Associated Press that the investigation was designed to further the political interests of Commissioner Steve Poizner, who is running for the Republican nomination for governor.

Sources: AP, CDI