Mercury Insurance gets slapped over $27 million for illegal sales tactics
On May 8, 2019, a California Court of Appeals reinstated penalties of $27.5 million against Mercury Insurance for charging their customers illegal broker fees. This was one of the biggest levies ever imposed by the Department of Insurance. In almost 200,000 sales of car insurance policies to their car insurance customers from 1999 until 2004, Mercury Insurance charged illegal “broker fees” when the law clearly prohibited the massive automobile insurance carrier from doing so.
Auto insurance sales agents transact for the insurance company, while brokers handle transactions for their customers. The Appellate Court expressed that Mercury Insurance, which was formed 57 years ago, sold insurance through its agents until Prop. 103 passed in 1988, but then “converted” about 700 agents to brokers. The brokers charged fees on auto insurance policies while providing the same service as agents who could not charge fees, the court said.
The Fourth District Court of Appeal in Santa Ana ruled that the car insurance agents were working exclusively for Mercury Insurance, were disguised as “brokers”, and they did not provide any customer services and did not have authority to charge the added fees that they were slapping on to the bill as “insurance premiums.” These fees were between $50-$150 charged to each of the unsuspecting insured drivers.
In 1988, Proposition 103 was passed and required automobile insurance rates to be approved by the state, and prohibiting Insurance “agents” from charging certain “broker” fees, because they worked directly for the Insurance Carrier. Actual insurance Brokers provide customer service by shopping different companies for the lowest rate and best coverage for their client. While “sales agents” work only for the carrier, in this case, Mercury Insurance. Prior to the laws enactment, insurance agents “could charge unapproved and unfairly discriminatory fees for alleged separate services that would increase consumers’ cost of insurance,” said Justice David Thompson in the 3-0 Appellate Courts ruling.
“After over a decade of battling against Mercury’s aggressive litigation tactics seeking to evade accountability for its deceitful ‘broker fee’ over charges, today justice has finally prevailed,” said the lawyer for Consumer WatchDog.
State Insurance Commissioner Ricardo Lara, praised the court for recognizing that “insurers cannot avoid the department’s scrutiny by charging ‘fees’ on top of the rates already approved by the commissioner.” But Mercury Insurance has threatened to appeal this decision to a higher Court level.
Twenty years ago, the California Insurance Department advised Mercury Insurance that it was violating the law, but the auto insurance carrier created legislation to protect them from their tactics. Fortunately, the court declared that Mercury’s actions were illegal and in 2004 blocked the insurance company from selling their auto insurance through the disguised brokers who were really their own sales agents.
Auto Insurance Specialists (AIS) was created by Mercury Insurance as its sales agency, and continued to sell as “brokers” until 2009, according to the Court.
Justice Thompson wrote- “Mercury had notice for years of its potential for imposition of penalties and deliberately chose not to modify its conduct.”
Catherine Lombardo, principal litigator at Lawyers For the Injured, which has dozens of cases in Court against Mercury Insurance, commented: “In my personal opinion, Mercury is one of the hardest insurance carriers to deal with. Their tactics are unfair and frustrating. This Appellate Court Ruling is a win for the consumer.”