By Dale Kasler, SACRAMENTO BEE

Mercury Insurance Group, which is bankrolling a controversial ballot initiative on car insurance, was accused by state regulators Monday of overcharging California motorists and homeowners for coverage.

The state’s third largest car insurer, Mercury “may have illegally overcharged thousands of Californians,” according to the state Department of Insurance. A spokesman for the department, Darrell Ng, said it wasn’t immediately clear how widespread the alleged violations were or how big a fine Mercury would face if the charges prove true.

Nonetheless, the department said Mercury has already made refunds totaling $77,853 because of the problems uncovered by department investigators. Mercury controls about 10 percent of the California car insurance market.

The charges stem from a routine exam conducted in spring 2007. Investigators found that Mercury appeared to have “disregarded California’s consumer protection statutes and overcharged consumers,” Insurance Commissioner Steve Poizner said in a press release.

Mercury said it will fight the charges, saying “we don’t engage in practices that would overcharge our customers.” The insurer accused Poizner, who is running for the Republican nomination for governor, of publicizing the allegations to advance his “political interests.”

Ng acknowledged that his department usually doesn’t announce such charges. But it did so in this case because Mercury is accused of failing to follow through on promises to correct previously uncovered violations, he said.

Mercury “has apparently continued to violate the law despite agreements with the state to terminate its illegal behavior,” Poizner said in his press release. The previous violations generated fines totalling $500,000, Ng said.

Among other things, the department said Mercury charged motorists “excessive rates” after they were in accidents that weren’t their fault. The company also refused to cover motorists in certain jobs, including bartenders, cocktail waitresses, painters and artists, the department said.

Ng said the allegations aren’t directly tied to the issues raised in Proposition 17, a June ballot initiative largely funded with $3.5 million of Mercury’s money.

But the charges instantly became part of the debate over the proposition.

The proposition’s leading critic, prominent consumer advocate Harvey Rosenfield, said the charges are further evidence of Mercury’s anti-consumer orientation.

“This ought to put the nail in the coffin for Prop. 17 for any voters paying attention,” Rosenfield said.

But Kathy Fairbanks, a spokeswoman for the campaign for Proposition 17, said the charges are irrelevant to the issue on the June ballot.

The allegations aren’t “related to what Prop. 17 would do or how it would operate,” she said by e-mail.

Current law lets car insurers give loyalty discounts to long-standing customers. Proposition 17 would let them extend the discounts to other companies’ customers. The proposition’s backers say this would bring more competition to the market.

But Rosenfield says this could mean higher premiums to drivers who didn’t have car insurance previously – a violation of Proposition 103, which he wrote.

The higher premiums would result from California’s “zero sum” rate-making principles, he said. That means a discount offered to some drivers must be offset by surcharges on others, according to an analysis of Proposition 17 by the Department of Insurance.

But the department also said that under certain circumstances, there wouldn’t be any surcharges. Fairbanks said Proposition 17 wouldn’t raise anyone’s premiums.

The allegations filed Monday could result in suspension or cancellation of Mercury’s insurance licenses. But Ng said “that’s not something we are actively considering.”

Contact the author at: dkasler@sacbee.com

Mercury is accused of violating state laws on how policies are priced and sold.

By Carol J. Williams, THE LOS ANGELES TIMES

Mercury Insurance Group violated state laws meant to regulate how coverage is priced and sold and, as a result, overcharged perhaps thousands of Californians for homeowner and automobile insurance, the state Department of Insurance said Monday.

The state’s fourth-largest auto insurer failed to ensure drivers were not charged more after accidents in which they were not at fault, and refused to cover bartenders, artists and others unless they met stricter underwriting standards than other customers, a state investigation alleges.

Mercury could face fines of at least $5,000 for each violation under an enforcement action filed Friday, Insurance Commissioner Steve Poizner said. The company continued a number of activities that it had been ordered to stop years earlier, he said.

“Mercury Insurance has disregarded California’s consumer protection statutes and overcharged consumers,” Poizner said. “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.”

Mercury spokesman Coby King said the company had not overcharged customers or violated the law. He said the practice of restricting customers in certain occupations, such as artists and bartenders, was ended more than 10 years ago. In a statement, King intimated that Poizner released the report to further his campaign for the Republican gubernatorial nomination.

“This report appears to have been leaked to reporters in a manner designed to further the political interests of the commissioner, not the people of California,” the statement said.

Darrel Ng, a department spokesman, denied any political motives for the department’s action.

“The Department of Insurance takes very seriously its role in ensuring that insurance companies follow the law,” Ng said. “Mercury should spend less time imagining conspiracy theories against them and more time following California’s consumer protection statutes.”

The report comes at a time when Mercury is battling to rewrite some of the state’s insurance regulations through an initiative on the June ballot. The company spent $3.5 million backing Proposition 17, which would allow insurers to offer discounts to new customers who have no gaps in their previous insurance coverage. Supporters say the initiative would result in better rates for many customers, but opponents say it would bring higher costs for those already paying the most for insurance.

Kathy Fairbanks, a spokeswoman for the Yes on Proposition 17 campaign, said the report would have little influence on the ballot measure. But consumer groups heralded the report as evidence that the initiative is aimed at raising profits by legalizing practices that are currently outlawed.

“I think the insurance commissioner’s report is a huge red flag saying, ‘Here’s a company that doesn’t play by the rules, so what it wants to do is buy an election and through the initiative process create its own rules,” said Christopher Dolan, president of Consumer Attorneys of California.

The inquiry into policies issued during a three-month period in 2007 found 35 categories of alleged violations, including barring coverage of people in certain occupations, including liquor store owners and cocktail servers, unless they met additional underwriting standards. The insurer did not say why those professions were singled out.

Regulators also alleged problems with how the company dealt with customers who had been in accidents before applying for a policy.

“Mercury did not collect the right information about a driver’s prior accidents during its application and underwriting process to make sure that surcharges are only applied for those accidents where the insured is at fault,” the report says.

The report also says Mercury required people with certain medical impairments to undergo increased underwriting scrutiny and boosted premiums for applicants with certain alcohol-related convictions dating back longer than the 10-year period the law allows.

Poizner’s office filed an administrative lawsuit against the insurer last week, giving the company 10 days to correct the violations, which would include refunds to those overcharged for their coverage.

The company, which has already been fined $500,000 for other violations over the last five years, could face additional per-policy fines of as much as $5,000 if the violations are found to be willful.

The Insurance Department has not yet estimated how many of Mercury’s 1.4 million customers were affected by the alleged violations because the investigation has so far been focused on the single three-month period in 2007, Ng said.

He also said it takes years to review and analyze each insurer’s compliance with its approved rate plan, explaining the three-year lag between the market conduct investigation in 2007 and the enforcement action.

The report makes no mention of Proposition 17, which most consumer groups fear would make insurance too expensive for drivers the companies don’t want to cover — and potentially lead to more uninsured drivers on the roads.

“This troubling report shows Mercury has overcharged its customers for a decade and a half but wants us to believe Proposition 17 will lower premiums,” said Harvey Rosenfield, who spearheaded the landmark insurance reforms under Proposition 103, some provisions of which would be repealed if Proposition 17 passes.

“That’s like Bernie Madoff backing a ballot measure to protect investors.”

Contact the author at: carol.williams@latimes.com

By Carla Marinucci, THE SAN FRANCISCO CHRONICLE

Mercury Insurance Group, a major backer of a hotly contested insurance measure on the June ballot, faces potentially costly fines in the wake of a new state report alleging that California’s third-largest insurer is violating state laws “despite agreements with the state to terminate illegal behavior.”

The report, released Monday by the state Department of Insurance, says Mercury apparently has violated the insurance code, “resulting in consumers being overcharged or denied coverage,” according to a statement from Insurance Commissioner Steve Poizner.

Poizner’s report on the company – which includes Mercury Insurance Co., Mercury Casualty Co. and California Automobile Insurance Co. – comes two months after state insurance officials made similar allegations against the firm.

Mercury officials strongly denied the new allegations. In a statement Monday, the company said it “takes very seriously our responsibilities to consumers and our customers” and added: “We don’t engage in practices that would overcharge our customers.”

The report, a survey of the company’s practices between March and May 2007, alleges 35 violations. Among them:

– Mercury failed to correct information about accidents to charge consumers correctly.

– The company routinely “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.”

In addition, state investigators found that Mercury “failed to correct violations” of state law, some of which date back more than a decade. Officials say Mercury Insurance Group has 10 days to correct each violation found in the latest exam.

If the violations are not corrected, the firm faces a $5,000 fine for each violation and an additional $5,000 fine for each violation if it is found to be willful – fines that could total millions of dollars.

Backs Prop. 17

The company has spent $3.5 million to back Proposition 17, a measure that consumer advocates say would raise insurance rates for some Californians. Poizner, who as insurance commissioner is charged with oversight and enforcement of home and automobile insurance companies in the state, is a Republican candidate for governor.

In its statement, Mercury charged that there were “politics involved” in the release of the document. In two months, state voters will decide Prop. 17 and the Republican nominee for governor.

But the firm acknowledged that “as with any individual or business who must deal with a government agency, Mercury does not always interpret changing insurance law and regulations in the same manner as the staff at the Department, despite the best intentions of parties on both sides.”

Prop. 17 is the so-called Continuous Coverage Auto Insurance Measure on the June ballot. Mercury officials and the pro-Prop. 17 advocacy group funded by the firm, Californians for Fair Auto Insurance Rates, contend that the measure will increase competition and thereby lower auto insurance rates in California.

Against the measure

Consumer advocates including Harvey Rosenfield, founder of Consumer Watchdog of Santa Monica, oppose Prop. 17, arguing that the measure will raise insurance rates for some Californians and allow the firm to legalize discriminatory practices and price increases that are currently barred by Prop. 103, the landmark insurance reform law approved by state voters in 1988.

Rosenfield, reacting to the new state report, called on California regulators to lift Mercury’s license to do business in California – saying he has never seen “such a brazen and widespread series of violations” in an industry that he has monitored for decades.

“It’s an insult to every law-abiding citizen in the state. It’s beyond any rational excuse the company could make.”

Mercury paid the state fines of $200,000 in 2008 and $300,000 in 2006 for violations of insurance law, Insurance Department officials confirmed.

Second time this year

The latest “market conduct examination” of Mercury is the second to be issued by state investigators this year alleging that the firm has engaged in questionable practices.

The Chronicle filed a request under the state Public Records Act earlier this year for records of state investigations of Mercury’s practices.

In February, the newspaper published the results of a state report going back several years that alleged the insurance company engaged in practices that may have been illegal, including deceptive pricing and discrimination against consumers such as active members of the military and drivers of emergency vehicles.

Rosenfield said Poizner’s continued aggressive enforcement of insurance laws and his oversight of Mercury deserve kudos because the firm has been historically one of the state’s most generous political donors.

The company and its chairman, George Joseph, have donated more than $7.2 million to state political campaigns in the past decade. In 2009, Mercury donated $13,000 to the gubernatorial campaign of Attorney General Jerry Brown but has not donated to Poizner’s campaign for governor.

E-mail Carla Marinucci at cmarinucci@sfchronicle.com.

By Carla Marinucci, SAN FRANCISCO CHRONICLE POLITICS BLOG

Mercury Insurance Group, the high-profile firm that has put up $3.5 million to back a ballot measure that consumer advocates say would raise insurance rates for some Californians, continues to violate state laws, has engaged in discriminatory practices and may have illegally overcharged thousands of consumers, according to a new report from the state Department of Insurance to be released today.

The report, obtained by The Chronicle, “appears to show that Mercury Insurance has disregarded California’s consumer protection statutes and overcharged consumers,” said a statement accompanying the report from State Insurance Commissioner Steve Poizner, a GOP candidate for governor who is charged with oversight and enforcement of state insurance firms. “Mercury Insurance has apparently continued to violate the law despite agreements with the state to terminate its illegal behavior,” Poizner added.

The report on the firm, which has taken a key role in the campaign for Proposition 17 on the June 8 ballot, is the result of the most recent state investigation of the firm, from March 2007 through May 2007.

The so-called “market conduct examination” of Mercury is the second to be issued by state investigators this year alleging the firm has engaged in questionable practices. The Chronicle filed a request under the state Public Records Act earlier this year for records of state investigations of Mercury’s practices, and in February published the results of a state report going back several years that alleged the insurance company engaged in practices that may have been illegal, including deceptive pricing and discrimination against consumers such as active members of the military and drivers of emergency vehicles.

Poizner’s report, to be released today, found that Mercury Insurance Group — Mercury Insurance Company, Mercury Casualty Company and California Automobile Insurance Company — “violated the insurance code, resulting in consumers being overcharged or denied coverage,” according to a report summary.

Among the 35 categories of alleged violations detailed in the report was one that Mercury “failed to correct violations of state law identified by the Department of Insurance” dating back to 1998 and 2002. The company also “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,” the summary of the report states.

The report also found “Mercury did not collect the right information about a driver’s prior accidents” during its auto insurance application and underwriting process so that consumers were charged correctly and were “not charged for bodily injury accidents when no injuries had occurred.”

In addition, “homeowners’ insurance premium credits were not being consistently applied when they were due, resulting in insureds being overcharged,” Poizner’s report stated.

The February report revealed by The Chronicle alleged that Mercury Insurance Group may have violated Proposition 103, the landmark consumer protection law approved by voters in 1988. The measure limited rate increases and made civil rights and antitrust laws apply to the insurance industry.

The latest investigation comes as Mercury has ramped up efforts to pass Prop. 17, which consumer advocates say would dramatically change state auto insurance laws. Mercury put up $3.5 million last year to back a group called “Californians for Fair Auto Insurance Rates” to support passage of the measure, which it contends would increase competition for state consumers and thereby result in auto insurance discounts for many.

But Harvey Rosenfield, founder of Consumer Watchdog and the author of Prop. 103, said Monday that in decades of consumer advocacy he has never seen such an appalling record from an insurance firm. He said the latest report provides more evidence that consumers cannot trust Mercury’s claims that the measure would cut insurance rates.

“Proposition 17 is the bastard progeny of a company that has consistently broken California law,” Rosenfield said. “The Department’s announcement that Mercury Insurance continued to illegally surcharge motorists and homeowners — even after it promised state regulators it would stop — shows that Mercury cannot be trusted when it peddles a proposition that its ads claim will lower premiums but in fact will allow insurance companies to raise auto insurance premiums on millions of Californians.”

Mercury officials could not be reached for comment this morning, but we will post their response as soon as we get it.

State insurance officials say Mercury Insurance Group now has 10 days to correct each violation found in the latest exam or it could face a $5,000 fine for each individual violation, in addition to penalties for past uncorrected violations — a fine that could potentially total millions.

Insurer, a Prop 17. Backer, Alleges Bias

By Timm Herdt, THE VENTURA COUNTY STAR

SACRAMENTO — Less than two months before voters will be asked to decide on a controversial auto insurance initiative sponsored by Mercury Insurance, Insurance Commissioner Steve Poizner on Monday alleged the company “has disregarded California’s consumer protection statutes and overcharged consumers.”

Poizner said that Department of Insurance examiners discovered thousands of cases in which Mercury illegally overcharged for auto and homeowners insurance policies — in some instances, he alleged, repeating violations the company had agreed in the past to correct.

Among the allegations are that Mercury did not properly apply credits that were due on homeowners’ policies, did not abide by state law in evaluating policyholders’ driving records, and subjected people in certain occupations such as cocktail waitresses, bartenders and artists to standards that did not apply to others.

In a statement, the company denied the allegations and said they arise from disagreements in the interpretation of state laws and regulations. “We don’t engage in practices that would overcharge our customers,” the statement read.

The statement further accuses Poizner, who is seeking the GOP nomination for governor on June 8, of orchestrating the release of the report “to further the political interests of the commissioner, not the people of California.”

Department of Insurance spokesman Darrell Ng responded that Mercury “should be less concerned about any imagined conspiracy theories and more concerned about following the law. The department is taking strong action against a company that we believe illegally overcharged their customers.”

The charges come as Mercury is pushing a ballot measure, Proposition 17, that would establish in California a surcharge that critics say has resulted in premium hikes as high as 90 percent for Mercury customers in other states who have experienced a lapse in coverage.

Mercury is the sponsor of the initiative and has contributed $2.5 million to the campaign, about 70 percent of all the money the campaign has raised.

“This ought to be the nail in the coffin for Proposition 17 for any voter who’s paying attention,” said Harvey Rosenfield, founder of Consumer Watchdog and author of California auto insurance regulatory law, Proposition 103. “It’s a recognition by the Department of Insurance that Mercury is a particularly bad actor. Voters and the public need to understand more about this company.”

Kathy Fairbanks, spokeswoman for the Yes on 17 campaign, said the violations alleged by the Department of Insurance “are not related to what Proposition 17 would do and how it would operate. For opponents to claim otherwise is another attempt by them to direct attention away from the fact they are opposed to a measure that will benefit 80 percent of California drivers.”

Under Proposition 17, companies that recruit policyholders from other companies would be allowed to offer “persistency” discounts to those who have had continuous auto insurance coverage. Under current law, a company can offer such discounts only to customers based on their years of coverage with that company.

Consumers would be eligible for such discounts as long as their auto insurance coverage had not lapsed for more than 90 days for any period over the previous five years.

Rosenfield of Consumer Watchdog argues that the driving motivation behind the initiative is the desire of Mercury to be able to levy premium surcharges on any drivers who have not had continuous coverage for the previous five years, such as new drivers, those who have had prolonged medical conditions that prevented them from driving, or those who have gone for periods of time without a car.

“When was the last time an insurance company put a proposition on the ballot to lower people’s insurance rates?” asked Rosenfield. “Answer: Never.”

Ng said the timing of the Department of Insurance allegations is coincidental to the proximity of the vote on the Mercury-sponsored initiative. “The enforcement action was filed when it was ready,” he said. “It would have been improper to withhold this until after the election.”