April 13, 2010

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April 12, 2010 Monday 04:55 PM EST

705 words


Poizner Accuses Mercury General of 35 Categories of Violations, Potential Illegal Overcharges

Sean P Carr

SACRAMENTO, Calif.

Mercury Insurance Group committed 35 categories of insurance code violations and may have illegally overcharged thousands of Golden State residents for automobile and homeowners insurance, California Insurance Commissioner Steve Poizner alleged.

A market conduct examination covering March 1, 2007 through May 31, 2007 found violations by Mercury Insurance Group, comprising Mercury Insurance Co., Mercury Casualty Co. and California Automobile Insurance Co. The alleged violations include:

-- Failure to correct violations of state law identified by the Department of Insurance from exams conducted in 1998 and 2002;

-- Non-collection of information about a driver's prior accidents during its automobile 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;

-- Premium credits for homeowners insurance not being consistently applied when they were due, resulting in insureds being overcharged;

-- Barring people in certain occupations -- bartender, liquor store owner, painter, cocktail waitress/waiter and artists - from coverage when they did not meet additional underwriting standards that were not applied to people in other occupations.

"An examination done by the Department of Insurance appears to show that Mercury Insurance has disregarded California's consumer protection statutes and overcharged consumers. 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," Poizner said in a statement.

Attempts to reach Mercury for comment were unsuccessful.

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.

Mercury General is the primary sponsor of Proposition 17, a measure on the June 2010 ballot that would allow insurance companies to lower premiums for drivers who have continuously maintained auto insurance coverage, even if they switch to a different insurer. According to opponents, because those with lapses in payments may be disqualified from any discounts, the initiative would effectively invalidate a component of Proposition 103 that barred insurance companies from charging customers more for not having had auto insurance coverage in the past.

In 2008, Mercury paid a $250,000 fine, plus $50,000 in costs, to settle alleged claims handling violations (BestWire, Feb. 12, 2010). In a February 2009 court filing before an administrative law judge on another matter, department attorneys wrote, "Among department staff, consumer attorneys, and consumer victims of its bad faith, Mercury has a deserved reputation for abusing its customers and intentionally violating the law with arrogance and indifference."

Mercury General is the state's third-largest automobile insurer by market share. Mercury Insurance Co. (NYSE: MCY), a member of Mercury General Group, currently has a Best's Financial Strength Rating of A+ (Superior).

Shares of Mercury General closed at $44.48 a share April 12, down 0.27% from the previous close.

The top five writers of private passenger auto insurance in California in 2008, according to BestLink, were: Farmers Insurance Group, with a 15.9% market share; State Farm Group, 12.9%; Mercury General Group, 9.4%; Auto Club Enterprises Insurance Group, 9%; and Allstate Insurance Group, 8.4%. BestLink provides online access to A.M. Best's Global Insurance & Banking Database.

The top five writers of homeowners multiperil in California in 2008, according to BestLink, were: State Farm Group, with a 20.3% market share; Farmers Insurance Group, 19%; Allstate Insurance Group, 11.4%; California State Auto Group, 6.6%; and Liberty Mutual Insurance Cos., 5%.

(By Sean P. Carr, Washington Correspondent: mailto:sean.carr@ambest.com)

April 13, 2010

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