SAN FRANCISCO - A high-profile California insurance company that is backing a controversial insurance measure on the June ballot has engaged in practices that may be illegal, including deceptive pricing and discrimination against consumers such as active members of the military and drivers of emergency vehicles, according to a state report obtained by The San Francisco Chronicle.
The report, obtained through the state Public Records Act, alleges that Mercury Insurance Group may have violated Proposition 103, the landmark consumer protection law approved by voters in 1988. The measure limited the cost of policies and made civil rights and antitrust laws apply to the insurance industry.
The 275-page report by the state Department of Insurance was authorized for release by Insurance Commissioner Steve Poizner. The documents, which cover the firm's practices from the mid-1990s to 2004, are the state's most recent completed investigation of the company.
In its reporting, the state found evidence that Mercury may have violated state laws by:
-- Flagging some consumers for higher rates if they had been in an accident, even if it was not their fault.
-- Not immediately granting coverage to applicants including military personnel on active duty, "artists," those employed "in the entertainment industry as actors, dancers, etc.," and emergency vehicle drivers.
-- Raising insurance premiums after its sales agents quoted prices for discounts for which the consumer was not eligible. The department said this was the single largest category of complaints it received about the firm.
-- Collecting higher premiums than allowed by law by requiring its brokers to return part of their fees to the company.
-- Requesting information about customers' "national origin," a practice that the department said "could raise questions about the legality of Mercury's personal automobile policy cancellation and non-renewal decisions" under state law. Mercury agreed to block such data after the state investigators raised concerns.
State officials said the report uncovered 25 issues or questionable practices by Mercury, seven of which remain unresolved.
Kathy Fairbanks, a spokeswoman for the company, disputed the state's findings and said consumer groups intend to use the report to "muddy the waters" regarding Proposition 17, the June ballot measure that Mercury is backing.
"We're talking about issues years ago that have been addressed and taken care of," Fairbanks said. "I'm not going to respond (to details of the report) because it's unrelated to Prop. 17, which is what voters are going to review."
Fairbanks said the June measure, called the "Continuous Coverage Discount Initiative," would increase competition and lower rates by providing auto insurance discounts to millions of Californians who "continually maintain" auto insurance coverage, an idea she said has been backed by groups including the California Chamber of Commerce.
Mercury put up $3.5 million last year to back a group called "Californians for Fair Auto Insurance Rates" to support Prop. 17, which consumer advocates say would dramatically change state auto insurance laws.
A leading consumer advocate was quick to respond to the state report.
"In my career as a consumer advocate, I've never seen such a devastating indictment of a single insurance company," said Harvey Rosenfield, founder of Consumer Watchdog of Santa Monica and author of Prop. 103. He called the practices "illegal, unfair and un-American," saying "it's shocking that Mercury so brazenly defied the law for so many years."
Rosenfield said Prop. 17 will allow Mercury to raise rates for Californians not previously insured or those who let their insurance lapse -- a practice that is illegal under Prop. 103.
"What's outrageous is that Mercury is spending millions on an initiative to legalize the kind of discriminatory surcharges that they were caught doing by (state) investigators," Rosenfield said.
Since 2006, the state has fined Mercury $600,000 for violations based on its own examinations and for consumer complaints about the firm, state officials said.
Poizner said he could not comment on his department's findings on the company because his office is involved in an administrative action against Mercury for non-compliance on an issue dating back to 1998 that surfaced in the state's examination of the company.
But the insurance commissioner, who is a Republican candidate for governor in the June primary election, said that if the state finds any insurance company to have violated the law, he will "come down on them like a ton of bricks."
Mercury's performance and its political muscle could also play out in the governor's race this year. The company and its chairman, George Joseph, have donated more than $7.2 million to state political campaigns in the past decade and rank among California's most deep-pocketed political donors.
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(at)sfchronicle.com.
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
Must credit the San Francisco Chronicle
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