State insurance department gets $41M settlement in 20-year case

Ending a two-decade battle over excessive insurance costs, California's insurance commissioner announced Wednesday Mercury Insurance will pay a $41 million settlement, the largest penalty in the history of the department against a property and casualty insurer.

"Today is a great day for California drivers and the strong consumer protections that California voters enshrined in law," said state Insurance Commissioner Ricardo Lara at a press conference following the Supreme Court's rejection of Mercury's request to review the case and historic fine.

However, the insurance company said it still disagreed with the appellate and state Supreme Court decisions upholding fines and decided to settle the case to move on.

"The facts are very clear. Mercury misrepresented that its agents were brokers, implying they worked for consumers when they really worked for the company," said Lara.

The state's previous insurance commissioner, Dave Jones, issued a notice of noncompliance against Mercury, alleging it charged rates not approved by the department that were unfairly discriminatory in violation of Insurance Code.

A spokesman for Mercury said Wednesday the actual fine that will effectively close the case is $500,000. The original fine of $27.6 million issued by Jones has already been paid, and the rest of the $41 million came in the form of interest and costs associated with the ongoing dispute, according to Mercury.

The unapproved rates were in the form of broker fees charged by Mercury agents, which should have been disclosed as a premium, according to court documents. Mercury illegally allowed its agents to charge and collect illegal fees ranging from $50 to $150 per policy directly from consumers on more than 180,000 insurance transactions from 1999 to 2004, according to Lara.

In response, Mercury represented by Jason D. Russell of Skadden Arps Slate Meagher & Flom LLP, sought a writ of administrative mandate challenging Jones' decision to issue fines. The department was represented by Senior Assistant Attorney General Diane S. Shaw of the California Department of Justice. Mercury Insurance Company v. Jones, 15-00770552 (Orange Super. Ct., Feb. 9, 2015).

Agreeing with Mercury, Orange County Judge Superior Court Judge Gail Andrea Andler vacated the fines.

However in May, the 4th District Court of Appeal reversed the judgment and reinstated the fines.

Responding in an email Wednesday, Mercury strongly criticized the appellate court's decision, calling it "inappropriate," "unprecedented" and "poorly-reasoned."

"The Superior Court of California resoundingly ruled in Mercury's favor on three different grounds," the statement began. "This ruling was later inappropriately reversed by the appellate court, but we have decided to settle this case so that we can move forward to focus on providing California consumers the tremendous value they've come to expect for the past 58 plus years from Mercury."

The strongly worded statement continued to hammer the appellate court's decision, saying it ignored the standard of review and instead of remanding the case back to the Superior Court to confirm proper deference was given to the commissioner, simply stepped into the trial judge's shoes and substituted its own factual conclusions.

"The court of appeal, in an unprecedented and poorly-reasoned opinion, reversed the superior court's decision, allegedly because the superior court did not give proper deference to the commissioner, even though the superior court expressly acknowledged its requirement to give a 'strong presumption of correctness,'" said the email from Mercury.

In a phone interview Wednesday, Jones said aside from being pleased his fines against Mercury were kept intact, the case reinforces California courts should give deference to the department in insurance-related matters such as these.

Jones pointed to the appellate opinion authored by Justice David A. Thompson, which said: "In reviewing whether an agency has properly interpreted a statute, although we make the final determination of its construction, we give 'great weight and respect to the administrative construction.' In determining how much weight we give to the agency's interpretation we consider 'factors relating to the agency's technical knowledge and expertise, which tend to suggest the agency has a comparative interpretive advantage over a court."

"They litigated that decision very tenaciously, appealing all the way up to the Supreme Court," Jones said of Mercury. "Thankfully, the court of appeal decided strongly in favor of my decision and the decision was not taken up by the Supreme Court and remained in full force and effect. I am pleased with outcome of that hard-fought litigation."