In November 1988, California voters approved Proposition 3, which requires insurers to obtain approval from the Department of Insurance before implementing property and casualty insurance rates.
To evade compliance with Proposition 3, Mercury Insurance misrepresented that its agents were brokers, implying that they were for consumers. The insurer than illegally allowed its agents to charge and collect unapproved fees from consumers on more than 180,000 transactions from 1994 to 2004.
Agents had a huge incentive to place policies with Mercury Insurance because of the extra fees under the scheme.
Additionally, the Insurance Department alleged that Mercury Insurance had unfair advantage against its competitors in the auto insurance market for using unapproved fees.
Furthermore, the s regulator accused the insurance company of false advertising by claiming that its premium was lower than competitors.
Commissioner Lara said the insurance company’s “illegal actions misled consumers and undercut competitors, which gave them an unfair advantage in the insurance marketplace.”
