Thursday, May 9, 2019
Court of Appeal:
$27.6 Million Fine Properly Imposed on Mercury Insurance
Opinion Says Trial Judge Failed to Recognize Collateral Effect of 2004 C.A. Decision
By a MetNews Staff Writer
The Fourth District Court of Appeal, in an opinion filed Tuesday but not publicly released, reversed an order striking down a $27.6 million fine—the largest ever imposed by the state Department of Insurance—against Mercury Insurance, declaring that the trial court failed to accord deference to a 2004 Court of Appeal opinion relating to the matter.
The department found in 2015 that Mercury had attempted to skirt Proposition 103, enacted by voters in 1988. The purpose of that measure, according to its preamble, was “to protect consumers from arbitrary insurance rates and practices.”
It required that rates be approved by the insurance commissioner. However, in more than 180,000 transactions during the period from 1999-2004, Mercury charged “broker fees,” ranging from $50 to $150, in addition to the approved rates for premiums.
While brokers are permitted to charge fees, the department declared in 2015 that Mercury had unlawfully set out in 1988 to sidestep Proposition 103 by renaming about 700 of their agents “brokers” and charging extra for their normal services.
That same contention had been put forth in a June 2000 complaint filed in San Francisco Superior Court by Robert Krumme “on Behalf of the General Public.” He set forth that he was challenging, under the Unfair Competition Law, “the practices of the defendant insurance companies in selling automobile and other personal lines insurance policies through insurance producers denominated as ‘brokers’ who in fact act as defendants’ agents, but who nevertheless charge consumers ‘brokers fees.’ ”
“The broker fees are made part of—but are charged in addition to—the rates and premiums for defendants’ products that were previously approved pursuant to Proposition 103....Defendants do not disclose the broker fees to the Department of Insurance, and the broker fees have not been reviewed or approved as required by law.”
The trial court found in favor of Krumme, enjoining the practice, and in 2004, Div. Four of the First District Court of Appeal affirmed in Krumme v. Mercury Insurance Co.
Orange County Decision
Despite the Court of Appeal’s action in 2004, Orange Superior Court Judge Gail Andrea Andler on Aug. 12, 2016, granted a writ of mandate nullifying the fine imposed by then-Insurance Commissioner Dave Jones.
In the opinion reversing that decision, Justice David A. Thompson of the Fourth District’s Div. Three, said Andler erred in finding that the broker’s fees related to a “separate service.” He said she failed to give collateral effect to the pronouncement in Krumm that Mercury’s “brokers were acting and act in the course and scope of their agency in transacting insurance as ‘insurance agents’ on behalf of Mercury.”
Andler’s finding, he wrote, “directly contradicts the Krumme Findings that in charging the ‘broker fees’ Mercury’s ‘brokers’ were acting on behalf of Mercury, not providing a service to customers.”
“In ruling the ‘broker fees’ were not premium the court stated collateral estoppel did not apply because Krumme did not decide whether ‘broker fees’ were premium; rather Krumme stated ‘ratemaking was not at issue in the case.’ But this misses the point. The Commissioner never found Krumme had decided ‘broker fees’ were premium. The Commissioner’s finding Mercury charged ‘broker fees’ while acting as Mercury’s agent forecloses the court’s finding. And a determination about ratemaking is not necessary for a decision in this case.”
Public Release Delayed
The opinion, which was certified for publication, was attached to a press release issued late Monday afternoon by the California Department of Insurance. It was not yet posted on the Judicial Council’s website as of press time yesterday.
Attorneys on appeal were Jason D. Russell, Hillary A. Hamilton, Kasonni M. Scales, Adam K. Lloyd of Skadden, Arps, Slate, Meagher & Flom, along with Spencer Y. Kook of Hinshaw & Culbertson and Darrel J. Hieber, for Mercury; Harvey Rosenfield, Pamela M. Pressley, Jonathan Phenix of Consumer Watchdog,; Wylie A. Aitken, Casey R. Johnson, and Megan G. Demshki of Aitken Cohn, and Arthur D. Levy, for intervenor/appellant Consumer Watchdog; and Deputy Attorneys General Nhan T. Vu and Debbie J. Vorous for Jones.
The case is Mercury Insurance Company v. Jones, G054496.
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