By Carla Marinucci, THE SAN FRANCISCO CHRONICLE

Federal and state lawmakers called Monday for a closer examination of Mercury Insurance Group in the wake of a state report that suggests the firm may have engaged in illegal practices, including deceptive pricing and discrimination against military personnel and people in other occupations.

The document from the office of State Insurance Commissioner Steve Poizner, reported on by The Chronicle Monday after the newspaper obtained it through the state Public Records Act, said the company may have repeatedly violated Proposition 103, the landmark consumer protection law passed by voters in 1988.

According to the state report, Mercury did not immediately grant coverage to applicants including artists, emergency vehicle operators and military personnel.

“I am concerned that some California insurers may have discriminated against soldiers and veterans by charging them higher premiums,” U.S. Rep. Loretta Sanchez, D-Garden Grove Orange County, a member of the House Armed Services Committee, said Monday.

“We should be celebrating the service of our men and women in uniform, not penalizing it.”

Sanchez vowed to “ensure that the appropriate state and federal authorities take action to guarantee that our soldiers and veterans are protected against this type of abuse.”

At the same time, two Democratic Assemblymen who are running for insurance commissioner said they intend to closely examine the state’s findings and determine what needs to be done.

Assemblyman Dave Jones, D-Sacramento, called the 275-page state report “very disturbing.”

“It would appear that in many cases, consumers were being taken advantage of,” Jones said, adding that he is concerned that the firm may have engaged in “bait and switch” pricing and discrimination “against people in a particular industry – such as artists, actors, dancers.”

Jones said he would review the report and talk to other lawmakers about “the possibility of oversight on this issue.”

Assemblyman Hector De La Torre, D-South Gate Los Angeles County, said, “There seems to be a pattern and practice of these behaviors by Mercury – so the million-dollar question is … what is the Department of Insurance doing to control this? It’s not at all clear what they did to remedy the situation.”

In a statement Monday, Mercury officials dismissed the report, the state’s most recent completed investigation of the firm from 1998 to 2004, saying consumer groups were trying to “mislead consumers and rehash old allegations.”

“Many of these allegations were dropped from the final report because they were found to be without merit,” the company said. Its agents and employees are “committed to providing our customers with the best insurance value possible and unsurpassed service and care.”

Consumer Watchdog, a leading advocacy group, Monday called on Navy Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, to investigate whether Mercury may be discriminating against military personnel by supporting Proposition 17 on the June ballot.

The measure, known as the “Continuous Coverage Discount Initiative,” would affect millions of consumers with automobile insurance.

Harvey Rosenfield, the founder of Consumer Watchdog and author of Prop. 103, told reporters that the state examination is an indictment of the firm.

He said he asked Mullen to examine whether Prop. 17 would allow Mercury to charge higher rates to U.S. military members who do not maintain continuous car insurance coverage while serving their country at home – say, at boot camp – a practice that is illegal under Prop. 103.

Kathy Fairbanks, who represents Californians for Fair Auto Insurance Rates, which supports Prop. 17 with $3.5 million in backing from Mercury, said the initiative is supported by military groups including the American GI Forum and the Republican Veterans Association because it would lower costs for military personnel and other state consumers.

Poizner, a Republican candidate for governor, continues to investigate Mercury, the parent firm to the state’s third-largest auto insurance firm, which serves 10 percent of the state market.

His office is involved in an administrative action against Mercury for alleged noncompliance on an issue dating back to 1998 that surfaced in the state report.

Since 2006, the state has fined Mercury $600,000 for violations based on its own examinations and on consumer complaints about the firm.

State officials told The Chronicle that they uncovered 25 different issues of concern in the company’s practices in their studies that date back to 1998 – seven of which remain unresolved.

By Steven Harmon, SAN JOSE MERCURY NEWS

SACRAMENTO, CA — Mercury Insurance Corp. has a history of discriminatory practices against an array of groups, including military personnel, that led to unfair surcharges or outright denial of coverage, according to a 275-page report released by the Department of Insurance.

The document, which is being used as part of an administrative case the department is building against the company, was touted Monday by a leading consumer advocate as proof that Mercury intends to “legalize what is now illegal,” with Proposition 17, the ballot measure underfunded largely by Mercury.

“The breadth of Mercury’s discrimination against people is really astonishing to me,” said Harvey Rosenfield, founder of Consumer Watchdog and author of Proposition 103, the 1988 voter-approved law that governs insurance rates. “Here you have an insurance company that broke the law (that is now) using the people’s initiative power to pass a measure that would penalize people just because they didn’t have coverage or had a lapse in coverage.”

A spokeswoman for Proposition 17, Californians for Fair Auto Insurance Rates, said past charges against Mercury are unrelated to the ballot measure.

“We’re talking about a preliminary report issued six years ago that reviews things that are 12 years old which have no bearing on Proposition 17,” said Kathy Fairbanks.

A Department of Insurance spokesman said it stood by its report, and noted that the department has fined Mercury $550,000 in the last five years for claims handling practices and underwriting violations.

“We do market conduct exams every five years at least and will continue to examine their behavior,” said Darrel Ng. “We will continue to be tough on them and any insurers who do not follow the rules.”

The release of the document in late January by Insurance Commissioner Steve Poizner could have gubernatorial campaign implications. Poizner is running for governor as a GOP candidate, while presumed Democratic nominee Jerry Brown, as attorney general, has been criticized for writing a favorable title and summary for Proposition 17. Brown has received $13,000 in contributions from Mercury.

Consumer Watchdog sent a letter to Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, requesting an investigation into Mercury’s policies toward members of the armed services.

Specifically, the internal Department of Insurance report found that Mercury refused to cover, or make policies available to, military personnel.

“When an American insurance company is unjustly and perhaps illegally targeting men and women who are willing to shed blood for our country, we believe the Joint Chiefs of Staff should investigate the matter and take official action to stop further discrimination by the company against American troops,” the letter said.

Fairbanks said the military is better off under Proposition 17 than under current law, saying that if a member of the military discontinues insurance in another state, he or she can get the continuous coverage discount when moving back to California. But that’s at the discretion of the insurer.

In cases dating back to the 1990s through 2004, the Department of Insurance cites numerous instances in which Mercury overcharged, canceled, refused to sell insurance or made insurance more difficult to buy. Customers who were in the military, were unmarried adults living together, had jobs in the entertainment industry, were artists, longshoreman, “domestics” and other “unacceptable” occupations, were refused coverage, the report said.

In many of the cases, Mercury claimed to have corrected the problems, but follow-ups showed they hadn’t, according to the department’s report.

The company charged penalties or surcharges to drivers who had prior accidents that were not the driver’s fault, for traffic violations when the customer was not convicted or who had no prior insurance coverage or who had lapses in coverage.

Mercury required that some diabetics, cardiovascular patients and people who “suffered from some other medical condition” would be denied coverage unless they provided Mercury with a medical examination report.

People who worked out of their homes, had one source of income, or were self-employed and working out of their homes would face hurdles in obtaining coverage.

Mercury also refused to provide immediate coverage to people who were unemployed. Underwriters for Mercury were encouraged with incentives to deviate from company rules to reject certain applications. And Mercury overcharged policyholders by denying them discounts they were entitled to, the report said.

Reach Steven Harmon at 916-441-2101.

By Carla Marinucci, SAN FRANCISCO CHRONICLE

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 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.

Prop. 17 Affects Rates

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.

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.

Former state insurance commissioner John Garamendi, now a congressman, said that starting in 2002 his office “received complaints about Mercury’s practices – and those complaints rose to the level where we felt it was necessary to investigate.”

Under Poizner, who was elected insurance commissioner in 2006, the state has continued to investigate Mercury, the parent firm to the state’s third-largest auto insurance firm, which serves 10 percent of the market in California, records show.

“Mercury has a deserved reputation for abusing its customers and intentionally violating the law with arrogance and indifference,” the state department wrote in a Feb. 20, 2009, legal filing related to its administrative case.

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.

Political Clout

Garamendi and others said Mercury has a reputation for playing political hardball.

In 1996, when then-state Senate Pro Tem Bill Lockyer, a Democrat, opposed Mercury’s effort to amend Prop. 103, company chairman Joseph responded by writing a $500,000 check – to the state GOP.

“What really perturbed me is that, instead of cleaning up their act, they decided to try and change the law – to make legal what was illegal,” Garamendi said. “They went at it through the Legislature and we ultimately defeated that. And now they’ve come back with Prop. 17 … so they can do what is fundamentally unfair to the consumer.”

Fairbanks argued that Prop. 17 “levels the playing field and allows all the insurers to offer the same discount, which ultimately drives down rates” to benefit California drivers with good records who’ve maintained their insurance coverage.

Rosenfield said Poizner “deserves accolades for disclosing an examination that is important for the public to consider – not just customers of Mercury but voters who will have to assess the credibility of this initiative.”

Consumer Watchdog has urged Brown – who has yet to formally declare himself a candidate for governor – to consider revising the title and summary for Prop. 17 that will appear on the ballot. The group argues that Brown’s ballot description failed to mention that the measure could lead to higher rates for some Californians.

Brown’s office has said the summary accurately reflects changes in the initiative and its impacts. A nonpartisan analysis of Prop. 17 on the insurance commissioner’s Web site says some consumers will get discounts under the initiative but it “will result in a surcharge for other drivers.”

State Report On Insurance Firm

To read the Department of Insurance report on Mercury Insurance Group, go to www.sfgate.com/ZJFW.

E-mail Carla Marinucci at [email protected].

By Thomas Elias, VENTURA COUNTY STAR

The bleating from the left has been loud and long over the U.S. Supreme Court ruling that will allow political advocacy advertising by corporations — even foreign-owned ones — right up until Election Day.

Meanwhile, the right rejoices over the decision rammed through by the court’s narrow conservative majority. Both sides are likely mistaken, at least as far as this rule change figures to affect California.

Corporations and wealthy individuals have been spending almost as much as they want here for many years, with little to restrict them in anything besides races for federal offices like president, the U.S. Senate and Congress. Just as with laws covering federal elections, their donations to individual candidates are limited in state elections, but not their spending on either advocacy or issue-oriented politics.

To see how this works, there’s no need to look any farther than the initiatives that have already qualified for this year’s two statewide ballots.

Mercury Insurance spent more than $1 million to gather the signatures needed to qualify Proposition 17, a June initiative that would let it and other car insurance firms penalize anyone who has not previously had an insurance policy or has allowed one to lapse, even if a policy was suspended because someone moved out of state for something like college or military service.

In other states that allow such surcharges, the cost of a Mercury policy can almost double for those with no record of constant coverage. This won’t happen here, Mercury insists, while also asking voters to believe that the change would result in discounts for drivers with continuous coverage.

Then there’s Pacific Gas & Electric Co., which has put more than $3 million into its bid to require a two-thirds vote in any city whose elected council wants to set up or expand a municipal electric utility of its own. It’s on the June ballot as Proposition 16.

Both these measures are purely about money, not ideology. But the reality is still plain: Companies are already spending plenty to move public policy in California their way. So how has the Supreme Court changed things in here?

Meanwhile, there’s another twist in the 5-4 court decision holding that corporations have the same free-speech rights as individual persons: American subsidiaries of foreign-owned companies most likely will be able to kick in money, so long as it comes from revenues taken in from their American operations.

This opens the way to some very ironic possibilities. Venezuelan leader Hugo Chavez, for example, has for years been a leading villain in the conservative pantheon of foreign figures. But Chavez controls the Citgo gasoline and oil refining company, a wholly-owned subsidiary of Venezuela’s state-owned oil company, Petroleos de Venezuela S.A., that runs thousands of service stations in much of America.

Some California Republicans like the idea of corporations running supposedly “independent” ads blasting Democratic Sen. Barbara Boxer right into November, but how will they like it if Chavez uses Citgo cash to buy ads plugging Boxer and other liberals?

How much would those same Republicans, who often deplore the way many American jobs have migrated overseas, like it if Chinese money backs politicians favoring an even more internationalized economy?

This points up one problem with getting overly excited about Supreme Court decisions when they first come down: Sometimes their effects are very different from what analysts first expect.

Then there’s the fact that California voters don’t always go for the candidate or cause with the most money. True, if one side has virtually no cash and the other spends $100 million or so — as happened with a failed 1998 initiative aiming to rescind a state electric deregulation plan that eventually led to the energy crunch of 2000 and 2001 — the big money will win.

But as long as a candidate or cause has enough cash to make itself heard at all, big money doesn’t guarantee victory. For evidence, see the history of fully or partially self-funded candidates like Michael Huffington, Norton Simon, William Matson Roth, William Simon and Al Checchi, none of whom got elected to anything despite vastly outspending the competition.

Or the fate of the 1990s-era initiative that used many millions of tobacco industry dollars in an unsuccessful attempt to roll back anti-smoking regulations.

The bottom line: Both the panic and the gloating that followed the Supreme Court’s corporate money decision are probably overreactions. This ruling will surely have some effects, but likely will not bring nearly as profound a change as many expect.

Thomas D. Elias of Santa Monica is an author and columnist. E-mail him at [email protected].

By Jeanny Hopper, Auto Insurance News

The Mercury Insurance fully funded initiative which aims to increase auto insurance rates was assigned Proposition 17 on the ballot for the June 8 California elections, announced Debra Bowen, Secretary of State.

The Campaign for Consumer Rights, campaign affiliate of Consumer Watchdog, said in a press release that the proposition would penalize drivers, including seniors and soldiers, with surcharges if they are found to have a lapse in auto insurance coverage for ‘virtually any reason’ in the last five years.

The proposal will compel drivers to pay hundred of dollars more for auto coverage, especially when they stopped driving for a season or didn’t need car insurance for a certain stretch of time. Moreover, insurers will be permitted to levy higher rates to drivers who are found to have missed even just one premium payment.

Proposition 103, an insurance reform measure implemented since 1988, would be superseded if Proposition 17 gets a favorable result. The former proposition disallows insurers from increasing premiums on clients for the simple reason of not having previous automobile insurance.  The measure had accumulated over $63 billion worth of savings for California motorists, since companies were banned from factoring in a driver’s coverage history when an insurance application is filed. The Mercury initiative may lead to surcharges which will compound expenses by as much as 40 to 227%,

Proposition 103 author Harvey Rosenfield urges Californians to be discerning and ‘not be fooled’ by the Mercury Insurance-funded proposal.  Rosenfield warned that ‘Prop 17’ threatens the financial condition of seniors, soldiers and families who are already having a hard time.

The Department of Insurance (DI) confirms the implications of ‘Prop 17’. Meanwhile, Mercury insists that they will not increase their premiums.

The DI explained that if any insurance company offers continuous coverage discount for some clients, ‘it will result in a surcharge for other drivers’ to compensate for losses.

As of press time, Attorney General Jerry Brown is preparing the final Title and Summary of the Mercury initiative for inclusion in the June ballot before the February 5 deadline.

Rosenfield explained that the Insurance Commission will be able to guide Brown with ‘definitive analysis’ necessary to provide an accurate summary for ‘Prop 17,’ as well as the corresponding hikes which may follow. He added that the commission’s report will be helpful since voters will rely on the Attorney General’s observations before making intelligent voting decisions.

Mercury Insurance was reportedly ordered by the court to stop levying illegal surcharges in 2005. Rosenfield pointed out that in the past five years, the insurer forced surcharges on hundreds of thousands of its clients who have possessed ‘break-in insurance coverage.’