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.’

By John Howard, CAPITOL WEEKLY

Despite well-heeled backers, two groups pushing for a constitutional overhaul of California’s government appear strapped for cash and must come up with millions of dollars to qualify reform initiatives for the November ballot.

Both groups, Repair California and California Forward, say they can do it in weeks — an April deadline looms – and a quick infusion of cash could change the picture dramatically.

But financial disclosure documents filed with the state paint a bleak picture.

“If it were easy, Californians would have done this long ago,” said California Forward spokesman Ryan Rauzon.

Repair California and California Forward favor different approaches to resolving the state’s dysfunction. Both have received widespread attention during the past year as the debate intensifies over California’s governance.

Repair California, backed by a San Francisco business-led coalition known as the Bay Area Council, wants a constitutional convention authorized by voters, the first in California since 1879. The group has two initiatives – one a constitutional amendment and the other an initiative statute — aimed at the November ballot. Both measures were cleared for circulation earlier this month.

Sacramento-based California Forward is backed by several major nonprofit foundations and headed by former Assembly Speaker Robert Hertzberg. It wants bipartisan, legislative approval of its proposed reforms, which revise the constitution, and wants the Legislature to place them on the ballot. The group’s changes include majority-vote budgets, long-term budgeting and protections for local government funding, among others. If the proposals don’t emerge from the Legislature, the group hopes to place them directly before voters in the form of two ballot initiatives.

If the legislative strategy fails, California Forward has threatened to gather signatures to place two consitutional revision measures on the ballot.

But Capitol sources say California Forward’s proposals face opposition in the Legisalture, some of it from legislative Republicans, virtually assuring that they have little or no chance of winning legislative approval, forcing the group to target the statewide ballot.

That means both groups will have to finance costly signature-gathering campaigns. At this point, according to financial disclosure records on file with the secretary of state, they don’t have the money to do so.

When asked whether they would pursue their constitutional revision via initiative, Rauzon said, “we’re pursuing both.” But California Forward leaders are meeting today to discuss tactics about how to proceed.

“The effort is still new,” he said. “We have to keep focused on both paths until the leaders of California Forward decide to pursue one strategy or the other. “The idea of a revision seems to be getting some momentum in the Legislature,” Rauzon added. “And some of that is due to the leadership from Darrell Steinberg, John Perez and Mark DeSaulnier” on reform issues.

Repair California, the reform group backing a state constitutional convention, raised more than $352,000 during 2009 – a significant amount but far less than the millions of dollars typically needed in California to gather signatures to qualify a pair of initiatives for the November ballot.

Some $300,000 of the group’s $352,141 came from two donors – San Francisco corporate management consultant Lenny Mendonca and the California Tribal Business Alliance.

Repair California spokesman John Grubb says the group has secured financial commitments that include $2 million from the Bay Area Council. And he says the group is on track to meet its fundraising goals of $3.6 million for logistical costs and signature gathering, plus $15 million to fuel the campaign once the initiatives qualify. The Bay Area Council is a San Francisco-area coalition of businesses and others who launched the drive for a constitutional convention.

The group’s staffing was expanded in December and its fund-raising efforts are proceeding apace, said Grubb.

“We’re happy with how the fundraising is going, and it’s ramping up – which is how it should go,” he said. He also said the group expected to spend 50 cents to 75 cents a signature. “Our commitments are coming in it looks like we’ll be fine to qualify for the ballot.”

Meanwhile, fundraising for California Forward also appears stalled. The group has $82,000 on hand and raised just $3,000 last year.

Ironically, as the reform groups struggle for funding, corporate interests already have qualified two measures for the June ballot.

One has a $3.5 million bankroll from Pacific Gas and Electric Co. Among other things, it would block locals from creating a publicly-owned and operated electrical utility district without a two-thirds vote. The other, pushed by Mercury Insurance chief George Joseph, would allow insurers to give long-term customers a discount, although critics say it would actually do precisely the opposite – it would punish consumers who shop around.

Qualifying grass-roots initiatives for the ballot is expensive because they require hundreds of thousands of signatures. A constitutional amendments requires 694,354 valid signatures of registered voters; an initiative statute requires 433,971 signatures.

Of the two initiatives sought by Repair California, the first is a constitutional amendment that would authorize a constitutional convention. The second, an initiative statute, would set up the logistical backbone for the convention – the staffing, the administration, the process, the scope, etc.

California Forward seeks constitutional revisions, which are different from constitutional amendments in part because they can be accomplished legislatively.

Typically, proponents of California ballot initiatives turn in far more signatures than required in order to ensure they have a sufficient number of valid signatures. A 40 percent surplus, or more, is not uncommon. Election officials validate the signatures through random checks.

Grubb said his group hopes to turn in 1.1 million signatures on the proposed constitutional amendment, and plans a similar over-submission on the statutory initiative. The two measures, which qualified for circulation last month, are being circulated as a package, he noted. He estimates that the signatures will cost 50 cents to 75 cents each, far below the estimates of professional signature gatherers.

He said his campaign has built its own signature-gathering firm to ensure that the initiatives qualify. Grubb also said that Repair California has been “blacklisted” by professional signature gatherers and intends to file a lawsuit against the industry.

“We are confident we will collect the signatures we need. That said, our defensive measures have cost us approximately a million dollars, necessitating requests for more volunteers and more donations,” Grubb said.

The cost of gathering signatures varies dramatically in California, and typically rises as the submission deadline approaches. Although it has hovered between $1 and $2 per signature for years, it has risen dramatically, to $3 or more, in some high-stakes ballot issues such as tribal gaming, insurance and the 2003 recall of former Gov. Gray Davis.

During the winter, it averaged about $1.55 to $1.65 per signature obtained by professional gatherers, according to one initiative-qualification expert.

For Repair California, that translates into about $1.75 million to qualify the constitutional amendment and about $1 million for the other – well within the group’s anticipated budgeting. Presumably, those costs will be cut further by circulating the petitions together, but just how much is uncertain.

Aside from signature gathering, the costs of a full-blown media campaign also are high – for candidates, $4 million per week as Election Day nears is not uncommon — with television advertising consuming most of the campaign budget.