SACRAMENTO — The California insurance industry recently lost another battle against a law that protects consumers against excessive rate hikes when the California Court of Appeal upheld a lower-court ruling in a challenge brought by Mercury Casualty Co. and industry lobbying groups.

According to Consumer Watchdog founder Harvey Rosenfield — who wrote the voter-approved Proposition 103 that bars insurance companies from hitting consumers with excessive rate charges and passed-through unjustified expenses, according to a news release — insurance rates in the state were skyrocketing in the mid-1980s.

“California was the only state without the power to control major racketeering,” Rosenfield told the Northern California Record.

Rosenfield said insurance premiums in the state are now less than they were before the law was passed by voters in 1988.

According to a Consumer Watchdog news release, Mercury was ordered in 2013 by Insurance Commissioner Dave Jones to lower its overall homeowner’s insurance rates by 5.4 percent, representing a savings of $16 million in annual premiums to consumers.

Mercury and industry trade associations representing State Farm, Allstate, Farmers and other insurance companies filed a lawsuit, claiming the order violated their rights of fair profits and freedom of speech.

The Sacramento Superior Court disagreed with Mercury and the industry groups, and the Court of Appeal upheld that ruling on Feb. 10.

Consumer Watchdog said the appeals court called the plaintiffs’ arguments “hocus pocus” and “smoke and mirrors — nothing more.”

Rosenfield said the lawsuit was frivolous and represented the industry’s attempt to “get a redo.”

“Mercury is probably the single-worst auto insurer in California, and I don’t say that lightly,” he said. “They just won’t obey the law.”

Rosenfield said he would not be surprised if Mercury and the trade groups continued to appeal, but that “the likely result is that they’re all done.”

However, Mercury spokesman Shane Smith told the Northern California Record that “(w)e disagree with the decision and are considering an appeal to the California Supreme Court.”

Smith also clarified that Mercury is not challenging Proposition 103 as a whole, just the specific element related to the rate decrease, and that any appeal would only involve the case tied to that issue.

Rosenfield said consumers lose in lawsuits like the one filed by Mercury.

“Sadly, policyholders have to pay for all of these legal machinations,” he said. “The insurance industry is trying to use the court system to evade the will of voters.”

Consumer Watchdog said Proposition 103 has saved California consumers more than $100 billion since its passage.

“This latest attack by Mercury and the industry’s lobbying groups is yet another failed attempt to overturn the California consumer protection rules that have saved consumers billions of dollars over the last 28 years while allowing insurers to earn fair profits,” Consumer Watchdog senior attorney Pamela Pressley, who argued the appeal, said in the release.

The consumer group said Mercury applied for an overall 8.8 percent rate increase on its homeowner’s insurance line in 2009. The group subsequently “discovered that Mercury was trying to sneak into its rate increase nearly a million dollars’ worth of political contributions and lobbying expenses” and “wanted to make its policyholders pay for non-insurance related advertising expenses,” which are barred under Proposition 103.

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Organizations in this Story

Consumer Watchdog
413 East Capitol St SE
Washington, DC 20003

California 3rd District Court of Appeal
914 Capitol Mall
Sacramento, CA 95814

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