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NEWS RELEASE
May 07, 2003


CONTACT: Jamie Court - 310-392-0522 x327

Insurance $$ Threaten Law, Voters, Poor & Democratic Party; Mercury Insurance's Giving Reminiscent of Quackenbush-era

Previously Vetoed Bill To Surcharge Uninsured Drivers Passes Senate Committee
Sacramento -- One insurance company is again trying to buy itself legislative permission to surcharge low-income motorists for lapses in coverage after California's Insurance Commissioner ruled the practice violated voter-approved Proposition 103 and Governor Gray Davis vetoed the legislation last year for the same reason. That insurer -- Mercury Insurance -- also faces a California lawsuit for the illegal use of the surcharge that is proposed in the legislation.

Senator Don Perata, who received $25,000 from the company prior to the bill's introduction last year and another $10,000 from Mercury Insurance in September 2002, has reintroduced the Mercury-sponsored legislation -- SB 841 -- which would allow insurers to punish drivers for lapses in coverage. The bill passed the Senate Insurance Committee today with a 7-0 vote.

At the bill's hearing, the Foundation for Taxpayer and Consumer Rights (FTCR) warned that Mercury's giving and its proximity to key legislative decisions is reminiscent of Quackenbush-era abuses -- where official government decisions by former Insurance Commissioner Chuck Quackenbush were related to big insurer contributions.

View Timeline of Contributions and Votes.

"The history of this legislation is like a playbook in political corruption," said Jamie Court, FTCR's executive director. 'The voter's will, the regulator's authority, the poor's interests are all being forgotten for cash to keep the party machine running."

Mercury has contributed over $1.2 million to politicians since 2001. Following Governor Davis's veto of last year's legislation, in October 2002, Mercury contributed $215,000 to a Democratic Party committee known as "California Voter Registration 2002," which got out the vote for Democratic candidates. In March, the insurance company donated $20,000 to "Moderate Democrats for California." Mercury has donated $374,700 since September 2002, in addition to $837,250 between 2001 and September 2002, according to filings made with the California Secretary of State.

Low Income Groups Seek Democrats' Protection

11 groups representing low income motorists sent a letter to Senate Pro Tem John Burton today asking that he oppose SB 841. "This legislation discriminates against those with small paychecks and big bills who choose not to drive because of the financial stresses at certain times in their lives," the low income groups wrote. "We understand that Mercury Insurance is one of the biggest donors to the Democratic Party in California. But the people we represent are your party's soul."

Last year, Burton was a behind-the-scenes booster of the Mercury legislation. The Senate Majority Fund controlled by Senator John Burton received $100,000 from Mercury. Mercury donated an additional $150,000 to the failed term limit extension initiative Prop 45, led by Burton.

SB 841 is a so-called "gut-and-amend" bill that had previously dealt with the insurance commissioner's powers to stop insurers from violating California rules and regulations, before being suddenly and completely changed late last week as legislative deadlines approached.

Under SB 841, drivers who have to drop insurance coverage for a time because they cannot afford it (for example, due to job loss) will be punished when they purchase auto insurance anew. Additionally, drivers who have never purchased auto insurance will face a higher premium when they buy insurance for the first time. In exchange for the higher rates paid by the typically low-income drivers who have no prior insurance or a lapse in coverage, Mercury would be allowed to offer discounts to insured drivers who leave their company to buy a Mercury policy.

"I have been forced to let my insurance lapse at different times during the last seven years because I have been unable to continuously afford auto insurance," Mike Dean, a Colma motorist insured through Mercury, testified. "During those periods when I cannot afford insurance, I do not drive. If SB 841 became law, I would be charged hundreds of dollars more simply for being poor."

According to data on file with the Department of Insurance, under the Mercury scheme, a good driver with 22 years driving experience -- but without continuous coverage -- would pay $208 more per year than an equivalent driver who similarly signed up with Mercury but had continuous insurance coverage.

Mercury Seeks to Evade Law, Regulation and Litigation

1. SB 841 violates California law: The Mercury proposal illegally violates Proposition 103, which makes it illegal to increase a consumer's premium on the basis of their lack of previous insurance. The only legal way to enact this law would be through another voter-approved initiative.

2. SB 841 dismantles Department of Insurance regulations: Last year, former Insurance Commissioner Harry Low issued rules that Mercury's proposal was illegal and wrote regulations to stop companies from using this discount/surcharge scheme that targets the uninsured.

3. Mercury is facing a lawsuit for illegally surcharging the poor: A lawsuit against Mercury, which is before a California Court of Appeals, charges Mercury with illegally surcharging drivers without previous insurance. SB 841 would allow Mercury to continue this illegal practice.

Illegal Law Would Mean Another Budget Hit

The legislation would end up costing the state hundreds of thousands of dollars in legal fees, if it were enacted. The state would be forced to defend lawsuits that challenge the legality of a bill that amends and violates Proposition 103. In past years the courts have struck down illegal amendments to Proposition 103.



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