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NEWS RELEASE
Jul 17, 2003


CONTACT: Doug Heller - 310-392-0522 x309

Assembly Passes Mercury Insurance Surcharge Bill; Insurer Has Contributed $1.2 Million to Politicians

Chance to Veto SB 841 Again Will Be Davis' Litmus Test With Consumers, Low-Income Drivers, and Voters
Santa Monica, CA -- Legislation that would allow auto insurers to surcharge drivers who have had a lapse in insurance coverage or were previously uninsured was approved by the California Assembly today with 55 votes. SB 841 (Perata -- Oakland) is sponsored by Mercury Insurance, which has contributed over $1.2 million to politicians since 2001. A nearly identical bill was vetoed in 2002 by Governor Davis because, according to the veto message, it violated Proposition 103.

SB 841, which is opposed by the state's consumer groups and low-income advocates as well as Insurance Commissioner Garamendi, would illegally violate voter-approved Proposition 103. The insurance reform law bars companies from penalizing a driver due to a lack of prior insurance. Prop 103 also cannot be amended except to "further its purposes."

"The Governor has a choice: either stand up to protect consumers, low-income drivers and the voters by again vetoing SB 841, or flip-flop and sign it to please campaign contributor Mercury Insurance," said Carmen Balber, consumer advocate with the Foundation for Taxpayer and Consumer Rights (FTCR). "Californians will see this bill as a litmus test on Davis' leadership -- does he serve the people or the insurers that fill his war chest with cash?"

Recently, in response to rumors that Mercury Insurance CEO George Joseph has boasted that Davis will sign the bill this year, FTCR president Harvey Rosenfield called on the Governor to reject contributions from Mercury to his anti-recall campaign. The governor has not responded.

Mercury Insurance has given California politicians over $1.2 million since 2001. The bill's author, Senator Don Perata, received $25,000 from the company prior to the bill's introduction last year and another $10,000 in September 2002. FTCR noted that the Democratic Party has received the bulk of the contributions from Mercury, amounting to more than $1 million since 2001. A detailed timeline of Mercury contributions is available here.

"Mercury Insurance is trying to circumvent the governor, the regulator and the courts by throwing money at the legislature," said Doug Heller, FTCR senior consumer advocate. "We are witnessing chronic corporateering in the Capitol, in which the will of corporate contributors is enacted at the expense of the public interest."

Consumer Groups will sue to invalidate SB 841 if enacted
As a violation of voter-approved Proposition 103, SB 841 would end up costing the state hundreds of thousands of dollars in legal fees if enacted. In the midst of the largest budget crisis in California history, 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 legislative amendments to Proposition 103 and FTCR has vowed, if necessary, to take up that fight again.

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.

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.

"Why should those who cannot afford continuous coverage be penalized by insurance companies simply because they are poor and auto insurance costs too much? This legislation discriminates against those with small paychecks and big bills who choose not to drive because of financial stresses at certain times in their lives," said Heller.

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.

Low-Income Groups Oppose Surcharge
The bill is opposed by low-income and consumer groups, including: Consumers Union, Department of Insurance/ Commissioner Garamendi, Coalition for Humane Immigrant Rights of Los Angeles (CHIRLA), ACORN, Los Angeles Alliance for a New Economy, JERICHO: A Voice for Justice, Labor/Community Strategy Center (Bus Riders Union), Californians for Justice (CFJ), Gray Panthers California, Bet Tzedek Legal Services, Strategic Action for a Just Economy (SAJE), Center for Public Interest Law, San Francisco Tenants Union, Consumer Action, and FTCR.




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