Court Upholds Insurance Commissioner’s Penalties for Broker’s Fees, Which Constituted Premiums in Excess of Approved Rates

June 10, 2019
Christopher Kendrick & Valerie A. Moore – Haight Brown & Bonesteel LLP

In Mercury Insurance Co. v. Lara (No. G054496, filed 5/7/19), a California appeals court ruled that the California Insurance Commissioner had the authority to impose penalties of $27,593,550 against Mercury Insurance Company for fees charged by brokers issuing its policies, because the brokers were de facto agents of the insurer, and the fees constituted premium in excess of the insurer’s approved rate.

Under insurance regulations, an insurance broker can charge a fee for services, but an agent cannot. (10 Cal. Code Regs., § 2189.3(c).) After Proposition 103 passed in 1988, and following adoption of regulations pursuant to the law, insurers were required to obtain approval of rates, meaning the premium charged. (Ins. Code, §§ 1861.01, et seq.) That was later defined as both direct and indirect costs associated with providing insurance coverage and any profit or additional assessment charged. (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305.)

Reprinted courtesy of Christopher Kendrick, Haight Brown & Bonesteel LLP and Valerie A. Moore, Haight Brown & Bonesteel LLP
Mr. Kendrick may be contacted at ckendrick@hbblaw.com
Ms. Moore may be contacted at vmoore@hbblaw.com



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