An insurer which imposed improper charges on customers cannot reimburse them with coupons requiring them to buy more of that carrier's insurance, a California judge ruled in rejecting a class action settlement.

It was the second time Los Angeles County Superior Court Judge Victoria G. Chaney has ruled out a coupon settlement in the case of Donabedian v. Mercury Insurance.

Plaintiffs have sued Los Angeles-based Mercury accusing the firm of improperly surcharging policyholders because they were previously uninsured or had a lapse in coverage. Such surcharges are specifically prohibited by Proposition 103, which also permits consumers to sue insurance companies for refunds when they violate its requirements.

According to the suit, Mercury began adding the charges in 1995.

Rather than require Mercury to refund the overcharges–estimated to be at least $76 million–the proposed settlement would have allowed the company to send out $45 coupons that could only be used toward the purchase of additional Mercury insurance policies or extra coverage. They could not be used to offset the cost of an existing insurance policy.

That and other flaws in the proposal led the Foundation for Taxpayers and Consumer Rights, which intervened in the case in 2005, to object.

Harvey Rosenfield, one of FTCR's lawyers in the case and the author of Proposition 103, said coupon settlements threaten the integrity of the legal process.

“Coupon settlements that have no real value and come with conditions that make them impossible to use undermine public confidence in the system of justice and encourage the defendants' lobby in its campaign to shut the courthouse doors to legitimate suits,” he said in a statement.

Special Reports /

Mercury Coupon Settlement Rejected

Related Stories

Recommended For You