[Mercury General Corp.] – On August 12, the Superior Court of California, in the matter of Mercury Insurance Company vs. Dave Jones, in his Official Capacity as the Insurance Commissioner of the State of California, ruled in favor of the company, vacating the commissioner’s 2015 Order that had imposed a penalty of $27.6 million against the company.

The matter at issue was previously disclosed in the Company’s Annual and Quarterly Reports filed with the Securities and Exchange Commission as the “2004 NNC,” where the California Department of Insurance alleged that the Company charged rates in violation of the California Insurance Code, willfully permitted its agents to charge broker fees in violation of California law, and willfully misrepresented the actual price insurance consumers could expect to pay for insurance.

On Jan. 7, 2015, the Commissioner adopted a proposed decision by the Administrative Law Judge (“ALJ”), which had found that the Company’s “brokers” were actually operating as “de facto agents” and that the charging of “broker fees” by these producers constituted the charging of “premium” in excess of the Company’s approved rates. The ALJ’s proposed decision, as adopted in the Commissioner’s Order, assessed against the Company a civil penalty in the amount of $27.6 million, which was recorded as an expense in 2014 and paid in 2015.

The Superior Court has now remanded the matter to the California Department of Insurance with directions to vacate the Commissioner’s Order Adopting Proposed Decision and enter a new Order consistent with the Superior Court’s findings. The principal findings of the Superior Court Order were that (a) the “Broker Fees” at issue were not premium and the charging of such fees did not result in any violation of the Insurance Code rate regulation provisions, (b) the $27.6 million penalty imposed violated Mercury’s right to fair notice and due process, and (c) there was an unreasonable delay by the Department in issuing the Notice of Noncompliance in 2004 which resulted in a “manifest injustice” to the Company.

The financial statement recognition of the reversal of the $27.6 million penalty, plus any related interest, is yet to be determined as the Superior Court’s Order is subject to appeal.

Mercury General Corp. and its subsidiaries are a multiple line insurance organization offering predominantly personal automobile and homeowners insurance through a network of independent producers in many states. For more information, visit the Company’s website at http://www.mercuryinsurance.com.