Mercury Insurance 2008 Annual Report Download - page 88

Download and view the complete annual report

Please find page 88 of the 2008 Mercury Insurance annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 106

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106

78
(14) Commitments and Contingencies
Leases
The Company is obligated under various non-cancellable lease agreements providing for office space and equipment
rental that expire at various dates through the year 2014. For leases that contain predetermined escalations of the minimum
rentals, the Company recognizes the related rent expense on a straight-line basis and records the difference between the
recognized rental expense and amounts payable under the leases as deferred rent in other liabilities. This liability amounted to
approximately $1,426,000 and $1,153,000 at December 31, 2008 and 2007, respectively. Total rent expense under these lease
agreements was $12,002,000, $9,469,000 and $8,292,000 for 2008, 2007 and 2006, respectively.
The annual rental commitments are as follows:
2009 $ 10,172
2010 $ 9,563
2011 $ 7,550
2012 $ 6,241
2013 $ 2,988
Thereafter $ 179
(Amounts in thousands)
As of December 31, 2008
California Earthquake Authority
The CEA is a quasi-governmental organization that was established to provide a market for earthquake coverage to
California homeowners. The Company places all new and renewal earthquake coverage offered with its homeowners policies
through the CEA. The Company receives a small fee for placing business with the CEA, which was recorded as other income in
the consolidated statements of operations.
Upon the occurrence of a major seismic event, the CEA has the ability to assess participating companies for
losses. These assessments are made after CEA capital has been expended and are based upon each company’ s participation
percentage multiplied by the amount of the total assessment. Based upon the most recent information provided by the CEA, the
Company’ s maximum total exposure to CEA assessments at April 26, 2008, was approximately $74 million.
Litigation
The Company is, from time to time, named as a defendant in various lawsuits relating to its insurance business. In most
of these actions, plaintiffs assert claims for punitive damages, which are not insurable under judicial decisions. The Company has
established reserves for lawsuits in cases where the Company is able to estimate its potential exposure and it is probable that the
court will rule against the Company. The Company vigorously defends actions against it, unless a reasonable settlement appears
appropriate. An unfavorable ruling against the Company in the actions currently pending may have a material impact on the
Company’ s results of operations in the period of such ruling, however, it is not expected to be material to the Company’ s financial
condition.
In Marissa Goodman, on her own behalf and on behalf of all others similarly situated v. Mercury Insurance Company
(Los Angeles Superior Court), filed June 16, 2002, the Plaintiff is challenging the Company’ s use of certain automated database
vendors to assist in valuing claims for medical payments alleging that they systematically undervalue medical payment claims to
the detriment of insured. The Plaintiff is seeking actual and punitive damages. Similar lawsuits have been filed against other
insurance carriers in the industry. The case has been coordinated with two other similar cases, and also with ten other cases
relating to total loss claims. The Plaintiff sought class action certification of all of the Company’ s insureds from 1998 to the
present who presented a medical payments claim, had the claim reduced using the computer program and whose claim did not
reach the policy limits for medical payments. The Court certified the class on January 11, 2007. The Company appealed the class
certification ruling, and the Court of Appeal stayed the case pending their review. The Company and the Plaintiff subsequently
agreed to settle the claims for an amount that is immaterial to the Company’ s operations and financial position. The settlement
was approved by the Court on April 24, 2008, and on January 30, 2009, the Court approved the final distribution of the settlement
proceeds.
The Company is also involved in proceedings relating to assessments and rulings made by the California Franchise Tax
Board. See Note 6 of Notes to Consolidated Financial Statements.