Suit Claims USAA Charges More to Lower-Ranked Insureds

The United States District Court in Boston recently denied a motion to dismiss a potential class action lawsuit, allowing claims of unfair insurance practices based on military pay grades to proceed against the United Services Automobile Association (USAA) and USAA General Indemnity Company (GIC).

United Services Automobile Association (USAA) is a financial services company that primarily serves active and retired members of the U.S. military and their families. To be eligible for USAA membership, individuals must be active, retired, or honorably separated officers or enlisted personnel of the U.S. military, cadets or midshipmen at a U.S. service academy, children of a USAA member, or spouses or former spouses of a USAA member. USAA markets itself as providing competitive rates and excellent customer service for its members.

USAA provides insurance to current and former military personnel through four different insurers that operate under common management and control: United Services Automobile Association, USAA General Indemnity Company (GIC), USAA Casualty Insurance Company, and Garrison Property and Casualty Insurance Company (Collectively, “USAA”)

Class action on insured’s company placement based on military pay grade

Plaintiffs Christopher Wright, Robert Manning, Elliot Chefitz, and Joshua Steiss, representing a class of similarly affected individuals, filed a lawsuit under Massachusetts General Laws Chapter 93A. They allege that USAA and GIC engaged in unfair and deceptive practices by basing insurance policy placements on military pay grades.

The plaintiffs, who are firefighters and former military personnel, allege that USAA improperly relies on policyholders’ military pay grade to determine their placement in either USAA or its subsidiary, GIC.

According to the complaint, USAA places current and former military personnel with pay grades E-1 through E-6 in GIC, while those with pay grades E-7 and above are placed in USAA. The plaintiffs contend that this practice violates Massachusetts insurance regulations, prohibiting occupation and income as factors in determining policy placement within an insurance company group.

Low military pay grade allegedly gets higher premiums from USAA

The plaintiffs allege that USAA’s practice leads to E-1 to E-6 policyholders paying higher premiums than those with higher pay grades (E-7 and above) despite similar risk profiles. The complaint alleges the present automobile premium rate disparity for otherwise similar insureds is substantially higher for bodily injury, property damage, personal injury protection, and collision coverages between placement in USAA and GIC in premiums. To the plaintiffs, this disparity constitutes an unfair and deceptive practice under Massachusetts General Laws Chapter 93A, which entitles them and the class they seek to represent for damages and injunctive relief.

Court allows plaintiffs’ 93A unfair business practices claim to proceed

USAA’s motion to dismiss, which the Court denied, alleged that the plaintiffs failed to state a claim because their former military pay grade does not equate to income or occupation. USAA argued that the plaintiffs’ allegations did not demonstrate a violation of Massachusetts insurance regulations. In response, the plaintiffs maintained that USAA’s use of military pay grade as a proxy for income and occupation violates the spirit and intent of the regulations and that the motion to dismiss should be denied. The Court agreed with the plaintiffs, finding that they had presented a plausible claim under Chapter 93A, and allowed the case to proceed.

Plaintiffs claim They were placed in GIC because of their prior low military pay grade

The plaintiffs in this case, Christopher Wright, Robert Manning, Elliot Chefitz, and Joshua Steiss, are firefighters and former military personnel who have private passenger automobile insurance policies with GIC. According to the amended complaint, Manning’s highest pay grade in the military was E-3, while Wright, Chefitz, and Steiss’ highest pay grade was E-4. Because their pay grades were below E-7, the plaintiffs allege that USAA placed them in GIC rather than United Services Automobile Association.

Alleged rate disparity of up to 61% based on military ranking of E-6 or less

The plaintiffs contend that this placement in GIC, based on their military pay grade, results in them being charged higher premiums compared to policyholders with pay grades E-7 and above, who are placed in the United Services Automobile Association. The amended complaint alleges that GIC’s base rates for various types of coverage are significantly higher than the United Services Automobile Association’s base rates.

In paragraph 50 of the amended complaint, the plaintiffs allege specific examples of the disparity in base rates between GIC and the United Services Automobile Association. According to USAA’s most recent major rate filing, submitted on October 13, 2022, GIC’s base rate exceeded United Services Automobile Association’s base rate by 61% for bodily injury, 22% for property damage, 84% for personal injury protection, and 25% for collision coverage.

The plaintiffs argue that this disparity in premiums between the two companies for policyholders with similar risk profiles is an unfair and deceptive practice under Massachusetts General Laws Chapter 93A and Massachusetts insurance laws.

The insurance laws the plaintiffs claim USAA violated

The insurance regulatory provisions on which the plaintiffs base their claims against USAA are Massachusetts General Laws Chapter 175E, § 4(a) and Code of Massachusetts Regulations 211 CMR 79.04(12).

Massachusetts General Laws Chapter 175E, § 4(a) states that insurance rates “shall not be excessive or inadequate, as herein defined, nor shall they be unfairly discriminatory.” To the plaintiffs, this provision prohibits the disparity in premium rates for insureds with similar risk profiles but different military pay grades between GIC and United Services Automobile Association as unfairly discriminatory.

The plaintiffs also argue that the Code of Massachusetts Regulations 211 CMR 79.04(12), which specifically prohibits insurers from using certain factors, including occupation and income, to determine placement in a particular affiliate within an insurance company group, applies to their situations.

The relevant sections of this regulation state:

“No Insurer or Insurance Company Group shall refuse to issue, renew or execute as surety a private passenger motor vehicle liability policy or bond, or any other insurance based on the ownership or operation of a motor vehicle because of any of the following factors, or otherwise use such factors to determine placement in a particular affiliate within an Insurance Company Group: . . . (h) occupation; (i) income[.].”

The plaintiffs argue that USAA’s use of military pay grade as a proxy for occupation and income violates this regulation, as it effectively determines placement in either GIC or USAA based on these prohibited factors.

The claimed unfair and deceptive business practices of USAA

The plaintiffs’ present sole cause of action against USAA and GIC is a claim under Massachusetts General Laws Chapter 93A, which prohibits unfair or deceptive acts or practices in the conduct of trade or commerce.

The plaintiffs allege that USAA and GIC violated Chapter 93A through three distinct unfair or deceptive practices:

Violating Massachusetts insurance regulations, specifically 211 CMR 79.04(12)(h) and (i), by placing E-1 to E-6 policyholders and E-7 and above policyholders into separate affiliates based on their income and occupation;

Charging E-1 to E-6 policyholders higher premiums than they would have been charged had USAA and GIC complied with 211 CMR 79.04;

Falsely stating in filings with the Commissioner of Insurance that they comply with 211 CMR 79.05(12) provisions by not considering occupation and income in their policy placement decisions.

The plaintiffs’ amended complaint seeks injunctive relief, actual damages, multiple damages, and attorneys’ fees.

The plaintiffs also seek to represent as class representatives that portion of the 21,000 USAA insured who may have been placed in GIC because of a military pay grade of E-6 or less.

The Court’s Analysis and ruling on USAA’s motion to dismiss

In its analysis of USAA’s motion to dismiss, the United States District Court in Boston applied the standard of review for a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). The Court must accept as true all well-pled facts, analyze them in the light most favorable to the plaintiff, and draw all reasonable inferences in favor of the plaintiff. A complaint must contain sufficient factual matter to state a claim for relief that is plausible on its face to survive a motion to dismiss.

The Court focused its analysis on the plaintiffs’ Chapter 93A claim alleging that USAA and GIC engaged in unfair and deceptive practices by violating Massachusetts insurance regulations. The Court considered three factors in determining whether the conduct rises to the level of an unfair or deceptive act under Chapter 93A:

Whether the conduct is within at least the penumbra of some common-law, statutory, or other established concept of unfairness;

Whether it is immoral, unethical, oppressive, or unscrupulous;

Whether it causes substantial injury to consumers.

In applying these factors, the Court found that the plaintiffs plausibly alleged that USAA’s practice of categorizing policyholders by military pay grade fell within the penumbra of the prohibitions under 211 CMR 79.04(12), even if pay grade is not explicitly equivalent to income or occupation. The Court noted that exact equivalence is not required at this stage of the proceedings.

The Court also found that the plaintiffs sufficiently alleged actual damages in the form of higher premiums paid by policyholders in GIC compared to those in the United Services Automobile Association.

The court denies USAA’s argument that the “Filed Rate Doctrine” barred the plaintiffs’ claims

In addition to the Chapter 93A claim, the Court addressed USAA’s argument that the filed-rate doctrine precludes the plaintiffs’ action. The filed-rate doctrine is a complex set of rules that generally provide that filings with regulatory agencies prevail over unfiled contracts or other claims seeking different rates or terms. However, the Court declined to dismiss the case on this basis, finding that at least some of the plaintiffs’ requested remedies, such as injunctive relief and damages for Chapter 93A violations, do not directly challenge the rates approved by the Commissioner of Insurance.

Based on its analysis, the Court denied USAA’s motion to dismiss, concluding that the plaintiffs had plausibly alleged a violation of Chapter 93A and that the complaint stated a claim upon which relief could be granted.

Motion to dismiss denied, but plaintiffs must still prove the validity of their claims

The Court noted that its decision merely allows the case to move forward to the discovery phase, where further evidence will be examined to substantiate or contest the plaintiffs’ claims.

Agency Checklists will continue to monitor and report on developments in this significant case.