Class Action Claims USAA Excludes Mandatory Fees from Total Loss Payments

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According to a proposed class action, USAA Casualty Insurance Company and USAA General Indemnity Company have underpaid insureds whose vehicles were declared a total loss by systematically failing to include license or registration fees and dealer fees as part of the cars’ actual cash value.

The suit explains that standardized policy language concerning comprehensive and collision coverage is found in all USAA car insurance policies issued by the defendants in Mississippi. Under the policies, the defendants promise that USAA will pay for an insured’s loss—any event that triggers coverage under the policy—by repairing or replacing the damage to the insured vehicle, or paying the car’s actual cash value (ACV) in the event the vehicle is declared a “total loss,” the case says. Per the suit, a total loss occurs when the cost of repairing or replacing the damage exceeds the vehicle’s pre-loss value less salvage value.

According to the lawsuit, a car’s ACV is defined as “the cost to buy a comparable vehicle, meaning a vehicle of the same make, model, year, body type, options, and with a similar mileage and physical condition.” Importantly, the USAA policies at issue do not exclude license or registration costs or dealer fees from the cost of replacing a vehicle, nor do they require the insured to purchase a replacement vehicle prior to receiving payment from the defendants, the complaint says.

The lawsuit alleges that the defendants, despite promising to pay a vehicle’s full ACV in the event of a total loss, fail to include the mandatory license/registration and dealer fees as part of the ACV payment.

“This failure to pay the full ACV of the total-loss vehicle constitutes a breach of contract,” the complaint claims.

Mississippi imposes license or registration fees in three forms—a $15.00 “privilege tax,” a $14.00 “service fee,” and an ad valorem charge at the applicable mileage rate calculated at the car’s “assessed” value, i.e. 30 percent of the MSRP less depreciation, the suit continues. On average, a vehicle incurs roughly $571.00 in license fees that must be paid in order for the car to be driven legally, according to the case.

Under Mississippi law, and as confirmed in USAA’s policy language, a car’s ACV is comprised of all costs reasonably necessary to purchase a replacement vehicle, which the suit argues includes license and registration fees given these costs are necessary to make the insured “whole.”

Moreover, the case argues that the cost of purchasing a replacement vehicle is reasonably likely to include “dealer” or “documentation” fees, which average to about $300.00 and are capped at $425.00 in Mississippi. 

“License or registration fees and dealer fees are both reasonably necessary to securing a comparable vehicle following a total-loss,” the complaint avers.

USAA, the lawsuit alleges, “never pays license fees or dealer fees” as part of ACV payments despite recognizing that the costs are necessary to replace a vehicle. The case points out that the defendants do, in fact, pay sales tax and title fees, which are similarly required as part of a car’s replacement costs.

“There is no material difference, for purposes of ACV, between sales tax and title fees on one hand, and registration or dealer fees on the other,” the complaint scathes.

The complaint argues that the defendants’ promise within their insurance policies to “place insureds into their pre-loss position”—i.e. paying the cost of obtaining substantially the same vehicle—would require the payment of license or registration fees and dealer fees.

The lawsuit looks to cover the following proposed class:

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