USAA Class Action Lawsuit Accuses Insurer of Reserving ‘Real Membership’ Only for Officer-Class Customers

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A new proposed USAA class action lawsuit accuses United Services Automobile Association (USAA) of unfairly reserving “real membership” in the insurance company exclusively for officer-class customers, that is, commissioned and senior non-commissioned officers, officer candidates and their unmarried widows.

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The 42-page USAA class action lawsuit says that although the “member owned” insurance company represents that membership is available to consumers with a direct or familial connection with the U.S. military or certain military-related government agencies, “nearly two-thirds” of the defendants’ customers are improperly “relegate[d]” to nominal, or “fake,” member status.

According to the suit, “real” USAA members, in accordance with the company’s bylaws, enjoy financial benefits that include annual allocations to each member’s account from USAA’s unassigned policyholder surplus, which totaled more than $10.4 billion as of December 31, 2023, and annual distributions from the unassigned policyholder surplus.

While, in the past, purchasing a USAA policy necessarily made the purchaser a USAA member, the company has failed to disclose over the past several decades that non-officer customers are internally given an “associate member” status, which comes with no ownership rights or any of the benefits of “real USAA membership,” the case says.

The insurer has also wielded “patently confusing language” for nominal members that “plainly connotes they are eligible as and are members” and designed insurance contracts to “falsely premise and reinforce the belief that nominal members are members,” the suit alleges. 

For instance, USAA contractually promises in the standard policy form for its popular auto insurance product that “by purchasing this policy, [the purchaser is] a member of USAA” and eligible for annual allocations, the case says. Per the suit, these “unfair and deceptive tactics” lead enlisted personnel and their family members to believe they are full-blown USAA members entitled to ownership benefits “rather than second-class customers.”

“In its advertising and general and direct communications, USAA assures enlisted personnel and military family members they are members while withholding information about their non-member status and actively misleading them to think they are USAA members with the same rights and privileges as real USAA members,” the class action lawsuit summarizes.

While officers receive insurance from USAA directly, so-called second-class customers allegedly receive insurance from a subsidiary, either USAA General Indemnity Company (USAA-GIC), USAA Casualty Insurance Company (USAA-CIC) or Garrison Property and Casualty Insurance Company. The value and profit from these companies flow directly to USAA and are shared with officer USAA members via annual distributions from, and allocations of, unassigned policyholder surplus, the filing says.

“By contrast, neither USAA nor its subsidiary insurance companies allocate or distribute any policyholder surplus to nominal members (although USAA-CIC, in which the adult children of officers are placed, usually declares a modest dividend each year),” the complaint reads.

The USAA lawsuit looks to cover all purchasers of one or more USAA insurance contracts placed with USAA-CIC, USAA-GIC, or Garrison where at least one such insurance contract included a policy containing a provision stating, “If this policy is issued by United Services Automobile Association (‘USAA’), … [b]y purchasing this policy you are a member of USAA and are subject to its bylaws.”

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