USAA Gave Inadequate Refunds for Inflated Auto Insurance Premiums Amid Pandemic, Class Action Alleges

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A proposed class action claims that United Services Automobile Association (USAA) and several affiliates have unfairly profited from the COVID-19 pandemic by failing to provide policyholders with adequate refunds in 2020 and into 2021 despite taking on dramatically less risk.

The 20-page lawsuit alleges the defendants—United Services Auto Association, USAA Casualty Insurance Group, USAA General Indemnity Company and Garrison Property and Casualty Insurance Company Group—“scored a windfall” during the pandemic when stay-at-home measures kept drivers off the road and the number of accidents was reduced significantly.

Per the case, USAA has nevertheless refused to adequately refund customers for their overpayment of premiums during 2020 and 2021.

“This decrease in driving and accidents has significantly reduced the number of claims that auto insurers like USAA have paid, resulting in a drastic and unfair increase in USAA’s profits at the expense of its customers,” the complaint alleges.

The case states that while one conservative estimate puts the average auto insurance premium refunds owed to consumers at 30 percent for the period between mid-March and the end of April 2020, the defendants have offered a dividend and premium credit program that provided only a 20-percent dividend to policyholders for the three months starting in March 2020. The lawsuit argues that although USAA reportedly offered smaller premium credits later, these amounts were “still insufficient” to refund policyholders for the inflated price they paid for auto insurance amid the pandemic.

The case specifies that according to the Road Ecology Center at the University of California, Davis, the number of traffic accidents fell by roughly half after California initiated its stay-at-home order in late March 2020. Per the suit, this “dramatic decrease” in driving and auto accidents should have triggered a decrease in auto insurance premiums given these rates are intended to cover an insurer’s expected future claims and expenses.

The lawsuit, citing a joint report by the Center for Economic Justice and the Consumer Federation of America, states that as consumers stopped driving amid the onset of pandemic, insurers’ assumptions about future claims “became radically incorrect overnight,” and the current insurance rates at the time thus became excessive.

The lawsuit relays that USAA announced in Spring 2020 a plan to provide to auto insurance policyholders dividends representing a 20-percent premium credit for three months. The defendants additionally issued a 20-percent premium credit for customers who were issued a policy in April and May 2020 and a second 10-percent premium credit for those who had a policy in effect in August of that year, the suit says. Per the complaint, California policyholders were also issued even smaller refunds ranging from five to three percent of monthly premiums.

The case claims, however, that USAA’s premium credits and dividends program was inadequate to compensate policyholders for the inflated costs of their auto insurance throughout the pandemic and “nowhere near” the 30-percent benchmark estimated as an adequate refund for March and April 2020 alone.

“Under its insurance policies, including the policies of Plaintiff and the members of the putative class, USAA has the discretion to make voluntary downward premium adjustments based on an insured’s changed circumstances,” the complaint argues. “USAA improperly exercised that discretion by failing to issue refunds of the now-excessive premiums during changed circumstances, when it should have instead used its discretion, in good faith, to make appropriate adjustments.”

The case looks to cover California residents who purchased personal automobile insurance from USAA covering any portion of the time period from March 1, 2020 to the present.

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