USAA Favors Officers, Potential Class Action Suit Alleges

USAA provides favored financial and member status to military officers, according to allegations in a complaint filed with the U.S. District Court for the Western District of Texas. USAA categorizes members into unofficial membership groups of “real” and “fake” or “nominal,” claim the six USAA policyholders who filed the lawsuit in San Antonio.

“For nearly two-thirds of USAA’s customers, membership is a false, unfair, and deceptive promise that USAA has systematically breached,” the plaintiffs allege.

Officers, including commissioned and senior non-commissioned officers, officer candidates, and unmarried widows, make up the “real” membership group, while the remaining policyholders, including enlisted personnel and military family members, are “fake” or “nominal” members, according to the lawsuit.

“In its advertising and general and direct communications,” the lawsuit alleges, “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.”

Alleged favored status

The plaintiffs claim “real” USAA members receive annual financial allocation to their accounts from USAA’s unassigned policyholder surplus — which exceeded $10.4 billion at the end of 2023 — through termination payments and annual distributions. USAA provides termination payments to members who cancel their USAA insurance coverage and membership.

The lawsuit alleges that, in 2022, “termination payments to real members totaled $350 million … and annual distributions to real members totaled $343 million.” In 2023, USAA distributed a total of $938,366,124 in payments to “real” members from its unassigned policyholder surplus, according to the lawsuit.

The plaintiffs also allege that USAA directly writes the insurance contracts of officers but has three subsidiary companies underwrite coverage for non-officer USAA members — most of whom don’t receive any termination or annual distribution payments from USAA. The named subsidiary companies are USAA General Indemnity Company, USAA Casualty Insurance Company, and Garrison Property and Casualty Insurance Company.

“The subsidiary insurance companies’ values and profits flow directly into USAA and are then shared with real USAA Members (i.e., officers) through annual distributions from, and allocations of, unassigned policyholder surplus,” the lawsuit alleges. Furthermore, plaintiffs claim USAA and its subsidiaries don’t allocate any policyholder surplus to most “nominal” members, with the exception of some adult children of officers.

What’s next?

The plaintiffs filed the lawsuit pursuing damages in amounts determined at trial for breach of contract and violations of specific state laws related to insurance and business practices. In addition to the damages the plaintiffs are seeking for themselves, the lawsuit is pursuing class-action status for USAA policyholders in Arizona, California, Illinois, New Jersey, and Texas. USAA hasn’t formally responded to the lawsuit yet and didn’t reply to Insurify’s request for comment.

In 2021, a similar lawsuit filed in U.S. District Court in San Diego alleged that enlisted military personnel pay more for car insurance from USAA than commissioned officers. A federal judge approved class-action status for the lawsuit in January 2024, but the judge hasn’t set a trial date.