USAA Life Insurance Co. has agreed to pay $90 million to settle a class-action lawsuit alleging it overcharged thousands of policy owners.
The settlement, which is subject to final approval from a federal judge, will end nearly four years of litigation.
The class involves anyone who owns or owned one of about 122,000 universal life insurance policies that have been in force since March 1, 1999.
The amount settling class members stand to receive will vary. A settlement document indicates each will collect a minimum of $50, along with a proportionate amount of the settlement after lawyers’ fees and other expenses.
Calls to attorneys representing the class were not returned Tuesday or Wednesday. But in a court document they called the proposed settlement an “excellent result.”
It “returns to class members a significant percentage of total potential overcharges without the necessity of making a claim,” the April court filing added.
In a declaration filed with the court, plaintiffs’ attorney Norman E. Siegel of Kansas City, Mo., said their expert calculated USAA Life overcharged policy owners from $360 million to $460 million on policies.
USAA Life is a subsidiary of San Antonio-based USAA, the insurance and financial services company that serves active-duty military personnel, veterans and their families. The company denied it did anything wrong.
“USAA disputes the allegations made in the lawsuit and maintains we acted appropriately at all times,” it said in a statement Wednesday. “We have reached a mutually beneficial settlement that allows us to avoid lengthy litigation and continue our focus on serving members.”
Roy C. Spegele of Cape Coral, Fla., brought the lawsuit in San Antonio federal court in 2017 after he became suspicious of charges on a $25,000 universal life insurance policy he purchased in 1992. Universal life insurance provides a death benefit with a savings component. The cash value earns interest and the policy owner can withdraw money against it.
Spegele, 73, consulted with an actuary and hired a lawyer to investigate his concerns before bringing his lawsuit. The complaint alleged USAA Life breached his insurance contract in multiple ways, including using inflated rates to calculate charges against his policy.
Spegele argued USAA Life could only consider “the insured’s age, sex and rate class” and its mortality expectations when determining the policy’s cost of insurance rates.
USAA Life, though, considered other factors such as expenses and profits, causing higher than authorized costs, the suit said. That resulted in USAA Life deducting charges from Spegele’s cash value in excess of the amounts specifically permitted by the policy, the complaint added.
USAA Life said the charges were “appropriate and permissible” under the policy terms, according to a court filing.
Spegele filed his complaint as a class action, seeking to represent thousands of other USAA Life policy owners who were allegedly overcharged.
USAA Life argued against the lawsuit’s class-action certification, but Chief U.S. District Judge Orlando Garcia in San Antonio granted Spegele’s request in September.
Almost immediately, the parties began settlement discussions. USAA Life also appealed Garcia’s ruling to the 5th U.S. Circuit Court of Appeals. The appeal was pending at the time the settlement was reached.
The settlement class includes anyone who owns or owned one of about 39,000 Universal Life 1 or 2 insurance policies and one of about 83,000 Universal Life 3 or 4 insurance policies in force on or after March 1, 1999.
Attorneys for the plaintiffs will collect 30 percent of the $90 million settlement, or $27 million, plus as much as $300,000 for expenses. A settlement administrator will receive up to $200,000.
Spegele, the lead plaintiff, will receive a “service award” of up to $20,000.
The risks and burdens of potentially protracted litigation factored into the parties settling, according to a court filing.
Lawyers for the class have pursued similar actions against other insurance companies in recent years. They obtained nearly $60 million for a class of 103,000 policy owners in a California case against John Hancock Life Insurance Co. in 2018. They also also obtained a $34.3 million jury verdict against State Farm Life Insurance Co. for 24,000 policy owners in Missouri that same year.
More on the USAA Life settlement is available at usaacoisettlement.com. Class members don’t have to do anything to participate. A check will be sent to them within 30 days of the final settlement date. Those who don’t wish to participate in the settlement can request to be excluded.