When Roy C. Spegele of Cape Coral, Fla., became suspicious of charges on his USAA Life Insurance policy, he took the unusual step of consulting an actuary and hiring a lawyer to investigate his concerns.
Their findings led Spegele, 73, to file a federal lawsuit in 2017 against USAA Life alleging it breached his universal life insurance contract in multiple ways, including using inflated rates to calculate charges against his policy.
Spegele filed his complaint as a class action, seeking to represent thousands of other USAA Life policy owners who were allegedly overcharged. On Sept. 23, Chief U.S. District Judge Orlando Garcia in San Antonio granted the class certification.
Almost immediately, the parties began settlement discussions that culminated with USAA Life agreeing to pay the class $90 million. The settlement is still subject to final approval from the judge.
Calls to attorneys for the class were not immediately returned, 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 Normal E. Siegel of Kansas City, Mo., said their expert calculated USAA Life overcharged policy owners from $360 million to $460 million on policies in force since 1999.
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.”
The settlement class includes anyone who owns or owned about 39,000 Universal Life 1 or 2 insurance policies and 83,000 Universal Life 3 or 4 insurance policies in force on or after March 1, 1999.
The amount each settling member of the class stands to receive receive will vary. A settlement document indicates each will receive a minimum of $50, plus a proportionate amount of the net settlement based on the amount of the “cost of insurance charges” paid by each.
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.
In the lawsuit, he 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 a higher than authorized cost of insurance rate, 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.
The lawsuit cited other ways USAA Life allegedly overcharged policy owners.
USAA Life argued against the lawsuit’s class-action certification. After the judge certified the class, USAA Life appealed the ruling to the 5th U.S. Circuit Court of Appeals. The appeal was pending at the time the settlement was reached.
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 settlement is available at usaacoisettlement.com. Class members don’t have to do anything to participate in it. 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.