An embattled California prosecutor has filed a civil lawsuit against insurance companies USAA and Progressive Corp. alleging that they have carried out a scheme to defraud customers by making “lowball” offers for vehicles totaled in accidents.
Alameda County District Attorney Pamela Price says that while the underpayment “probably averages three to four thousand dollars” for any single vehicle, the collective amount of underpayment affecting the insurers’ California customers is “likely in the billions of dollars.”
The alleged scheme allowed the insurers to boost profits, she said.
Price, who is facing a recall election instigated by critics who view her as soft on crime, wants San Antonio-based USAA, Ohio-based Progressive and two automotive industry data companies — including USAA vendor CCC Intelligent Solutions Inc. — to pay restitution to customers and turn over any profits from the alleged scheme.
In addition, she’s seeking statutory penalties of $2,500 for each violation of California’s unfair competition and false advertising laws and separate fines of $2,500 for each violation involving elderly and disabled people, military members and veterans.
“Public safety includes protecting consumers from powerful companies that seek only to maximize profits,” Price said in a statement last week. “We are seeking to level the playing field for vehicle owners who face what looks like a rigged game when their car or truck is totaled because a loss of a vehicle can destabilize a person’s life.”
In a statement Monday, USAA said Price’s allegations are “completely lacking in merit” and that it looked forward to “disproving them in court.”
“USAA uses the CCC total loss valuation tool to help provide fast, accurate and fair total loss settlements,” USAA said of its vendor.
USAA provides insurance, banking and retirement solutions to more than 13 million members of the military, veterans and their families.
A Progressive representative didn’t respond to a request for comment.
‘Dark incentive’
Besides USAA, the 69-page complaint filed last month in state court names subsidiaries USAA Casualty Insurance Corp. and USAA General Indemnity Corp. as defendants.
The lawsuit estimates that USAA has accounted for about 5% of the market for private passenger collision insurance in California and that about 30,000 USAA members suffer a total vehicle loss each year.
USAA conspired with CCC Intelligent Solutions, which prepares vehicle valuation reports, to manipulate and lower the “actual cash value” of totaled vehicles, the complaint alleges. Progressive is accused of doing the same with Mitchell International Inc.
When a vehicle is totaled, the owner must transfer title to their insurance company. The insurer then sells the vehicle at auction to recoup some of its loss.
“The nature of this transaction creates a dark incentive” for an insurance company, the suit says. “If it can minimize the (actual cash value) payment to the insured, but nevertheless total the vehicle and sell the vehicle for scrap, it minimizes the indemnity losses on the claim.” Thus, the insurance company is “incentivized to understate” the actual cash value.
It also “tends to push more vehicles from a repair to total loss,” benefiting the insurance company, the suit adds.
Lowball settlements
In USAA’s case, the complaint says, it relies on CCC to generate a “Market Value Report” for the totaled vehicle. The reports uses a “deceptive array of so-called ‘comparable’ vehicles and a list of outcome-determinative adjustments to lower the value” for total loss vehicles.
“USAA makes a lowball settlement offer to the insured” based on CCC’s report, the lawsuit says. “USAA leverages its superior bargaining position on that value until the insured capitulates.”
The suit says CCC’s market value report “is not objective, accurate or fair with regard to the interests of USAA’s insured. But USAA presents the report to its members as a ‘bona fide, genuine, good faith determination of the vehicle’s actual cash value.’”
An examination of insurance claims will show “a Scheme perpetrated against California insureds in a near uniform and consistent way,” the lawsuit says. The insureds, meanwhile, “remain in the dark, which USAA and CCC use to continue their unlawful, unfair, and fraudulent conduct.”
A CCC spokesperson said it does not comment on pending litigation.
Previous suits
This isn’t the first time USAA has been challenged over how it calculates the value of totaled vehicles.
In 2019, a North Carolina woman filed a proposed federal class-action lawsuit against USAA’s Garrison Property and Casualty Insurance Co. alleging it engaged in “unfair and deceptive trade practices” in calculating the value of her totaled vehicle.
The case never made it to trial. Two years ago, a judge granted Garrison’s motion for summary judgment after finding there was no evidence that any state insurance regulator has ever found CCC’s evaluations to be “improper, illegal, unethical, unfair or otherwise inappropriate.”
Indeed, the judge added, a number of state regulators have “explicitly approved or endorsed the use of CCC” to value total loss claims, the judge added.
The plaintiff appealed the ruling to the 4th U.S. Circuit Court of Appeals but dropped the case in 2022 after reporting that the dispute had been settled.
Also in 2019, two Louisiana residents filed a proposed class-action lawsuit against USAA for breach of contract and bad faith, alleging its use of vehicle valuation reports prepared by CCC undervalued their total loss. USAA has denied the allegations.
The plaintiffs allege CCC violates Louisiana laws and that they would have been paid more if USAA had used the National Automobile Dealers Association guidebook in valuing their vehicles.
The pair sought certification for a class of USAA insureds who were paid less under CCC but dropped the effort after a USAA appeal. The pair’s individual claims have yet to be resolved.