The insurer has agreed to include the proper sales tax on new vehicles purchased after an accident.
United Services Automobile Association (USAA) has agreed to pay $39 million to its Florida auto policyholders for failing to include sales tax in the initial reimbursement to cover the cost of buying a new car after an accident. The class action lawsuit claims the insurance giant that sells policies to military servicemembers and their dependents paid the sales tax to the car owner only after the purchase of a new vehicle rather adding the sum into the original claim check.
The settlement ends a legal action that began in 2013, according to an article in the San Antonio Business Journal. Approximately 70,000 Florida policyholders who signed policies between October 2008 to October 2016 could collect up to $34 million to compensate for allegedly being shortchanged on the sales tax, which is 6% in Florida. The remaining $5 million of the settlement sum will be dispersed to the attorneys who filed the class action suit, Christopher Hall of Hall & Lampros LLP and Tracy Markham of Avolio & Hanlon P.C.
A summary of the lawsuit and its settlement in TopClassActions.com reported that the parties reached an agreement after a day long mediation session in August 2016 led to a series of “lengthy negotiations.” The settlement now awaits preliminary approval by a Florida federal judge.
Lead plaintiff Chantal Bastian named Garrison Property and Casualty Insurance Co. and three other USAA-affiliated auto insurers in the class action lawsuit. After her car had been crushed by a falling tree, Bastian claimed she received a report stating she would receive a payout based on the sales tax for a comparable car. But when she bought a car of lesser value, the insurance company reimbursed her for the sales tax on the less expensive vehicle, rather than a car of equal worth to her totaled car.
Florida policyholders covered by the agreement can receive 100% of the value of their respective claims in addition to 8% interest. Bastian and two other lead plaintiffs, William Laker and Oliver Sutton, will each be awarded $10,000 in incentive pay, according to the San Antonio Business Journal.
USAA spokesperson Roger Wildermuth told the San Antonio Business Journal that the insurer resolved the lawsuit to avoid a potentially expensive legal battle. The company, he added, doesn’t expect the settlement will have a material impact on 2017 earnings.
Wildermuth also stated the company followed applicable Florida law in sales tax payments. “We follow the laws of each state,” he said. “We believe that we properly followed the Florida statute and paid members sales tax when they notified USAA they had replaced their vehicles.”
However, USAA agreed to revise its Florida auto policies so policyholders obtain the sales tax fee within the total claim payout. Policyholders will no longer be reimbursed after a new vehicle is purchased.
During a hearing in April 2014, U.S. District Judge for the Middle District of Florida Timothy Corrigan noted that by not ponying up the sales tax initially, policyholders might be forced to dig deeper to pay for a new vehicle. “Presuming that you're giving actual cash value and the person turns around and goes to buy a car for that exact same amount of money that you've just given them — they are going to have to pay sales tax [out of pocket] but you haven't given them enough money to do it [up front],” Corrigan said.
In light of USAA policyholders’ military service, however, sales tax payments are not always so straightforward, according to attorney Wystan Ackerman, who represented USAA in that same 2014 court hearing. “These are military people that move around,” he said. “Let's say we've got someone in Florida who is on an Air Force Base and they have an accident and their car is totaled but they are scheduled to move to a state that has no sales tax. They don't get paid [back] the sales tax [from USAA] because they can go buy a car, the same car, and pay no sales tax in those jurisdictions.”
Insurers have witnessed a staggering rise in auto accidents in recent years, resulting in higher claim payments. State Farm, for one, took a $7-billion hit in its auto insurance business in 2016, up from $4.4 billion the previous year. While the multi-million dollar settlement may not end up hurting USAA’s 2017 bottom line, it remains to be seen if this settlement will affect policyholder confidence at a time where reliable insurance is needed the most.