A recently filed class action lawsuit in a California District Court accuses USAA General Indemnity Company of deceptive and unfair practice for failing to pay insureds the amount owed after leased vehicles are declared a total loss.
In the case of Joseph Tarkett v. USAA, In the United States District Court, Southern California, Case ’23CV1724H BLM, the plaintiff, a resident of California, purchased an automobile insurance policy from USAA providing coverage for physical damage, including comprehensive and collision loss, to a 2021 BMW X5 that he leased.
The policy, in effect since the beginning of the vehicle lease in 2021, was most recently renewed for the same vehicle for the policy term of October 27, 2022 to April 27, 2023.
During the policy term and on January 26, 2023, the plaintiff’s vehicle was involved in a traffic accident in San Diego, California. USAA declared the vehicle a total loss and determined that it owed $59,834.90 —the market value of the car.
Plaintiff owed $37,595.06 to BMW under the vehicle lease. After subtracting the amount plaintiff owed under the lease from the amount USAA owed under the policy and the $1,000 plaintiff had already paid for the deductible, an equity surplus of $21,239.84 remained. However, USAA paid both the lease balance owed by plaintiff and the equity surplus that was owed to plaintiff to to BMW, a total of $58,834.90.
Other than reimbursing him $1,000 for his deductible, waived under the terms of the policy, USAA refused to pay any portion of the amount due under his insurance policy directly to plaintiff despite repeated requests.
Historically, the Actual Cash Value (ACV) of an insured vehicle after it is deemed a total loss was less than the amount owed on the vehicle by a lessee under the lease agreement. In recent years, there has been a trend in the auto industry where used car prices have either remained stable or risen. This has led to the residual value of leased vehicles—the estimated value of the car at the end of the lease term—to increase leading to an equity surplus amount rightfully owed to the insured and not the lessor.
The lawsuit alleges that USAA doesn’t provide the equity surplus amount to its insureds. Instead, the insurer sends the entire insurance payout, including the equity surplus amount, to the lessor even though they have no right to the surplus under the insurance contract.
This is contrary to how competitors in the industry handle valuation and payment relating to leased vehicles that are totaled after a traffic accident, the lawsuit further alleges.
The plaintiff states USAA knew or should have known this fact because “insurers typically require copies of the lease agreement during the application process to underwrite and assess the risks associated with the leased vehicle; and receive the outstanding lease balance from the leasing company when handling a total loss claim involving a leased vehicle.”
As a result, the plaintiff on behalf of himself and other class members alleges breach of contract, violations of California’s Unfair Competition Law, conversion, and unjust enrichment.
In addition, because of USAA’s alleged failure to pay the plaintiff and class members any portion of the loss payout, they say they are entitled to damages, restitution, declaratory and injunctive relief.