The U.S. Court of Appeals for the Ninth Circuit has asked California's Supreme Court to consider a question that could determine whether nearly 200,000 current and former enlisted USAA policyholders get refunds: can an insurer charge lower-ranking service members more for the same coverage simply because they route enlisted drivers into a different corporate affiliate than officers?
The case, Coleman v. United Services Automobile Association, was filed in February 2021 by lead plaintiffs Eileen-Gayle Coleman, a Marine Corps radio operator, and Robert Castro, an Army culinary specialist, who challenged USAA's practice of funneling enlisted personnel into higher-priced subsidiaries, according to Insurance Business. USAA directs enlisted service members into affiliated entities such as USAA General Indemnity Company that keep their own separate rate structures, per the San Antonio Express-News. According to court filings covered by Action News Now, enlisted good drivers with USAA paid 20% or more above what they would have paid in the officers' affiliate, and USAA provided officers with larger good-driver discounts.
A Split Between Federal Judges Forced the Issue
The case ended up in front of the U.S. Court of Appeals for the Ninth Circuit, based in Los Angeles, after two federal district judges in California reached opposite conclusions. U.S. District Judge Cathy Ann Bencivengo initially ruled that USAA must comply with California Insurance Code Section 1861.16(b), while U.S. District Judge Robert S. Huie later granted summary judgment to USAA in January 2025 under a different statute, Section 11628(f)(1), according to LAWS.com News.
That conflict sits at the center of the dispute. Section 1861.16(b) requires commonly controlled auto insurers to offer good drivers the lowest rate available from any insurer in the group, while Section 11628(f)(1) allows insurers to restrict coverage based on military status or rank, per the same LAWS.com report. The Ninth Circuit asked California's Supreme Court to resolve whether Section 11628(f)(1) would be an invalid legislative amendment of Proposition 103 if it overrides Section 1861.16(b), and more broadly, whether USAA may charge lower-ranking military servicemembers more than higher-ranking personnel, per Action News Now.
Voter-Approved Protections Versus Legislative Carve-Outs
Proposition 103, passed by California voters in November 1988, created a mandatory prior-approval framework for auto and property insurance rates, guaranteed a 20% Good Driver discount, and established an elected Insurance Commissioner with public intervenor oversight, as Hoodline previously reported. Under the California Supreme Court's 1995 ruling in Amwest Surety Insurance Co. v. Wilson, legislative amendments to voter-passed initiatives like Proposition 103 are constitutionally invalid unless they further the initiative's consumer-protection purposes, according to Horvitz & Levy LLP.
Consumer Watchdog, which is tracking the case, said Proposition 103 gives voters the right to sue insurance companies that violate its consumer protections, per Action News Now. Attorney Cyrus Mehri, co-counsel for the plaintiffs, said a law intended to preserve insurance programs serving military families should not become authority to charge enlisted servicemembers more, according to the same report.
The Fight Over Whether Refund Suits Can Even Proceed
A second, equally consequential question hangs over the case: whether insurers can use an approved rate as a shield against refund lawsuits altogether. Insurers have argued that the Insurance Commissioner's rate review shields them from consumer lawsuits seeking refunds of overcharges, according to Action News Now, leaning on the 2010 appellate ruling in MacKay v. Superior Court, where California's Second District Court of Appeal held that Insurance Code Section 1860.1 creates a filed-rate doctrine shielding insurers from civil lawsuits once the Insurance Commissioner has approved their rates, per the Daily Journal.
But the same appellate district reached a different conclusion in 2008's Fogel v. Farmers Group, Inc., holding that Proposition 103's prior-approval framework does not create a blanket filed-rate doctrine immunizing insurers from civil claims over alleged statutory violations or illegal fees, according to the UW Law Digital Commons. The Ninth Circuit identified a direct conflict between MacKay and Fogel and recognized that MacKay did not settle whether consumers can challenge insurance company misconduct in court, according to Action News Now, and California's Supreme Court has not yet resolved which precedent controls.
What's At Stake for Nearly 200,000 Policyholders
Attorney Harvey Rosenfield said approved rates should not permit insurers to violate the law, and that insurers who discriminate, violate Proposition 103, or engage in another unlawful practice should not be placed above the law, per Action News Now. Consumer Watchdog has reported that more than 200,000 current and former USAA enlisted personnel would benefit from a ruling in favor of the insureds, according to the group.
Court records in the underlying lawsuit indicated that non-officer enlisted policyholders in California paid up to 75% higher auto insurance premiums than military officers with similar driving histories in recent years, up from a 57% gap in 2017, according to Top Class Actions. The class action represents approximately 200,000 active and former enlisted service members in California, with attorneys seeking injunctive relief and premium refunds, per the same outlet.
If the Ninth Circuit's referral is formally filed, supporting letters to the California Supreme Court are due by September 30, according to Consumer Watchdog, as cited by Action News Now. Until the state's justices weigh in, California courts remain split on whether consumers can challenge insurance company misconduct in court at all — a question that reaches well beyond USAA's tiering practices and into how Proposition 103 protections apply to every multi-affiliate insurer operating in the state.
