By Hope Patti, LAW360
Law360 (September 10, 2026, 6:43 PM EDT) — The Ninth Circuit on Thursday sought the California Supreme Court’s input on a class action claiming that USAA discriminated against service members, certifying a question about whether the state insurance code prohibits insurers from charging lower-ranking military members who qualify as good drivers more than higher-ranking members who also qualify.
A three-judge panel said California courts have not yet addressed the novel issue presented by class representatives Eileen-Gayle Coleman and Robert Castro in their suit against the United Services Automobile Association and USAA General Indemnity Co.
The class representatives, who filed the instant action in February 2021, accused USAA General of charging California-based enlisted service member and veteran policyholders who qualify as “good drivers” under state law more for auto coverage than officers who also qualify and are insured by United Services. They alleged that the insurers’ conduct violates California Insurance Code Section 1861.16(b), which requires an insurer part of a larger insurance group to provide the lowest coverage rate offered among the affiliates.
The insurers countered that they are exempt from that requirement because of Section 11628(f)(1), which states that nothing in Article 10 of the code, including Section 1861.16(b), shall prohibit an insurer from issuing insurance to individuals who currently or formerly engaged in “military service or segments of categories thereof.”
The Ninth Circuit panel said 1861.16(b) was intended to close a loophole created by a 40-year-old state law, Proposition 103, that would have allowed units of an insurance group to steer “good drivers” to higher-priced affiliates. It is also undisputed that without the addition of 11628(f)(1), insurers would have been required to offer a good driver policy to anyone who met the statutory criteria, service member or not, the panel said.
“But at issue here is whether Section 11628(f)(1) also exempts the USAA from the requirement to offer the best discount to those members and thus allows the USAA to offer different rates to different members through a subsidiary structure — one that Section 1861.16(b) sought to preclude in other contexts,” the panel said. “The answer has significant public policy ramifications for hundreds of thousands of California policyholders and insurers operating in California.”
The panel noted that two federal district court judges who have presided over the case have arrived at opposite conclusions on the question.
U.S. District Judge Cathy Ann Bencivengo rejected the insurers’ initial bid to dismiss the suit, finding that nothing in Section 11628(f)(1) indicates that an insurer need not comply with Section 1861.16(b). However, the case was later transferred to U.S. District Court Judge Robert S. Huie, who granted summary judgment to the insurers after holding that the insurers did not need to comply with 1861.16(b).
Additionally, if 11628(f)(1) does excuse compliance with 1861.16(b), the panel said that raises another difficult question of state law: Would Section 11628(f)(1) be considered an invalid legislative amendment to Proposition 103? The answer to that question turns on whether Section 1861.16(b) is even part of Proposition 103, which “the Supreme Court of California may be better suited to address in the first instance,” the panel said.
Matthew A. Seligman of Grayhawk Law PC, co-counsel for the class, praised the Ninth Circuit for recognizing the importance of the case to hundreds of thousands of enlisted military personnel and veterans who qualify as good drivers.
“USAA unlawfully overcharged those enlisted personnel and veterans by funneling them to a separate affiliate company based on their military rank, violating the protections that the people adopted in Proposition 103,” Seligman told Law360.
The panel also asked the justices Thursday to mull whether certain sections of the insurance code established a filed-rate doctrine that limits the class members from recovering refunds for what the plaintiffs alleged were insurers’ unlawful business practices.
“It appears that resolving this issue requires reconciliation of three overlapping and seemingly contradictory provisions in the California Insurance Code,” the panel said. “These complex issues of California insurance law are best resolved by a state authority.”
Consumer Watchdog founder Harvey Rosenfield, who authored Proposition 103 and is serving as co-counsel for the class, said in a statement that insurers should not be permitted to violate the law simply because the state insurance commissioner regulates insurance rates.
“If an insurer discriminates, violates Proposition 103, or engages in another unlawful practice, the fact that money was collected through an approved rate should not place an insurance company above the law,” Rosenfield said. “This case gives the California Supreme Court an opportunity to restore the private enforcement rights the voters enacted as part of Proposition 103.”
Proposition 103, which California voters passed in 1998, added protections for policyholders against arbitrary insurance rate increases, among other provisions.
A representative of USAA did not immediately respond to a request for comment Thursday.
U.S. Circuit Judges Michelle T. Friedland, Danielle J. Forrest and Eric C. Tung sat on the appeals panel.
The class is represented by Matthew A. Seligman of Grayhawk Law PC, Cyrus Mehri and Michael Lieder of Mehri & Skalet PLLC, Harvey Rosenfield and Benjamin Powell of Consumer Watchdog, Jay Angoff of Angoff Law and Gary Mason of Mason LLP.
USAA is represented by Kahn A. Scolnick, Daniel R. Adler and James A. Tsouvalas of Gibson Dunn & Crutcher LLP.
The case is Coleman et al. v. United Services Automobile Association et al., case number 25-793, in the U.S. Court of Appeals for the Ninth Circuit.
–Editing by Emma Brauer.
