Ninth Circuit Asks California Supreme Court to Decide Whether Insurers Can Hide Illegal Overcharges Behind Approved Rates, Says Consumer Watchdog

Published order also asks whether USAA may charge lower-ranking military servicemembers more than higher-ranking personnel; advocates have only 20 days to urge the California Supreme Court to take the case

LOS ANGELES, Sept. 10, 2026 /PRNewswire/ -- The U.S. Court of Appeals for the Ninth Circuit today asked the California Supreme Court to resolve two major questions affecting consumers across the state: first, whether USAA may charge lower-paid military personnel and veterans who are good drivers more than it charges officers who are good drivers – a violation of Proposition 103. Second, whether insurers can use the so-called "filed-rate doctrine" to block consumers from recovering money collected through such unlawful practices.

The court first certified a question concerning USAA's practice of assigning servicemembers to different affiliates according to their military pay level. Officers received larger good-driver discounts, while enlisted personnel with lower pay levels are placed in a higher-priced affiliate.

Proposition 103 mandates a 20% Good Driver Discount for qualified drivers. California Insurance Code section 1861.16(b) requires commonly controlled auto insurers to offer good drivers the lowest rate available from any insurer in the group. USAA contends that section 11628(f)(1)—which permits insurers to limit eligibility to military servicemembers or categories of servicemembers—also allows the company to divide customers by pay level and charge them different rates.

The Ninth Circuit asked the California Supreme Court to decide whether section 1861.16(b) or section 11628(f)(1) controls. If section 11628(f)(1) is interpreted to override section 1861.16(b), the court also asked whether section 11628(f)(1) would be an invalid legislative amendment of Proposition 103.

"A law intended to preserve insurance programs serving military families should not become authority to charge enlisted servicemembers more," said Cyrus Mehri, co-counsel for the plaintiffs in the lawsuit against USAA. "Proposition 103 guarantees qualifying good drivers access to the lowest-priced policy offered by an insurance group. USAA should not be allowed to evade that protection by sorting military families into different corporate affiliates based on pay level."

Over 200,000 current and former USAA enlisted personnel would benefit from a ruling in favor of the insureds. Many enlisted good drivers have paid 20% or more in excess of what they would have paid in the officers' affiliate.

The second issue extends far beyond USAA. For years, insurers have invoked the Court of Appeal's decision in MacKay v. Superior Court to argue that the Insurance Commissioner's review of rates shields them from consumer lawsuits seeking refunds of overcharges.

"When they passed Proposition 103, the voters gave themselves the right to sue insurance companies that violated the initiative's consumer protections" said Consumer Watchdog founder Harvey Rosenfield, the author of Proposition 103 and co-counsel in the lawsuit. "California courts have taken conflicting positions on whether consumers can challenge insurance company misconduct in court, with some barring such lawsuits. The Ninth Circuit recognized that MacKay did not settle that question and asked California's highest court to finally resolve it."

The Ninth Circuit identified a direct conflict between MacKay and Fogel v. Farmers Group, Inc., which rejected application of the filed-rate doctrine to insurance cases. The panel emphasized that the California Supreme Court has never resolved that conflict and specifically asked whether any such doctrine can bar liability "where a challenge does not center on the appropriateness of the rates themselves."

"That the Insurance Commissioner regulates insurance rates should not be a permission slip to violate the law," Rosenfield said. "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. This case gives the California Supreme Court an opportunity to restore the private enforcement rights the voters enacted as part of Proposition 103."

Representing the enlisted policyholders in the class action lawsuit are the law firms Mehri and Skalet; Mason, LLP; Matthew Seligman of Grayhawk Law; and Consumer Watchdog, the non-profit consumer advocacy organization. The lawsuit seeks an injunction and refunds of premiums they allege USAA unlawfully collected. A copy of the Complaint is available here. 

Consumer and Veterans' Organizations Must Act Quickly

Consumer Watchdog urged veterans' organizations, consumer advocates, civil rights groups, public officials, and policyholders concerned about private enforcement of California's insurance laws to ask the California Supreme Court to accept both certified questions. The filing deadline will be posted by the California Supreme Court. If the 9th Circuit referral is filed today, supporting letters will be due September 30, 2026.

The Ninth Circuit's order is available here.

Consumer Watchdog is a nonprofit, nonpartisan organization that advocates for taxpayer and consumer interests, with a particular focus on insurance, health care, privacy, energy, and corporate accountability. Consumer Watchdog represents consumers in proceedings enforcing Proposition 103's protections.

SOURCE Consumer Watchdog