Geico Faces Class Action for Deceptive Insurance Practices During Pandemic

Geico Corp., a unit of Warren Buffett’s Berkshire Hathaway Inc., is facing a class action lawsuit. Its Illinois customer base alleges that the company engaged in deceptive marketing practices and charged excessive premiums. Although the U.S. District Court granted Geico’s motion to dismiss in part, the remaining causes of action will proceed.

Pandemic Disruptions

The COVID-19 pandemic has changed almost every facet of everyday life—including driving. Quarantining, sheltering in place, and working from home all but obliterated our need to drive as frequently as we once did. For this reason, auto insurance companies offered refunds and discounts on their premiums in the earlier months of the pandemic. These lower prices were directly correlated to the lower risk associated with driving with fewer people on the road. However, some policyholders do not believe they have been refunded fairly— leading to the Geico complaint.

The Geico Class Action Lawsuit Allegations

The plaintiff, a resident of Chicago, claimed the two auto insurance policies they had held through Geico were unconscionably excessive. The complaint explains automobile accidents have decreased dramatically over the course of Illinois’s stay-at-home order as fewer people are driving. Car crash rates dropped more than half from last year’s rates. The complaint alleges that Geico did not reduce its insurance rates appropriately based on the historical data. This affected both new policyholders and existing policyholders whose premiums were based on now-overstated expectations about insurance claim risks. The complaint asserts that the premiums collected by Geico during the COVID-19 pandemic have resulted in a substantial windfall. The company experienced a 27.8% increase in underwriting gain for the first quarter of 2020.

According to the Center for Economic Justice and the Consumer Federal of America, policyholders are entitled to at least a 30% refund on their premiums for the time period between mid-March and April 2020 alone. Geico, however, has only offered a 15% credit to new policyholders, or existing policyholders who renew their policy during the applicable time period. The complaint alleged that the “Geico Giveback” program is inadequate. According to the complaint, the program doesn’t apply to customers who already paid their premiums on previous policies.

Breach of Contract Claim

The plaintiff sets forth a breach of contract claim, alleging that Geico violated its covenant of good faith and fair dealing when it failed to exercise its discretion, per the policy, to adjust premiums accordingly. In the alternative, the complaint sets forth an unjust enrichment claim. The claim asserts Geico’s “retentions of these payments violates fundamental principles of justice, equity, and good conscience.” The plaintiff also alleges violations of the Illinois Consumer Fraud and Deceptive Business Practices Act in that Geico failed to fully refund excessive premiums and only offered credit to new or renewal policies, thus, using the pandemic “as a means to gain new business and obtain unfair economic advantage.”

Geico’s Response to Class Action Lawsuit

Geico filed a motion to dismiss the complaint because it did not breach any term of its insurance policies. Further, Geico argues it voluntarily and transparently provided discounts to its policyholders despite it being “under no contractual, statutory, or regulatory duty” to do so. Geico also alleges that it is not required to adjust premiums for a policyholder and that if the plaintiff so chose, could have had “usage-based insurance,” which charges an insurer for actual miles driven. Geico also asserts that any estimation of lower auto damages losses could “run in both directions,” with events resulting in greater losses potentially occurring in the next year or even during the remainder of the plaintiff’s policy.

The Court’s Ruling

In a decision by U.S. District Judge Sharon Johnson Coleman, the court dismissed the plaintiff’s breach of contract and unjust enrichment claims, finding that the policy did not vest in Geico any discretion to decrease premiums in response to changing circumstances, but for its ability to provide more coverage without an increase in premium based upon new information provided by its policyholders. Likewise, the court found the unjust enrichment claim to be improper in this case. Generally, such claims are unavailable when there is a specific contract governing the parties. Because the plaintiff cannot allege that no express contract exists, the unjust enrichment claim cannot survive as an alternative theory.

The court, however, denied Geico’s motion to dismiss the state consumer fraud allegations. The court found that the plaintiff sufficiently pled claims of both deceptive and unfair acts when Geico’s Giveback program induced her to renew a policy which she claims was worth less than what she paid for it.

The case, Siegal v. Geico Casaulty Co., 20-CV-04306 is currently pending in the Northern District of Illinois. Other auto insurance companies continue to alter their policies based on COVID-19 restrictions. It is likely that the rulings in this case will have a precedential effect for auto insurance moving forward.