Usaa Subscriber Agreement and Limited Power of Attorney
The parties refer to the USAA as a “mutual interinsurance exchange”, but such an association is also referred to as a “mutual insurer”, “mutual insurance exchange”, “interinsurance exchange”, “mutual remuneration exchange” or “mutual exchange”. The most commonly used name seems to be “mutual insurance exchange”. A mutual insurance exchange is essentially an insurance company that is jointly owned by those it insures. See Kiepfer v. Beller, 944 F.2d 1213, 1216 (5 Cir.1991); Wilson vs. Marshall, 218 S.W.2d 345, 346 (Tex.Civ.App.1949). Through such a unit, members undertake to “compensate each other for certain types of losses through a mutual exchange of insurance contracts, usually through a joint lawyer appointed for this purpose by each of the insurers”. 43 Am.Jur.2d Insurance § 81 (2008). Thus, a mutual exchange of insurance in its pure form is a network of contractual relationships between policyholders who agree to insure each other, concluded by a joint agent with power of attorney.
See Dennis F. Reinmuth, The Regulation Of Reciprocal Insurance Exchanges 11 (1967) (“[I]ncpactually, a reciprocal consists of a series of private contracts between members or policyholders, each of which agrees to insure each other, the exchange of insurance being concluded by the common representative of the members, the common-law lawyer, and by the agreement of the subscriber`s power of attorney.”). This alleged class action raises a new question about the basic legal structure of a particular entity known as a mutual insurance exchange, which is essentially an insurance company owned cooperatively by those it insures, called “members” or “policyholders.” In particular, we must examine the nature of the legal relationship between the board of directors of the United Services Automobile Association (“USAA”), a major mutual insurance exchange, and its subscribers, and determine what legal obligations arise from that relationship. James True, a USAA subscriber, alleges that the USAA Board of Directors violated fiduciary and contractual duties to individual members by withholding billions of dollars of unallocated excess funds and failing to allocate those funds to the USAA savings accounts of individual subscribers. True contends that the unallocated surplus far exceeds the amount required by applicable government regulations or necessary to ensure the financial stability of the USAA. New mutuals, for example, may suffer more setbacks than new stock insurance companies. This is mainly because the net worth of a mutual depends on the number of subscribers it has. A new reciprocity zone with few subscribers may not be able to meet the coverage needs of its subscribers. We are not convinced by True`s argument that it is inappropriate to make the analogy of the company in this case. The USAA Board of Directors is not the direct responsibility inherent in the purely reciprocal form, and the USAA is in fact a separate and distinct legal entity under Texas law to which the Board may have a fiduciary duty. Therefore, we believe that Texas corporate law provides the best guidance on whether the USAA Board of Directors has a fiduciary duty to individual policyholders under Texas law. See Kiepfer, 944 F.2d at 1217-18 (reviewing Texas corporate law to fill gaps in the legal mutual insurance exchange system).
The application of this law in this case leads to the conclusion that the directors of the USAA have a fiduciary duty only to the exchange that represents the interests of the policyholders as a whole, and not to the individual policyholders. See Gearhart Indus., Inc., 741 F.2d to 721; Somers, —S.W.3d at —-, WL 793751 2009, at *4; Cotten, SW 187.3d to 698; Hoggett, 971 S.W.2d to 488. When comparing mutual insurance with mutual insurance shares or associations, a major difference to consider is the reason why the insurer provides insurance. In a mutual insurance exchange, the underwriters are the insurers, but they insure others to get protection in return, not to get profits for themselves. In the case of stock insurance, on the other hand, insurers offer coverage to make a profit. While this doesn`t directly affect the quality of your insurance coverage, it can be reflected in your annual premiums. Mutual insurance exchanges most often issue so-called non-assessable policies. These insurance policies ensure that if the operating costs of the mutual product are higher than expected, subscribers will no longer be charged to offset these costs. (Although some mutuals issue evaluable guidelines, they are much less common.) In this case, unlike the lawyer, the board of directors does not derive its authority from a power of attorney signed by the subscribers. The subscription agreement states that the attorney`s power to enter into indemnification agreements with other subscribers is to be exercised “only in accordance with the decisions of the board of directors,” but the subscription agreement itself does not grant direct authority to the board, and the fact that the board itself has the power to appoint the attorney and limit his or her power makes it clear that the board is not simply an agent of the board. Lawyer indeed.
The board derives its powers from the USAA`s bylaws that subscribers have accepted in their subscription agreements and through their decision to purchase policies with USAA. Although subscribers adopt the participation contract by signing, the subscription agreement is not a contract between the participant and the board, but rather a transfer of powers of attorney to the lawyer. According to the articles of association, subscribers have the power to elect members of the board of directors, but subscribers and the board of directors are not contractually agreed. The USAA Board of Directors does exist outside the network of contractual relations between subscribers and the lawyer and is therefore not part of the direct liability network inherent in the purely mutual form. Stock insurance companies are owned – you guessed it – by shareholders. These companies are shared privately or publicly, meaning that the company`s shares are either limited to being bought by selected companies and individuals, or openly shared for everyone to buy. Shareholders keep these insurance companies in operation and provide funds to help policyholders be insured when filing insurance claims and cover the operating costs of the organizations. For this reason, stock insurance companies are managed with the primary intention of making profits for shareholders. Still, most companies will try to offer policies that appeal to customers in order to remain competitive with other insurance providers so that they can increase their number of policyholders and therefore their profits. Shareholder-owned insurers include Allstate, Progressive, and MetLife.
These companies are often known for their reliability due to shareholder financing. According to the statutes, each subscriber is required to issue a power of attorney, also known as a subscription contract, to the lawyer actually appointed by the board of directors. The subscription agreement is entitled “Power of Attorney” and stipulates that the subscriber: Such an association without legal capacity is a mutual insurance exchange […].
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