The Fifth Circuit today affirmed an order that kicked claims by subscribers against a big "reciprocal insurance exchange", United Services Automobile Association.  The subscribers alleged that USAA's directors squirreled away billions in "surplus funds" that rightly belonged to the subscribers.  The suit aimed to force disgorgement of the extra cash.  True v. Robles, No. 08-50782 (5th Cir. June 10, 2009) (applying Texas law).

The court takes 20 pages to reach a ruling that turns on this syllogism:

Socrates is a man.

All men are mortal.

Therefore Socrates is mortal.

No, wait.  It goes like this:

The directors of a reciprocal insurance exchange are like directors of a corporation.

Directors of a corporation don't owe fiduciary duties to owners.

Therefore the directors of a reciprocal insurance exchange don't owe fiduciary duties to owners.

If that leaves you cold, join the club.  Reasoning-by-analogy, while common, risks logical error.  So what, for example, that an RIE looks a bit like a corporation?  It also looks a bit like a partnership.

The question, Blawgletter suggests, should depend on the directors' powers and function in an RIE, not the traits of the entity itself.  The court doesn't confront that issue straight on.  We wish it had.

Feed-icon-14x14 Thoreau oversimplified, too.

(Photo by chadarizona at flikr,