Employees' Retirement Fund of the City of Fort Worth v. James River Group Holdings, Ltd.

Court: United States District Court for the Eastern District of Virginia
Case Number: 3:21-cv-00444-MHL
Class Period: 08/01/2019 - 05/05/2021
Case Leader: Rebecca E. Boon
Case Team: Will Horowitz

This is a securities class action alleging that between August 1, 2019 and May 5, 2021, inclusive (the “Class Period”), James River Group Holdings, Ltd. (“James River” or the “Company”) and certain of the Company’s current and former senior executives (collectively, “Defendants”), defrauded persons and entities that purchased James River common stock (the “Class”) in violation of Sections 10(b) and 20(a) of the Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78t(a), and U.S. Securities and Exchange Commission Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.

James River is a Bermuda-based insurance holding company that owns and operates a group of specialty insurance and reinsurance companies. The Company’s largest segment, Excess and Surplus (“E&S”) lines, provides coverage for insureds that generally cannot obtain insurance from standard lines insurers due to the perceived risks related to their businesses. Within its E&S lines segment, James River maintains a commercial auto division, which underwrites auto liability exposures for ride-share, delivery, and livery based services.

In 2014, James River began underwriting a new type of insurance policy that covered ride-share drivers who contracted with Rasier LLC (“Rasier”), a subsidiary of Uber Technologies, Inc. (together with Rasier, “Uber”). Previously, ride-sharing insurance had only covered accident claims while drivers were transporting passengers for Uber, and thus left a gap in coverage for accidents involving ride-share drivers while they were not providing services for hire but were still available to accept a ride through Uber’s platform. Accordingly, Uber became the first and only ride-share company with insurance policies that covered the gap between a driver’s personal and commercial insurance. Uber became James River’s largest customer, accounting for more than 40% of the Company’s E&S lines segment’s gross written premiums and over 25% of its consolidated gross written premiums in 2019.

The action alleges that, throughout the Class Period, Defendants made materially false and misleading statements and omissions regarding the adequacy of the Company’s loss reserves for its Uber policies and the methodology used in setting those reserves. Specifically, throughout the Class Period, Defendants repeatedly assured investors that the loss reserves related to the Company’s Uber account were adequate, that they were “comfortable” with the E&S lines reserves, and that the Company had taken a “careful” approach in setting them. As a result of Defendants’ misrepresentations, shares of James River common stock traded at artificially inflated prices throughout the Class Period.

The truth began to be revealed on October 8, 2019, when James River announced the early termination of all policies issued to Uber, effective December 31, 2019, but that it would continue to provide coverage for future claims during the period in which those policies were in effect (known as “runoff”). James River stated that “[the Uber] account ha[d] not met our expectations for profitability.” The Company also announced an adverse development charge to its reserves of between $55 million and $60 million, primarily related to Uber policies for the 2016 and 2017 underwriting years. These disclosures caused the price of James River common stock to decline by $11.06 per share, or nearly 23%, to close at $37.88 per share on October 9, 2019.

Despite these disclosures and the runoff coverage commitment, Defendants continued to misrepresent the full scope, severity, and consequences of James River’s inadequate reserves related to its Uber policies. Specifically, Defendants assured investors that the Company was “careful” when setting reserves. Moreover, Defendants told investors that the Company had been “[f]reed from the burden” of the Uber account and the runoff of that account was “going well,” with claims being resolved “at a rapid pace for amounts that are consistent with [the Company’s] held reserves.” These misrepresentations and omissions caused the Company’s stock to continue trading at artificially inflated prices.

The truth was revealed on May 5, 2021, when James River disclosed an additional $170 million reserve charge in its commercial auto division related to policies for the cancelled Uber account that had been in runoff since 2019. In addition, as a result of a re-assessment of expected payouts on claims related to the Uber account, the Company also disclosed that it had “meaningfully changed” the methodology used to establish its reserves because “using only our own loss experience in our paid and incurred reserve projections, rather than the array of inputs that we had used in prior quarters,” would yield “a better and more conservative estimate of ultimate losses on this account.” Further, as a direct result of the losses attributable to the Uber account, James River announced that it had priced an underwritten secondary public offering of approximately $175 million of its common shares at $31 per share—representing a 33% discount to the Company’s closing stock price on May 5, 2021—which, according to Bloomberg, was priced at “the sector’s steepest discount ever.” As a result of these disclosures, James River’s stock price declined $12.27 per share, or over 26%, to close at $34.23 per share on May 6, 2021.

James River’s material misrepresentations and omissions, and the revelations thereof, have caused the Class to incur substantial damages.

On September 7, 2021, the City of Miami General Employees’ and Sanitation Employees’ Retirement Trust filed a motion for appointment as Co-Lead Plaintiff and to have BLB&G appointed Co-Lead Counsel for the Class. That motion is pending.