On June 16, 2020, Saxena White filed this securities fraud class action against ProAssurance Corporation, and certain of its senior executives, for violations of the Securities Exchange Act of 1934. The complaint alleges, on behalf of all persons or entities that purchased or otherwise acquired ProAssurance common stock during the relevant time period, that Defendants made false and misleading statements and failed to disclose material adverse facts about the Company’s business, operations, and prospects, thus artificially inflating the Company’s stock price and causing investors to suffer substantial losses when the truth eventually emerged.
ProAssurance, incorporated in Delaware with its principal executive offices in Birmingham, Alabama, is one of the largest medical liability insurance providers in the United States. The Company’s most important division is its Specialty Property and Casualty segment, which has consistently accounted for at least 60% of the Company’s gross premiums. This segment includes a healthcare professional liability line of business, primarily offered to healthcare providers. These policy premiums accounted for 89% of the premiums in ProAssurance’s core SP&C segment.
Specifically, the complaint alleges that Defendants misrepresented the Company’s underwriting and reserve standards and failed to disclose that it lacked an adequate underwriting process and risk-management controls system necessary to set appropriate loss reserves in its SP&C segment. As a result, ProAssurance failed to properly assess TeamHealth, a risky large national healthcare account with a profits-over-patients culture that exposed it to higher rates of medical malpractice claims. Then, when TeamHealth experienced losses far exceeding the assumptions ProAssurance had made when the account was underwritten, ProAssurance incurred substantial financial losses and materially heightened reserve charges.
Defendants knew for years that the extraordinarily risky TeamHealth account was experiencing an exponential rise in its number of outstanding claims, but Defendants knowingly concealed this information from investors. By at least the second quarter of 2018 (“2Q18”), Defendants were unquestionably aware of the negative trends within the SP&C segment, while maintaining in its public statements to investors that its reserves were “adequate,” “appropriate,” and “conservative.” Defendants also concealed that they knew by at least the start of 2020 that TeamHealth was highly unlikely to renew its policy and would instead exercise its option to purchase “tail coverage,” which would (and ultimately did) expose ProAssurance to substantial additional losses. The truth about Defendants’ material misstatements and omissions was revealed through two corrective disclosures. As a result of the first disclosure regarding TeamHealth on January 20, 2020, ProAssurance’s stock price dropped more than 11%, from $37.58 per share on January 22, 2020, to a closing price of $33.40 per share on January 23, 2020. Then disclosures on May 7, 2020, caused the Company’s stock price to plummet all the way down to $15.95 per share–a more than 67% decline from its class period high of $49.40, causing substantial harm to shareholders.
On September 11, 2020, the Court appointed Central Laborers’ Pension Fund and the Plymouth County Retirement System as Lead Plaintiffs and Saxena White P.A. as Co-Lead Counsel, specifically noting that Saxena White was “more than capable of protecting the interests of the proposed class.”
On March 26, 2021, Lead Plaintiff filed a consolidated class action complaint that expanded the class period and further refined the fraud allegations. Defendants filed a motion to dismiss the complaint on May 18, 2021. The briefing schedule for this motion was completed on July 28, 2021.
On December 10, 2021, the Court granted in part, and denied in part Defendants’ motion to dismiss, a major victory for the Plaintiffs at this stage of the litigation. The Court found that ProAssurance’s “statements about observed frequency changes” and frequency data “in 2018 and 2019 were false or misleading” when made. The Court further found that “the defendants’ statements about ProAssurance’s ‘conservative,’ ‘disciplined,’ ‘cautious,’ and otherwise ‘reasonable’ practices” were affirmative, false statements “about the company’s current financial conditions, especially with respect to the TeamHealth account, on which a reasonable investor would rely.” The Court therefore held that Lead Plaintiffs had pled “actionable misstatements and omissions with regard to business practices which were, allegedly, in fact risky and not aligned with ProAssurance’s stated commitment to caution and conservatism in light of the circumstances surrounding the unique TeamHealth deal.”
Additionally, the Court found that at least two ProAssurance executives acted with an intent to deceive investors “when they allegedly misstated the frequency data underlying ProAssurance’s reserve estimates and misleadingly emphasized the company’s commitment to conservative business practices.” The Court also held that ProAssurance itself acted with an intent to deceive investors and sustained Plaintiffs’ Exchange Act claims for the full class period alleged in the complaint.
Lead Plaintiffs filed a motion for class certification on April 1, 2022. That motion was fully briefed, with oral argument scheduled for April 4, 2023, when, on March 30, 2023, the Court entered a stay of the proceedings. After nearly three years of hard-fought litigation and extensive arms-length negotiations, the Parties reached an agreement to settle the litigation.
On June 22, 2023, the Parties filed a stipulation of settlement and motion for preliminary approval agreeing to settle the case for $28,000,000, an outstanding result for the investor class.
On August 25, 2023, the Court preliminarily approved the settlement, noting that the settlement reached is “fair, reasonable, adequate, and in the best interests of the Settlement Class.” On January 17, 2024, the Court issued its final judgment approving the settlement.