NEW YORK (Legal Newsline) - Class action lawyers can't prove a Bermuda-based underwriter knew years ago its business would suffer a setback in 2022, the company says.
Argo Group International Holdings filed a motion to dismiss shareholder litigation May 26 in New York federal court, claiming plaintiffs are hoping to "seize upon" and increase in loss reserves and a subsequent $7 drop in stock price.
The company offers underwriting for specialty insurance products for niche businesses requiring hard-to-place coverage. A review after the fourth quarter of 2021 led to it announcing it would increase its aggregate loss reserves.
The lawsuit hopes to turn everyone who invested in Argo as far back as 2018 into a class.
"As Argo repeatedly told investors, its insurance loss reserve process was inherently uncertain and subject to volatility, its reserves represented management's 'best estimates,' and due to the significant uncertainties and related judgments involved, there could be 'no assurance' that those estimates would not be adjusted upward in the future," the motion to dismiss says.
Argo's decision to increase loss reserves were driven by what it called "construction defect claims within Argo's U.S. operations." Argo created Argo Construction in 2018 to underwrite policies in the construction industry.
Policies underwritten in the seven years before that were done so by other Argo lines of business. Claims for construction defect are "characterized by extreme time lags for both reporting and payment of claims," the company said.
"The linchpin of (Plaintiffs') theory is that because Argo increased its loss reserves in 2022, Defendants knew as early as 2017 that the Company's construction defect claims reserves for the 2011-2017 time period were insufficient," the motion says.
"From this untenable premise, Plaintiffs challenge a hodge-podge of statements made by Argo and a variety of individuals over a four-year period, the vast majority of which had nothing to do with construction defect claims reserves or underwriting, while others merely accurately reported the Company's financial performance or were general optimistic statements upon which no reasonable investor would rely."
An adverse loss reserve development can't stand as evidence Argo knew past decisions were wrong, it says, citing support from the Second Circuit.
Grant & Eisenhofer is serving as lead counsel, with the Police & Fire Department System City of Detroit and Oklahoma Law Enforcement Retirement System as lead plaintiffs.
The firm said its clients lost $900,000 during a stock drop about a year ago.