-
Third Circuit Reinstates Class Action Against Reinsurance Company, With Instructions To Allow Additional Discovery
08/26/2025On August 20, 2025, the United States Court of Appeals for the Third Circuit reinstated a class action asserting claims under the Securities Exchange Act of 1934 against a reinsurance company and certain of its executives. In re Maiden Holdings, Ltd. Sec. Litig., —F.4th—, 2025 WL 2406864 (3d Cir. 2025). Plaintiffs alleged the company made misrepresentations in connection with its disclosures regarding loss reserves. The Third Circuit vacated the district court’s grant of summary judgment in defendants’ favor, holding that there were genuine issues of material fact related to the company’s loss reserve calculations and that additional discovery was necessary.
Plaintiffs’ allegations centered on how the company determined estimated “loss ratios” in calculating loss reserves. These ratios represent the amount in claims paid out compared to the premiums received for a given year. Id. at *2. Because it can take time to resolve a claim, the loss ratio for a particular year can change over time, and “[t]racking historical loss ratios … can help inform what loss ratio estimate … should be used to set loss reserves.” Id. The company disclosed that it analyzed a number of factors in order to determine its loss reserves, but also specifically stated that it assumed “past experience” was “an appropriate basis for predicting future events” and that “historic loss development and trend experience is assumed to be indicative of future loss development and trends.” Id. The record reflected that the company’s loss ratios connected with its largest client substantially increased from 2012 through 2017 for the years 2008 through 2012, such that its loss ratios ranged from 75% to 82% for those accident years. Id. However, the company consistently used loss ratios between 50% to 60% to calculate loss reserves. Id. Plaintiffs contended that the company was aware of the specific historical loss ratio trends for its largest client, and that these historical loss ratios constituted material adverse data that the company knew about but failed to disclose at the time it calculated and reported its aggregate loss reserves. Id. at *3.
After the lower court denied in part defendants’ motion to dismiss, it held that discovery was necessary to test the theory that the company “should have disclosed the historical loss ratios” of its largest client because that information constituted “material, adverse historical data of which [the company] had actual knowledge.” Id. The court then ordered “limited discovery” focusing on the question of whether there was “an intentional decision made by [d]efendants to omit [the client’s] historical loss ratio information from the view of investors.” Id.
After the limited discovery period, the district court granted summary judgment in favor of defendants, concluding that the omission of client-specific loss ratio data was immaterial. Id. In doing so, the lower court relied on a recent Third Circuit decision, and held that the client-specific loss ratios, if reported, would not “totally ‘eclipse the balance of the numerous other considerations used to set reserves’ if revealed to investors.” Id. (quoting City of Warren Police & Fire Ret. Sys. v. Prudential Fin., Inc., 70 F.4th 668, 687 (3d Cir. 2023)).
The Third Circuit held the district erred in granting summary judgment. The Court first explained that in accordance with the Supreme Court’s decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 575 U.S. 175 (2015), a statement of opinion (such as the setting of loss reserves) may be actionable under an “inquiry theory,” where the speaker is alleged to have omitted material facts about the inquiry made concerning the challenged opinion, or under a “knowledge theory,” where the speaker is alleged to have failed to disclose information that contradicted the opinion. Id. at *5. The Third Circuit explained that plaintiffs in this case relied on the latter theory, and then went on to clarify that its prior decision reviewing an insurance company’s loss reserve disclosures was not intended to suggest that “insurance companies may withhold all adverse data from the view of investors when announcing reserves simply because reserve determinations are complex.” Id. at *6. The Third Circuit held the company’s mere consideration of historical loss ratios was not dispositive because plaintiffs did not contend that these ratios were not considered; in other words, plaintiffs did not pursue an “inquiry theory” of opinion statement liability. Id. at *7.Instead, the Third Circuit emphasized that plaintiffs alleged the company’s opinion statements were actionable under a “knowledge theory” of opinion statement liability, because the company was alleged to have “omitted known, materially adverse historical loss ratios that conflicted” with its reported loss ratio estimates and loss reserve statements. Id.
The Third Circuit explained that the “critical question is whether the omitted historical loss data was material.” Id. The Court determined that a reasonable juror could conclude that it was, for three reasons. First, the record reflected that negative developments with respect to the claims the company paid out to its largest customer would “have an outsized impact” on the company’s business as a whole. Id. Second, the record reflected that the company “had access to historical loss data” for its largest customer that “was inconsistent” with the company’s loss ratio determinations. Id. And finally, the Court observed that the record “contains evidence that the negative historical data was (or should have been) an important part of [the company’s] loss reserve estimation process,” in no small part because the company emphasized to investors that “historic loss development” was “assumed to be indicative of future loss development and trends.” Id. at *8. In the aggregate, the Third Circuit reasoned that this raised a genuine issue of material fact as to whether the omission of the historical loss data related to the company’s largest customer was material, because it could have been “significant enough that it would, if revealed to a reasonable investor, alter the total mix of information presented.” Id.
The Third Circuit further directed that full discovery was necessary to allow plaintiffs to develop their claims, and summary judgment should not have been granted without that complete record. Id. at *10.
