According to a press release dated September 15, 2005, concluding that a group of shareholders failed to establish the requisite bases for their Securities Act claims against a stock-issuing insurance company, the Eighth U.S. Circuit Court of Appeals affirmed a district court's grant of dismissal and summary judgment in favor of that company. The Eighth Circuit found no error in the district court's determination that the shareholders asserted no facts showing that Acceptance was under-reserved during the class period. Although the shareholders presented statements made by Acceptance after the SEC registration statement was issued indicating that Acceptance's reserves were inadequate at the time of the stock sale at issue, such retrospective analysis is not the basis for a claim under § 11. Legal conclusions cannot support § § 10(b) and 20(a) claims. The Eighth Circuit then rejected the shareholders' argument that summary judgment was inappropriate because a reasonable jury should have found that Acceptance's officers knowingly or recklessly misled the shareholders under § § 10(b) and 20(a) of the SEC Act. The shareholders' expert witnesses took the shareholders' statements as true and did not check the record to find support for those statements.
As summarized by the Company’s FORM 10-Q For The Quarterly Period Ended September 30, 2004, On March 2, 2001, the Court entered an order dismissing all claims alleging violations of Section 11 of the Securities Act, and dismissing the Company’s Directors, financial underwriters, independent accountants and others as defendants in this action. The Court also ruled that certain of Plaintiffs’ allegations regarding the remaining defendants’ alleged failure to properly report contingent losses attributable to the Montrose decision, a California Supreme Court decision creating a new basis for liability coverage under years of previously issued policies, did not state a claim under Section 10b and Rule 10b-5. In two subsequent rulings, the Court and Magistrate Judge clarified the March 2, 2001 ruling to specify which of Plaintiffs’ Montrose-related allegations failed to state a Section 10b and Rule 10b-5 claim. These three rulings reduced the litigation to a claim that the Company and three of its former officers, during the period from August 14, 1997 to November 16, 1999, failed to disclose adequately information about various aspects of the Company’s operations, including information relating to the Company’s exposure after January 1, 1997 to losses resulting from the Montrose decision. Nevertheless, Plaintiffs continue to seek compensatory damages, reasonable costs and expenses incurred in this action and such other and such further relief as the Court may deem proper. On August 6, 2001, the Magistrate Judge granted Plaintiffs’ Motion for Class Certification. Plaintiffs’ fact discovery was concluded July 31, 2002 in accordance with a schedule established by the Court. On September 16, 2002 Plaintiffs sought the Court’s permission to reinstate certain previously dismissed claims under Section 11 and 15 of the Securities Act. The Court denied Plaintiffs’ request in its entirety on February 27, 2003. The Company filed a motion to decertify the class and a motion for summary judgment. On March 31, 2004, the Court granted the defendants’ motion for summary judgment in full, dismissing all of the plaintiffs’ remaining claims against all of the remaining defendants, and denied all other pending motions as moot. The plaintiffs have appealed the Court’s decision.
The Court consolidated these suits in April 2000 and Plaintiffs subsequently filed a consolidated class action complaint. Plaintiffs sought to represent a class consisting of all persons who purchased either Company common stock between March 10, 1998 and November 16, 1999, or AICI Capital Trust Preferred Securities between the July 29, 1997 public offering and November 25, 1999. In the consolidated complaint Plaintiffs alleged violation of Section 11 of the Securities Act of 1933 through misrepresentation or omission of a material fact in the registration statement for the Trust Preferred Securities, and violation of Section 10b of the Securities Exchange Act of 1934 and Rule 10b–5 of the U.S. Securities and Exchange Commission through failure to disclose material information between March 10, 1998 and November 16, 1999. The Company, three of its former officers, the Company’s Directors and independent accountants and other individuals, as well as the financial underwriters for the Company’s Trust Preferred Securities, were defendants in the consolidated action.
The original Complaint alleges that AICI, Acceptance Insurance, and certain of its directors and officers violated violated the Securities Act of 1933 by issuing a false and misleading Registration Statement and Prospectus for the public offering of AICI preferred securities. In particular, it is alleged that the Prospectus failed to that the Company's loss reserves were inadequate and failed to disclose that the Company was exposed to losses on policies issued to construction contractors and subcontractors in California as a result of the 1995 California Supreme Court decision adopting the "continuous trigger" theory for losses involving continuous or progressive damage. AICI preferred securities which sold at $25 per preferred security on the offering closed at $12 1/16 today.
NOTE: AICI is a wholly controlled subsidiary of Acceptance Insurance Companies, Inc ("Acceptance Insurance") (NYSE: AIF).