Insurer offering ‘gap coverage’ to Uber faces securities lawsuit

A sign outside Uber’s headquarters in San Francisco. (Photo: Jason Doiy / ALM)

James River Insurance Company is facing a securities class action lawsuit that claims the insurer miscalculated and distorted the risk involved in a contract to provide ride-sharing insurance policies to Uber Technologies.

On October 8, 2019, James River revealed that it had given an early termination notice of all issued policies to Uber, its largest customer, accounting for more than 25% of the company’s premiums in 2019.

The news caused the company’s stock price to fall more than 23% the next day, hurting investors.

Then, on May 5, 2021, James River announced its financial results for the first quarter of 2021, reporting “$ 170.0 million of unfavorable development in commercial automobiles, primarily due to a previously canceled account that is in progress. liquidation since 2019 ”. The company then announced that it was looking to raise $ 175 million through a public offering of shares, priced at “the industry’s steepest discount ever,” causing the share price to fall further. share, by 26%, further hurting investors.

The lawsuit alleges that in 2014, the James River Group strengthened its commercial automotive division by underwriting a new type of insurance policy that covered Raiser LLC (Raiser), a subsidiary of Uber Technologies, Inc. (along with Raiser, Uber ).

The class action lawsuit alleges that throughout the class period (August 1, 2019 to May 5, 2021), James River made false and misleading statements and failed to disclose the following:

  • The insurer had not reserved enough for its Uber policies.
  • The insurer used an incorrect methodology to establish the reserves which significantly underestimated the insurer’s actual exposure to Uber claims.
  • As a result, the insurer was forced to increase its reserves even after terminating uber policies, and
  • Statements regarding the insurer’s business, operations and outlook were substantially false, misleading and / or lacked reasonable basis.

Until James River began insuring Uber with this new type of insurance policy, ridesharing insurance only covered claims incurred while carpooling drivers carried passengers for Uber, leaving a gap in coverage. accidents caused by carpool drivers when they were not. providing rental transportation services, but were still connected to the Uber app and available to accept a ride.

Personal auto insurance also did not cover these claims, as they occurred while the driver was participating in the carpool. According to Uber, these new policies would provide eventual driver liability coverage that would meet the highest requirements of any state in the United States.

The case, which was filed in District Court for Eastern Virginia, is the City of Fort Worth Employee Retirement Fund v James River Holdings, Ltd. et al. 3: 21-cv-00444.


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