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WASHINGTON, DC, January 29, 2009 — The U.S. District Court for the Southern District of New York has dismissed two securities class actions against Quanta Capital Holdings Ltd. that arose out of the company’s alleged under-estimation of losses from the extraordinary hurricanes of 2005. In two lengthy opinions, Judge Robert P. Patterson, Jr. rejected all claims by all plaintiffs (Zirkin v. Quanta Capital Holdings Ltd., S.D.N.Y., No. 07 Civ. 851 (Jan. 23, 2009); Coronel v. Quanta Capital Holdings Ltd., S.D.N.Y., No. 07 Civ. 1405 (Jan. 23, 2009)). Covington & Burling represented Quanta in both lawsuits.
Quanta is a Bermuda-based holding company formed in 2003 to provide specialty lines of casualty insurance and reinsurance. In early 2006, Quanta’s stock price declined when it disclosed increased estimates of the company’s exposure to property losses caused by Hurricanes Katrina, Rita, and Wilma. Plaintiffs’ lawyers filed two class actions (separately on behalf of preferred and common shareholders) alleging claims under Sections 11 and 12(a)(2) of the 1933 Securities Act and Section 10(b) of the 1934 Securities Exchange Act. Plaintiffs alleged that Quanta had concealed information about the severity of its losses and should have made the disclosures sooner.
Covington moved to dismiss both complaints, arguing that plaintiffs failed to plead facts supporting an inference that Quanta’s initial loss estimates were false or fraudulent at the time they were announced. The cases presented numerous questions concerning the approach insurers must take in accounting for losses that are anticipated from catastrophic events but for which claims and actual losses have not yet been reported by insureds. In the course of accepting Quanta’s arguments, the Court held that the 2005 hurricane season “caused an unprecedented amount of damage” and that “no reasonable investor would have surmised that precise loss impacts could be ascertained immediately after the storms ended.”
The Covington litigation team was led by partners Michael Schlanger, who presented the oral argument, and Andrew Ruffino, with assistance from associates Mari Bonthuis and Shelli Calland. Mr. Schlanger and Ms. Calland are resident in Covington’s Washington office. Mr. Ruffino, who is a vice-chair of the firm’s litigation group, and Ms. Bonthuis are resident in Covington’s New York office.