Clover Health has reached a settlement in lawsuits alleging that the Medicare Advantage insurtech had not been forthright with investors when the company went public, the company announced in a press release.
Shareholders sued Clover Health alleging that the company did not disclose during its initial public offering that it was the subject of a federal probe. The insurer went public in 2021 through a merger with Social Capital Hedosophia with a valuation of $3.7 billion.
Clover Health said that it reached an agreement in principle to resolve seven derivative lawsuits in Delaware, Tennessee and New York. “The proposed derivative settlement contains no admission of liability or wrongdoing by any of the defendants and is subject to definitive documentation and final court approval,” the press release said.
Andrew Toy, Clover Health’s CEO, said in the press release that company officials “are happy to have reached this settlement of the outstanding derivative lawsuits. This resolution, along with the previously announced settlement of the securities class action, allows the Clover team to remain mission-driven and mission-focused—to improve the lives of our members and build and maintain our strong business.”
The lawsuits were spurred by news breaking about a month after the IPO that the Justice Department had been investigating Clover Health over allegedly overbilling Medicare Advantage.
The settlement does include a promise by Clover Health that it will improve its system of fiscal oversight. “Subject to negotiation of definitive documentation and final court approval, the defendants in the derivative lawsuits will receive customary releases and the company will implement a suite of corporate governance enhancements,” the press release said.
Clover Health does not have to make any monetary payment “other than payment of an award of fees and expenses to plaintiffs’ counsel, which has not yet been set,” according to the press release. Clover Health said that it “entered into this settlement to avoid the burden, expense, and distraction of ongoing litigation.”
In its first-quarter earnings report last month, Clover Health executives predicted that the insurtech’s medical cost ratio of 85.6%, down from 96.4% in the prior year quarter, will eventually help the company turn a profit.
Clover Health made significant strides in addressing its medical cost ratio, which executives said in the May’s earnings call sets the company up for its future profitability goals. Losses were down from $75.5 million in the first quarter of 2022 to $72.6 million in the first quarter of 2023.
On the other hand, Clover Health’s revenues decreased considerably from a $874.4 million haul in the first quarter of 2022 to $527.8 million in revenue for the first quarter of 2023.