Opinion ID: 152706
Heading Depth: 5
Heading Rank: 2

Heading: Meaningful Cautionary Statements

Text: The safe harbor provides that forward-looking statements must be accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement. 15 U.S.C. § 78u-5(c)(1)(A)(i). This aspect of the safe harbor is analogous to the bespeaks caution doctrine, which holds that cautionary language, if sufficient, renders the alleged omissions or misrepresentations immaterial as a matter of law. EP MedSystems, Inc. v. EchoCath, Inc., 235 F.3d 865, 873 (3d Cir.2000). Cautionary language must be extensive, specific, and directly related to the alleged misrepresentation. GSC Partners CDO Fund v. Washington, 368 F.3d 228, 243 n. 3 (3d Cir.2004). Cautionary statements disclosed in SEC filings may be incorporated by reference; they do not have to be in the same document as the forward-looking statements. In re Merck & Co. Sec. Litig., 432 F.3d 261, 273 n. 11 (3d Cir.2005). Plaintiffs argue that the cautionary language, which Aetna provided in financial reports filed with the SEC, was insufficient because it failed to disclose the alleged practice of underpricing premiums, and only addressed risks related to medical cost projections. The cautionary statements included the following language: Our ability to forecast and manage health care costs and implement increases in premium rates affects our profitability. Our profitability depends in large part on accurately forecasting health care costs and on our ability to appropriately manage future health care costs through underwriting criteria....    Our ability to forecast health care and other benefit costs, detect changes in these costs, and achieve appropriate pricing affects our profitability. We continue to be vigilant in our pricing and have increased our premiums for new and renewal business in 2006. Premiums in the health business are generally fixed for one-year periods. Accordingly, future cost increases in excess of medical cost projections reflected in pricing cannot be recovered in the contract year through higher premiums. As a result, the Company's results are particularly sensitive to the price increases it projects in advance of renewal of the business. There can be no assurance regarding the accuracy of medical cost projections assumed for pricing purposes, and if the rate of increase in medical costs in 2006 were to exceed the levels projected for pricing purposes, our results would be materially adversely affected. This language provides clear warning to investors that the accuracy of medical costs cannot be assured, actual medical costs may exceed projections assumed for purposes of setting premiums, medical costs in excess of projections cannot be recovered through higher premiums, and inaccurate medical cost projections can have a materially negative effect on profitability. We find this language adequate under 15 U.S.C. § 78u-5(c)(1)(A)(i) because it provided meaningful, extensive, and specific caution directly related to the statements concerning disciplined pricing.