IAG battles subsidiary’s business interruption class action

IAG battles subsidiary’s business interruption class action | Insurance Business Australia

Legal Insights

IAG battles subsidiary’s business interruption class action

Court decision announced amid COVID-19 claim fallout

Legal Insights

By
Roxanne Libatique

Insurance Australia Group (IAG) has provided a new update on the ongoing class action involving business interruption (BI) policyholders.

On Sept 20, 2024, the Federal Court of Australia expressed its intention to decertify the class action brought against Insurance Australia Limited (IAL), IAG’s subsidiary, over BI policies.

Class action involving IAL business interruption policyholders

The court plans to conduct a further case management hearing to finalise orders for the decertification. These orders will include conditions such as notifying group members about their right to individually pursue any claims and making certain orders in line with earlier findings in BI test cases.

IAG has stated that additional updates will be issued as the case progresses. A date for the next hearing has not been set, and the representative applicant may seek leave to appeal the judgment or any future orders.

Business interruption insurance claims in Australia

The class action is part of a broader set of legal challenges related to BI claims arising from the COVID-19 pandemic.

In 2021, the New South Wales (NSW) Court of Appeal ruled that references to the repealed Quarantine Act did not exempt insurers from covering pandemic-related claims. This decision forced IAG to increase its provisions for potential COVID-19 claims. In July 2021, IAG initially set aside $100 million, but by November 2021, it raised the provision to $865 million, reflecting the potential impact of the court’s ruling. The company also raised $750 million in capital to manage anticipated claims.

IAG has confirmed that it intends to defend the class action and manage related claims in line with court rulings. It continues to emphasise that policyholders with BI coverage affected by the pandemic should lodge claims for assessment.

As the legal processes unfold, IAG remains engaged with the courts while addressing claims tied to both business interruption policies and shareholder losses, it said.