IAG to fight shareholder class action over BI disclosure

IAG will fight a shareholder class action filed in the Supreme Court of Victoria over its disclosure of potential financial impacts from covid-related business interruption claims made under policies with outdated Quarantine Act wordings.

The filing by law firm Quinn Emanuel Urquhart & Sullivan alleges IAG made misleading and deceptive representations and failed to comply with continuous disclosure obligations, and as a result people paid more for shares than should have been the case, or bought shares they wouldn’t have if information had been released.

“IAG intends to defend the proceeding,” the insurer said in an Australian Securities Exchange statement confirming the representative action.

The class action covers people who bought shares between March 11 2020 and November 20 that year.

The statement of claim says IAG in July made a provision of about $100 million for potential covid claims, including for business interruption, and on August 7 expressed a view that its policies excluded cover in a pandemic scenario, and it expected insurers to win a test case over exclusions citing the Quarantine Act.

The Court of Appeal delivered a judgment against insurers on November 18 2020, and IAG on November 20 said that given the decision it intended to recognise an $865 million post-tax provision.

The company announced a capital raising, with shares later resuming trading at $5.05, which was 7% below their November 18 closing price, representing a loss in market capital of about $800 million.

The statement of claim says “the best particulars the plaintiff can presently give are that the BI exposure information” as at November 20 was in the order of $715 million.

It says exposure details should have been released at various opportunities during the year and IAG was either aware of, or ought to have known, that the information, if generally available, would have a material effect on the value of the shares.

The statement of claim estimates IAG had about 76,000 business interruption policies on issue as of November 22, with about half of those containing the unamended Quarantine Act wordings.

“IAG could not be confident that the unamended BI policies excluded claims arising out of business interruption caused by an outbreak of a disease classified as a ‘listed human disease’ under the Biosecurity Act,” it says.

The class action is being run by Quinn Emanuel on a “no-win, no fee” basis, with costs to be deducted from compensation if the action is successful, depending on court orders. There is no third-party litigation funder currently involved.