Insurance Australia Group (ASX: IAG) says it will defend a class action law suit filed in the Victorian Supreme Court on Friday by law firm Quinn Emanuel which alleges the insurer knew or should have known that outdated policies would expose it to major losses.
The class action alleges breaches of IAG’s continuous disclosure obligations and for misleading and deceptive conduct, arising out of a failure to update policies that relied upon old legislation.
It is alleged those policies meant IAG excluded business interruption cover in its policies in relation to “quarantinable diseases”.
Once COVID-19 hit Australia, IAG informed the market that because it intended to exclude pandemic cover, the courts would find in its favour should any test case arise. In addition, the firm told the ASX that whatever the outcome in court, its conservative provision for COVID-19 related business interruption claims was adequate. This was despite COVID-19 never being declared to be a “quarantinable disease” under the Quarantine Act.
Ultimately, in a test case against IAG’s position in the NSW Court of Appeal, it was decided that the pandemic exclusion clauses were ineffective. A High Court of Australia appeal from IAG was also refused.
As such, IAG announced a post-tax provision of $865 million to cover potential business interruption claims related to COVID-19, and a $750 million snap capital raising to address the provision.
Following these announcements on 20 November 2020, IAG’s share price fell materially and the company’s market capitalisation dived by around $800 million, leading Quinn Emanuel to commence exploring a class action law suit.
The class action filed on Friday alleges that because of IAG’s conduct, shareholders paid more for shares than would have been the case had the insurer complied with its obligations. Alternatively, the class action alleges that some group members would not have purchased shares in the company had the alleged wrongdoing not occurred.
Those who purchased IAG shares during the period 11 March 2020 until 20 November 2020 are automatically considered a group member of the class action.
In a short statement issued yesterday afternoon, IAG said it intended to defend the class action.
“Insurance Australia Group Limited confirms that it has today been served with a shareholder representative proceeding filed in the Supreme Court of Victoria on behalf of persons who acquired shares in IAG during the period 11 March 2020 and 20 November 2020, in relation to IAG’s disclosure of the impact of COVID-19 and related business interruption claims,” IAG said.
“IAG intends to defend the proceeding.”
Shares in IAG rose by 1.34 per cent yesterday to close at $4.55 per share.
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