IAG is fighting a shareholder class action lawsuit over BI disclosures

The AG will fight a shareholder class action in the Victorian Supreme Court that revealed the potential financial impact of coronavirus-related business interruption claims under an outdated policy in the Quarantine Act.

The filing by law firm Quinn Emanuel Urquhart & Sullivan said IAG made misleading and deceptive representations and failed to comply with ongoing disclosure requirements so people were paying more for stock than they should have or bought up the stock they wouldn't own if the information were made public.

"IAG intends to defend itself in the lawsuit," the insurer said in a statement to the ASX in support of the class action.

The class action affects people who bought shares between March 11, 2020 and November 20 this year.

IAG accumulated about $100 million in potential Covid claims, including business interruption, in July, the lawsuit said, and said on Aug. 7 that its policies lacked coverage excluding the pandemic, and the insurer would win a Citing exclusions from the Quarantine Act.

The appeals court ruled against the insurer on Nov. 18, 2020, and IAG said Nov. 20 that it intends to recognize $865 million in after-tax provisions based on the decision.

The company announced a capital increase, and the stock then re-traded at $5.05, down 7% from its Nov. 18 closing price and losing about $800 million in market value.

According to the complaint, as of Nov. 20, "the best information plaintiffs can provide at this time is BI exposure information" was about $715 million.

It noted that details of the engagement should be released on various occasions throughout the year and that IAG knew or should have known that, if the information was generally available, it would have a significant impact on the stock value.

The lawsuit estimates that as of Nov. 22, IAG had issued about 76,000 business interruption policies, about half of which contained unamended wording of the quarantine law.

"IAG cannot guarantee that an unchanged BI policy will exclude claims arising from business interruption due to outbreaks of diseases classified as 'listed human diseases' under the Biosecurity Act," it said.

The class action will be pursued by Quinn Emanuel on a no-win, no-fee basis, with fees deducted from the award if the suit is successful, subject to a court order. No external litigation financiers are currently involved.