Quinn Emanuel class action against IAG expected to seek hundreds of millions of dollars in compensation

Law firm Quinn Emanuel plans to file a class action against insurer IAG before the end of the year, potentially seeking hundreds of millions of dollars in compensation for shareholders.

Quinn Emanuel lawyer Damian Scattini. Picture: Michelle Gately

A class action against Australia’s biggest insurance company is expected to seek hundreds of millions of dollars of compensation for its alleged mishandling of business interruption claims and related financial problems.

Law firm Quinn Emanuel plans to file the lawsuit against Insurance Australia Group in the Supreme Court of Victoria by the end of the year on behalf of shareholders who owned stock between March and November 2020.

The claim will allege that IAG, including its subsidiaries NRMA, CGU and WFI, failed to update the wording of its policies in relation to its business interruption exclusions for pandemic-linked losses.

Quinn Emanuel lawyer Damian Scattini

The subsequent alleged failure to properly inform the market and the rushed need to raise $750m to cover the liability triggered a 7 per cent share price drop last November.

Insurance companies introduced general exclusions for losses related to infectious diseases or quarantine issues back in 2005 following the SARS outbreak.

But IAG and other insurers continued to sell policies that reference the now-repealed Quarantine Act of 1908. Those laws were scrapped and replaced in 2016, when the new Biosecurity Act 2015 came into effect.

“IAG’s polices relied on a statute that no longer existed as the foundation for its pandemic exclusion clauses,’’ Quinn Emanuel partner Damian Scattini said.

The company had a $150m provision to cover expected losses but went into a trading halt the day after the NSW Court of Appeal dismissed a test case on the matter last November.

After trading resumed, IAG announced the $750m capital raising as its share price sank, wiping out about $800m in market capitalisation.

IAG later reported a $427m full-year net loss and announced it was setting aside $1.15bn to cover potential business interruption pay outs.

“For years it sold policies with a useless exclusion. Then, when the pandemic hit, instead of admitting its error, IAG doubled down, misleading the market about its true exposure,’’ Mr Scattini said.

An IAG spokesman said the company was aware of the planned lawsuit but could not comment as it had yet to be filed.

Originally published as Quinn Emanuel class action against IAG expected to seek hundreds of millions of dollars in compensation