IAG shareholders affected by a stock price slump triggered by a market update on COVID-related business interruption claim provisions are signing up to participate in a class action against the insurer.

Law firm Quinn Emanuel Urquhart & Sullivan says the action is open to those who bought shares between March 11 and November 20, when IAG announced a capital raising and an $865 million post-tax provision in response to a Quarantine Act wordings test case that went against insurers.

The lawyers say IAG shares resumed trading 7% lower than the November 18 closing price, before a trading halt, and the loss in market capitalisation was about $800 million.

The class action, expected to be filed this year in the Supreme Court of Victoria, will allege breaches of continuous disclosure obligations and misleading and deceptive conduct.

An IAG spokesman says the insurer is aware that Quinn Emanuel Urquhart & Sullivan has announced that it intends to file action, but it has not yet been served with any legal proceedings.

Quinn Emanuel Partner Damian Scattini says COVID-19 was declared a global pandemic on March 11, yet IAG policies relied on the outdated Quarantine Act as the foundation for its pandemic exclusion clause.

The NSW Court of Appeal on November 18 ruled insurers could not use the repealed legislation to exclude business interruption claims for COVID-19 disruptions.

“Unlike others, IAG did not reveal the extent of its exposure if they were wrong, and that is why the market was shocked, because they had said ‘we have got this covered’,” Mr Scattini told insuranceNEWS.com.au.