A class action against IAG subsidiary Swann Insurance over add-on cover sold through motor dealerships could involve sums of up to $1 billion, the Federal Court has heard.

Justice Jacqueline Gleeson said last week the number of participants in the case is unknown, but evidence put forward suggests it could be in the hundreds of thousands, based on sales and premiums between 2008 and 2017.

Senior counsel for IAG submitted during a hearing on litigation funding arrangements that the sums involved could be “in the order of $600 million to $1 billion”.

“Needless to say, the respondents do not concede for a moment that the potential liability is this high,” Justice Gleeson said.

IAG is defending the class action, which has been filed by solicitors Johnson Winter & Slattery, with funding from Balance REV.

On Friday the court approved a funding order for class action members to share legal costs, deducted from any payment to which they become entitled, unless they opt out of the proceeding. Balance REV will be able to receive a commission of not more than 25%, with details to be decided later.

Justice Gleeson says the proposed funding arrangements will achieve equal treatment for class members and avoid a windfall to Balance REV.

“Conversely, it will ensure that the funder is appropriately and reasonably remunerated in due course, and it will facilitate the group members in making reasonably informed decisions on the question of whether to opt out of the proceeding,” she said.

Mediation is scheduled for November and the trial has been listed for hearing next July.

Swann had stopped selling the add-on products before IAG was grilled over the cover during the Hayne royal commission.