Law firm Quinn Emanuel Urquhart & Sullivan plans to file a shareholder class action against IAG for alleged breaches in updating the market about its exposure to business interruption claims resulting from the pandemic.

The law firm is inviting shareholders who bought IAG stock between March 11 to November 20 last year to register their interest in the class action, which it intends to file in the Supreme Court of Victoria before the end of the year.

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Partner Damian Scattini says COVID-19 was declared a global pandemic on March 11, yet IAG policies relied on the outdated Quarantine Act as the foundation for its pandemic exclusion clause.

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

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.

The class action follows the resolution of the first Insurance Council of Australia test case, which was announced in July last year to look at the validity of Quarantine Act exclusion wordings.

The NSW Court of Appeal on November 18 ruled insurers could not rely on the repealed legislation to exclude business interruption claims for COVID-19 disruptions.

IAG shares entered a trading halt on November 19 and the following day the company announced a $750 million capital raising and that it intended to recognise an $865 million post-tax provision as a result of the court’s decision.

Quinn Emanuel says IAG shares resumed trading 7% lower than the November 18 closing price and the loss in market capitalisation was about $800 million.

“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.

IAG in late July had set aside around $100 million for potential claim costs impacts from business interruption and other lines, declaring it a conservative position as it held the view that there was an effective exclusion.

The class action will allege breaches of stock exchange continuous disclosure obligations and misleading and deceptive conduct, with the law firm noting it “was always likely” that the courts would find the exclusion clauses were ineffective, despite the industry position that pandemics were never meant to be covered.