Australia’s IAG reports $4.5bn of Greensill legal claims

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Sydney-based Insurance Australia Group, which has been embroiled in litigation over the collapse of finance firm Greensill Capital, said it had 20 claims related to the cases, worth a combined A$7 billion ($4.5 billion).

The insurer was one of several such groups, including Tokyo Marine and Zurich, to refuse to pay for Greensill’s credit insurance.

Sydney-based IAG detailed the aggregate figures for the first time in its annual report on Monday as it faces multiple Australian legal actions from Greenhill debt investors.

Greensill arranged trade credit insurance through Bond & Credit Co, the underwriting arm for which IAG previously held a 50% stake in the company, to cover the contract in the event of default. By the end of the year, BCC had arranged for $10 billion in insurance for Greensill, covering the debt it had packaged for investors.

IAG previously denied having any “net” exposure to BCC policies with Greensill Capital and Greensill Bank, saying it had passed that exposure on to Tokio Marine, which bought the BCC unit in 2019.

Despite this, the Australian insurer has set aside A$467 million to cover legal costs and claims processing costs related to the case, according to its report.

The Federal Court of Australia is expected to start formal proceedings in the coming months against a series of insurance claims brought by Greenhill creditors. The lawsuit is seen as an important test of the validity of insurance when policies are hotly contested over alleged misrepresentations.

Greensill is a supply chain lending company led by Lex Greensill and advised by former UK Prime Minister David Cameron. The company collapsed two years ago after its insurance expired, sparking a political and financial scandal.

IAG said in its legal filings that it was not bound by the policy signed between BCC and Greensill because the agreed insurance violated limits set on the unit. It also argued that it would not be liable for the amounts demanded by creditors if it was deemed subject to the disputed BCC policy.

Investment firms such as Credit Suisse and White Oak have challenged insurers’ arguments that the policies are invalid in legal documents.

IAG’s annual report noted that investors had brought a series of allegations against the parties, including that BCC had breached its underwriting rights and that the Greensill entity had made “misleading or deceptive representations”.

The insurer said it would take “years” to resolve pending litigation and that it was also managing claims from the BCC that were not related to the Greensill policy.

IAG added that it would transfer the credit insurance risk to Tokio Marine under the 2019 agreement if the court rules that it must pay for the insurance. However, the IAG warned that these agreements could also be challenged.

In response to one of the Greenhill-related claims, IAG said its non-payment was partly because the insured debt was “a far cry from the underlying real-world transaction,” according to a document seen by the Financial Times. .

IAG also said in the filing that periodic information provided to it by the BCC unit “failed to disclose material information and contained material inaccuracies,” including failure to disclose 10 policies that were allegedly drawn up by BCC on behalf of IAG.