Documents presented to the Federal Court by IAG show multiple alleged breaches of authority occurring in insurance cover extended to German-based Greensill Bank and Greensill Capital, where insurance was provided for $1 when the minimum price should have been $10,000 each, according to a report in the Australian Financial Review (AFR).
The claim is part of the defence of lawsuits by Greensill Bank’s administrator against IAG, its formerly half-owned insurance agency Bond & Credit Co (BCC), and BCC’s then underwriter Greg Brereton. According to the AFR, IAG’s defence also references broking company Marsh, saying it should have been aware of problems with policies.
Greensill Group entities sold invoice ‘receivables’ to Swiss bank Credit Suisse, which on-sold them to investors, with the bank’s exposure supposedly protected by insurance.
“Part of the Greensill Bank claim is that IAG had entered into two insurance policies with the bank and Greensill Capital in deals signed via the trade credit insurance agency,” the AFR said.
“But IAG argued that Bond & Credit did not have authority to enter into the policies.”
According to the AFR, IAG’s defence said it had an agency and authorised representative agreement with Bond & Credit, which laid out rules for writing up policies.
“Among them was that the authority only extended “to arranging and issuing policies with a minimum premium of $10,000,” the court defence said.
“It was beyond Bond & Credit’s authority pursuant to the [agency] agreement and applicable underwriting guidelines to issue policies with a premium of less than $10,000 and the premium… was $1.”
According to the AFR, the defence later alleged that Greensill entities had not paid any premium.
IAG listed other alleged examples of authority being exceeded in one or both policies, including that the guidelines limited cover to $50 million or less and the policies in question lacked such limits, and one policy exceeded a limit by insuring credit in excess of 180 days.
IAG further said at all material times, it did not know the policies had been issued, according to the report.
IAG’s defence also referred to Brereton allegedly approving a $US34 million ($48.6 million) insurance claim on behalf of the Group.
“It would be highly unusual, to the knowledge of Greensill Bank and its representatives, for an individual underwriter to have authority to settle a claim over $US34 million, particularly involving a highly unusual payment arrangement, within that period of time and without any further reference to any other person at the insurer,” the defence said.
According to the AFR, IAG maintains it has no net insurance exposure from the collapses of Greensill entities.