Federal Court finds AIG liable for Murray Goulburn class action under ‘Securities Claims’ cover Federal Court finds AIG liable for Murray Goulburn class action under ‘Securities Claims’ cover

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Federal Court finds AIG liable for Murray Goulburn class action under ‘Securities Claims’ cover

27 April 2021 | Professional Indemnity & Financial Lines

The Federal Court has found against AIG in coverage of class action claims related to the Murray Goulburn dairy group and Webster as the traded units involved met the securities definition.

In Issue

  • In issue for determination was whether Murray Goulbourn Co-operative (the plaintiff) was entitled to indemnity in respect of the defence of two separate class actions (the class actions) under ‘side C cover’ afforded under a policy (the policy) issued by AIG (the insurer). The insurer argued that the policy did not respond because the traded units that were the subject of the class actions did not meet the policy’s definition of securities and, alternatively, certain exclusions applied.

The background

The plaintiff is a dairy foods company who initiated a capital restructure in mid-2015 which involved the creation of a unit trust (MGUT) and a wholly owned subsidiary, MG Responsible Entity Limited (MGRE), to act as trustee of MGUT.

Units in the MGUT were first made available for acquisition, off market, to certain members invited by MGRE in May 2015. Subsequently, on 3 July 2015, units in the MGUT were made available to the general public by being listed for quotation on the ASX. 

In the class actions, it was alleged that the plaintiff misrepresented and failed to disclose material facts surrounding milk price and anticipated profits in the product disclosure statement and prospectus (the PDS/Prospectus) issued to invitees of the ‘off-market’ acquisition and circulated more widely prior to listing on the ASX. It was alleged that those misrepresentations caused the applicants and group members who purchased units in the MGUT to suffer financial loss.

The policy relevantly defined “Security” as “any security representing a debt of or equity interest in any Insured Entity”. The insurer declined indemnity on the basis that the side C cover did not respond in circumstances where the class actions were not a “Securities Claim”. In the alternative, the insurer asserted that certain exclusions/endorsements operated to exclude cover.

The decision at trial

The Court rejected the insurer’s argument that the class actions were not a “Securities Claim” for the purpose of the policy. Specifically, the Court concluded that the MGUT was an “Insured Entity” under the policy and, moreover, the individual units of the MGUT represented an equity interest in that “Insured Entity”. Based on those findings, it was determined that the class actions clearly fell within the Policy’s definition of “Securities Claim” and therefore the side C cover was enlivened.

The Court went on to consider the insurer’s reliance on various exclusions under the policy.

Firstly, the Court found that the professional services exclusion did not apply in the absence of any relevant ‘professional service’. In that regard, it was specifically found that MGRE’s operations as trustee of the MGUT did not amount to ‘professional services’ for the purposes of the exclusion.

Secondly, the insurer sought to rely upon certain endorsements that excluded cover for matters “arising out of, based upon, attributable to” the PDS/Prospectus. The insurer’s argument in that regard relied on the fact that the PDS/Prospectus included reference to ongoing disclosure obligations and, in turn, the class actions relied upon alleged failures in relation to those ongoing disclosure obligations. However, the Court found that the relevant endorsements were designed to exclude cover for only those matters arising from off-market acquisitions made in reliance upon the PDS/Prospectus.

Implications for you

The commercial intent of procurement of insurance policies prevails. In this instance the side C cover provided for ‘securities’ to the units and the ordinary meaning of ‘trusts’ was upheld by the Court. Insurers should also take care to identify what “profession” is captured within insuring clauses of professional indemnity policies, as the class action claims were not found causally linked to any failure to perform trustee services.


Murray Goulburn Co-Operative Co. Limited v AIG Australia Limited [2021] FCA 288

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Andrea Fadel

Andrea Fadel

Solicitor