The potential for class actions against businesses is a concern for all Australian company boards. Understanding prevalent trends, and the protections insurance can provide, can help direct management strategy in risk prevention.
Legal report Class Actions in Australia1 provides an overview of class action litigation and examines legal and procedural developments including trends in the types of class actions being filed, the role of litigation funders and the increasing use of settlement orders for class closure.
It also examines key legal issues in securities class actions, superannuation litigation, consumer class actions and environmental and sustainability claims.
The findings show the class action landscape is changing, influenced by evolving regulations, landmark court decisions and the emergence of alternative funding mechanisms.
These changes are likely to reshape the number, types and outcomes of future class actions in Australia, and are of interest to compliance and risk officers, operations, company secretaries, legal counsel and management.
Key findings from the report include:
Claims filed in the prior 12 months have not been focused on particular issues, conduct or sectors. The decline in shareholder class actions is most likely driven by a recalibration of the risks of pursuing these claims. A string of recent losses by plaintiffs (and funders) has led to a more cautious approach to filing claims.
Recent changes to continuous disclosure laws and unfair contract terms (UCTs) may have potential impacts on class actions.
Directors and officers' (D&O) insurance can provide protection against many types of legal actions, particularly securities class actions, financial products/investment class actions and consumer class actions related to misleading or deceptive conduct.
Securities class actions: numerous securities class actions have been brought against companies such as Commonwealth Bank, Westpac, Medibank, The Star casino and Woolworths. These cases involve allegations of breaches of continuous disclosure obligations, misleading or deceptive conduct, or other statutory violations related to financial markets.
Where Side C coverage is purchased, D&O insurance can cover defence costs including legal fees, expert witness fees and other expenses. It may also cover settlements or judgements awarded against the insured individuals.
Financial products/investment class actions: various class actions have been brought by consumers relating to financial products and investments. Examples include claims against AMP regarding policy changes and superannuation fees and insurance, as well as actions concerning commissions.
D&O insurance can protect directors and officers of financial institutions against claims alleging mismanagement, mis-selling or breaches of fiduciary duty.
Consumer class actions: consumer class actions are prevalent, including those related to insurance products, motor vehicle performance and travel credits.
Many D&O policies extend to cover other employees involved in management decisions. If a consumer class action alleges misleading or deceptive conduct by the company or its management, D&O insurance may provide for defence costs and settlements, depending on the terms of the policy. Professional indemnity insurance will often provide cover for a business where the allegations made by consumers relate to professional services provided by the organisation.
Although securities class actions have declined in numbers, class action risks generally remain significant for Australian businesses, and not all class action risks are insurable.
For example, employment-related class actions can be problematic from an insurance coverage perspective where there are allegations of wage underpayments or failure to provide entitlements such as meal breaks.
Management liability and employment practices liability insurance can respond in some scenarios, but cover can vary significantly depending on the policy's terms and conditions. It is essential to consult with an insurance professional to understand the extent of cover provided and any exclusions that may apply.
Management liability and directors and officers' insurance provides multiple protections for directors and business managers and offers flexibility in adapting the scope of the cover to your individual needs.
As your insurance broker, Gallagher can guide you on risk mitigation and risk transfer to help minimise what could be a significant financial impact should the unexpected happen. If you would like to know more or discuss your business needs further, please contact one of our business insurance experts.
1Saville, Moira and Peta Stevenson. "The Review Class Actions in Australia 2023/24," King & Wood Mallesons, accessed Jan 2025.
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