Australian Securities & Investments Commission v Auto & General Insurance Company Limited [2024] FCA 272
For the first time since the new Unfair Contract Term Regime’s implementation in November 2023, the Federal Court of Australia has ruled on the Regime’s application to insurance contracts.
The Court’s dismissal of ASIC’s claims has established a high bar for finding unfairness under the UCT Regime in an insurance contract. However, Australian Securities & Investments Commission v Auto & General Insurance Company Limited [2024] FCA 272 speaks to more than just insurance.
Background
In April 2023, the Australian Securities and Investments Commission (ASIC) commenced legal proceedings against Auto & General Insurance in respect of a notification clause in their home and content insurance policies.
The clause, typically found in such insurance policies, demanded that policy holders inform the insurer about any changes to their home and contents.
ASIC claimed that the notification clause was unfair according to section 12BG of the ASIC Act 2001 (Cth) because it:
- Imposes an unclear obligation on the policy holder to notify Auto & General if “anything” changes;
- Indicates that the Insurer (Auto & General) has a broader right to refuse claims or to reduce the amount payable if the policy holder does not comply with its obligation to notify than what is provided under the ICA; and
- May mislead the policy holder as to their rights and obligations under the contract.
Findings
ASIC’s claim against the Insurer was rejected, with the Court finding that:
- The clause did not create a significant imbalance between the parties and that the unilateral duty to disclose the changes were “simply a reflection of the nature of the contract”;
- The term was reasonably necessary to protect the insurer’s legitimate interests for it to have powers under the contract to put itself in the position it would have been in, had the insured disclosed information revealing the risk, and the insurer had declined to grant cover or limited the cover for that reason; and
- Whilst the term lacked transparency to a significant degree (because its true meaning, as construed, was not expressed in a way consumers could readily understand), the lack of transparency with the term did not yield any different result as the clause was reasonably necessary to protect the insurer’s interests.
The proceedings were dismissed with costs.
Key takeaways
This case highlights that:
- From an insurance perspective, the Court’s decision demonstrates that terms of insurance contracts could on their face be considered unfair will be rescued by the criteria built into sections 13 and 54 of the ICA;
- An insurance contract provision must be evaluated based on whether the insurer is allowed to depend on it under the ICA first; and
- Applied broadly, the case highlights that the provisions in the ASIC Act are to be read in the context of the broader legal environment in which they operate, taking into consideration in the relevant legislation which may limit the exercise of rights and powers provided by the contract.
Insurers should pay attention to the Court’s findings regarding transparency to enhance disclosures regarding policy notification terms.
