In 2023, the Australian Securities & Investments Commission (ASIC) commenced Federal Court proceedings against Auto & General Insurance Company Limited (A&G). ASIC alleged that a notification term of A&G’s home and contents insurance policies requiring the insured to notify A&G “if anything changes about your home or contents”, or risk refusal to pay or reduced payment (Notification Term), was unfair in contravention of the Unfair Contract Terms Regime in the Australian Consumer Law (UCT). ASIC stated at the outset in its Concise Statement that the Notification Term was unfair because it:
- imposed an overly onerous obligation on the insured to notify changes; and/or
- imposed an unclear and ambiguous disclosure obligation, and
- misled consumers in relation to the scope of A & G’s rights to refuse to pay.
On one view, the term was unfairly (and/or absurdly) onerous in requiring the insured to notify trivial matters not relevant to A&G’s risk. Alternatively, the term was a reasonable attempt by A&G to convey in plain English the common-sense notions that:
- what is being insured is the risk of loss or damage to the specified home and contents to the level chosen by the insured; and
- the insured should be mindful of and revisit their risk profile and the adequacy of the insurance, and notify increase/decrease insurance in the event of material changes to risk and subject matter of the insurance.
At trial in 2024, Justice Jackman construed the Notification Term (as A&G had submitted) to require the insured to notify A&G if there is any change to the information about the insured’s home or contents that the insured disclosed to A&G prior to entry into the contract. Primarily on that basis it was not unfair. On appeal in ASIC v Auto & General Insurance Company Limited [2025] FCAFC 76, Derrington J recently agreed with the trial judge. On the other hand, the other appeal judges, O’Bryan and Cheeseman JJ, in substance accepted ASIC’s construction at trial which had shifted from its Concise Statement to requiring the insured to notify “if anything changes about your home or contents”, but with a criterion of materiality, where materiality relates to the risk insured.
Unfortunately for ASIC, it lost either way because it had conducted the appeal on the basis of its construction of the Notification Term while at the same time asserting that a reasonable consumer reading the contract of insurance would not be aware of the materiality qualification so there was a lack of transparency rendering the term unfair. The majority on appeal held that it was logically inconsistent to contend that the term should be construed as being subject to a criterion of materiality, but at the same time to base its UCT claim on its contention that a reasonable consumer would not understand that the term was subject to a criterion of materiality. The result was that ASIC could not establish the elements required to find breach of the UCT, because:
- the term as construed did not cause a significant imbalance in the parties’ rights and obligations; and
- was reasonably necessary to protect A&G’s legitimate interests.
Curiously, ASIC might have won by majority on appeal if it had maintained its initial construction of the Notification Term as unduly onerous. The majority observed (at 109) that “An orthodox approach to this proceeding would have been to accept that the Notification Term, applying its plain meaning, imposed an unreasonable burden on the insured and apply the statutory unfair contract terms regime to the Notification Term accordingly. However, in circumstances where ASIC agreed at trial that the Notification Term should not be construed in accordance with its plain meaning, and that agreement was maintained on this appeal, it would be procedurally unfair for the Court to decide this appeal on a different basis.”
One issue highlighted by the case but left undecided on appeal is the relevance of the Insurance Contracts Act 1984 (ICA) in construing a policy term under the UCT. In particular, it remains to be determined, authoritatively, whether the UCT phrase ‘the parties’ rights and obligations arising under the contract’ should be interpreted as meaning the parties’ rights and obligations arising under the contract as modified or impacted by the ICA.
The practical take out for present purposes is that it is likely to be challenging to find contravention of the UCT in relation to many insurance contract terms because they are already subject to the qualifications, protections and checks and balances tilted in consumers’ favour in the ICA. As Derrington J observed on appeal in relation to the provisions of the ICA, “presently, the scope for insurers to draw the cover provided by their policies in a manner that imposes undue limits on an insured’s right to recover is all but non-existent”.
ISW 30.7.25
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