ASIC sues insurance company over unfair contract terms

The Australian Securities and Investments Commission case focuses on Auto & General Insurance Company Limited’s (Auto & General) home and contents insurance contracts from April 2021. ASIC is focusing on a contract term requiring customers of the insurance company to notify it “if anything changes about your home or contents”. 

ASIC deems the term unfair because it imposes an obligation on customers to notify the company if “anything” changes about their home or contents, something that customers cannot practically meet.

Additionally, it imposes unclear obligations on the customer regarding what they must disclose, while suggesting that Auto & General have a broader right to refuse claims or reduce the amount payable under claims if they customer does not meet the notification obligation.

ASIC stated this term could mislead or confused the customer as to their true obligations and rights while under the contract.

The term is allegedly included in the following: 

• Auto & General Home and Contents Insurance Policy PDS
• Budget Direct Your Home & Contents Insurance Policy PDS
• Australia Post Your Home & Contents Insurance Policy PDS
• ING Home & Contents Insurance Policy PDS
• Catch Insurance Your Home & Contents Insurance Policy PDS
• Virgin Insurance Your Home & Contents Insurance Policy PDS
• Qantas Home and Contents Insurance Policy PDS.

The Auto & General Home and Contents Insurance Policy PDS applies to 1st For Women, Best Buy, Maxxia, Ozicare and Retirease branded home and contents insurance policies issued by Auto & General.

Auto & General no longer issue new home and contents policies for the Australia Post, Catch Insurance and Maxxia brands.

Furthermore, ASIC alleged the contract term is unfair within meaning of s12BG of the ASIC Act because the term causes “a significant imbalance” in the parties’ rights and obligations under the contract, while not being “reasonably necessary” to protect the company’s legitimate interests and would cause detriment to the policy holders if the term were relied on.

ASIC is seeking declarations that the term is void and will also seek injunctions and corrective orders.

ASIC deputy chair Sarah Court said: “ASIC is concerned that the broad notification obligation in these contracts is unfair because it is unclear what policy holders are required to do to comply with such a broad obligation, and it is also unclear what their rights are when making a claim.”

“Contract terms need to be proportionate, transparent and clear, so any obligations are easily understood and able to be realistically adhered to by customers.

“They must accurately describe the actual rights and responsibilities of the parties under the contract,” Ms Court stated.

The Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry found it was too easy for insurers to deny claims based on the policy holder’s failure to meet broad disclosure obligations.

ASIC expanded the unfair contract term protections in Subdivision BA of the ASIC Act to include insurance contacts with consumers and small businesses as a result of the recommendations by the Royal Commission.

A spokesperson from Auto & General told Mortgage Business: "We note that ASIC has commenced proceedings in the Federal Court of Australia alleging that a single term in the A&G Home & Contents Insurance Product Disclosure Statement, relating to the notification of changes during the period of cover, does not comply with ‘Unfair Contract Terms’ law."

"We have fully co-operated with ASIC throughout its investigation. We are reviewing ASIC’s claims and are committed to working constructively with ASIC through the Court process.

The spokesperson further stated that the company has not been refusing or reducing claims or cancelling customer policies, in reliance on the term that is the subject of the proceedings since 15 September 2022. 

"A&G believes that only five customers had claims refused or reduced in relation to the term before that date.

"As the matter is currently before the courts, it would be inappropriate for us to comment further at this time," they said. 

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