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The regulator says a requirement by the insurer imposes an “unclear obligation” that could “mislead or confuse”.
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ASIC sues Auto & General alleging unfair contracts
06 April 2023
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11 minute read
ASIC has begun its first legal action against an insurer alleging unfair contract terms with a Federal Court filing against Auto & General Insurance this week.
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The regulator alleged that a contract term requiring customers to notify the insurer “if anything changes about your home or contents” was unfair because it imposed an “unclear obligation” that could “mislead or confuse”.
The action takes in a swathe of Auto & General home and contents products under brands ranging from Budget Direct to ING, from Australia Post to Virgin.
ASIC sought to declare the term was void along with injunctions and corrective orders, it said.
“ASIC is concerned that the broad notification obligation in these contracts is unfair because it is unclear what policyholders are required to do to comply with such a broad obligation, and it is also unclear what their rights are when making a claim,” ASIC deputy chair Sarah Court said.
“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.”
ASIC claimed the contract was unfair because it:
- Imposes an obligation on customers to notify Auto & General if “anything” changes about their home or contents, which customers cannot practically meet
- Imposes an unclear obligation on the customer regarding what they need to disclose to Auto & General
- Suggests that Auto & General has a broader right to refuse claims or reduce the amount payable under claims if the customer does not meet the notification obligation than is available under the Insurance Contracts Act
- Could mislead or confuse the customer as to their true obligations and rights under the contract
ASIC further alleged the contract term was unfair within the ASIC Act because it caused a significant imbalance in the parties’ rights and obligations and it was “not reasonably necessary to protect Auto & General’s legitimate interests” but would cause detriment to policyholders if relied upon.
It said the allegedly unfair contract term appeared in product disclosure statements issued by a range of Auto & General brands, all in substantially identical terms, including:
- 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 also applied to 1st For Women, Best Buy, Maxxia, Ozicare, and Retirease branded home and contents insurance policies issued by the insurer.
Auto & General no longer issue new home and contents policies for the Australia Post, Catch Insurance, and Maxxia brands.
A spokesperson from Auto & General Insurance said it was co-operating with the ASIC investigation.
"We are reviewing ASIC’s claims and are committed to working constructively with ASIC through the court process," the spokesperson said.
"A&G has not been refusing or reducing claims brought by customers, or cancelling their 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."
The ASIC move came after the unfair contract term protections in the ASIC Act were expanded to include insurance contracts with consumers and small businesses in April 2021, following a recommendation by the banking royal commission.
It said the extention aimed to ensure a level playing field between insurance and other financial services and to encourage insurers to improve the level of clarity and transparency in their contracts and remove potentially unfair terms.
The royal commission also found it was too easy for insurers to deny claims based on the policyholder’s failure to meet broad disclosure obligations.
The recent Treasury Laws Amendment (More Competition, Better Prices) Act 2022 introduced civil penalties under the ASIC Act for breaches of the unfair contract term prohibition from 10 November 2023.
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