Auto & General cleared by Federal Court in contract clause dispute

The Federal Court has cleared Auto & General Insurance Company Limited (Auto & General) of allegations regarding the inclusion of an unfair term within its insurance contracts.

This decision came after the Australian Securities and Investments Commission (ASIC) contested a clause obligating policyholders to inform the insurer about any alterations to their property or possessions. The dispute centred on whether this clause was unjust according to the provisions of the ASIC Act.

ASIC's insights on the Auto & General case

ASIC's contention with the clause was threefold:

• It required customers to report any modifications to their home or contents without clearly defining what changes were significant.
• It potentially endowed Auto & General with undue leverage to reject or diminish claims based on the policyholder's failure to notify.
• It could lead to policyholders misunderstanding their contractual rights and duties.

“ASIC pursued this case as part of its consumer protection focus on unfair contract terms in insurance contracts. ASIC believes that contract terms, especially those in standard form contracts, should be proportionate, transparent, and clear so that consumers can readily understand their rights and responsibilities under the contract,” said ASIC Deputy Chair Sarah Court.

Auto & General case background

The legal challenge against Auto & General began on April 4, 2023, focusing on what ASIC deemed an unfair clause in several of the company's product disclosure statements. These included policies marketed under Auto & General itself, as well as Budget Direct, Australia Post, ING, Catch Insurance, Virgin Insurance, and Qantas Home and Contents Insurance.

Notably, the controversial clause was part of Auto & General's Home and Contents Insurance Policy Product Disclosure Statement (PDS), applicable to policies branded under 1st For Women, Best Buy, Maxxia, Ozicare, and Retirease. Following the legal action, Auto & General discontinued issuing new policies for the Australia Post, Catch Insurance, and Maxxia brands.

In an effort to address the issue, Auto & General issued Supplementary Product Disclosure Statements (SPDS) on May 4, 2023, amending the contentious clause. This was followed by the issuance of revised Product Disclosure Statements on September 21, 2023, which incorporated the modified terms from the SPDS.

Focused on the importance of taking accountability in the industry, ASIC – along with the Australian Prudential Regulation Authority (APRA) – recently released the Financial Accountability Regime guidance for insurers.