What happened: The Federal Court ruled ANZ cannot recover $117 million in class action settlements under its excess insurance tower.
Who's involved: Australia and New Zealand Banking Group Limited (ANZ), Zurich Australian Insurance, Lloyd's syndicates, and more than 20 excess layer underwriters.
What's at stake: $85 million (O'Brien settlement), $31.92 million (Reilly settlement), plus defence costs across both proceedings.
Why it matters: Banks and financial institutions cannot insure their way out of repaying money they should never have collected.
Where it stands: Decided on October 9, 2026. Leave to appeal likely.
A car buyer in western Sydney was charged 12.38% interest on his vehicle loan. The bank had approved him at 8.35%. The dealer - incentivised by a commission tied to the size of the gap - never told him.
That spread between what ANZ would have charged directly and what customers actually paid sat at the heart of one of two class actions the bank settled for a combined $117 million. When ANZ turned to its excess insurers to cover the payouts, the underwriters refused. The Federal Court has now backed them.
In a judgment handed down on October 9, the court ruled that none of ANZ's settlement payments - and none of its defence costs - qualified as "Loss" under the bank's excess insurance policies. The answer to the question put to the court was no on every count.
ANZ held three layers of excess cover arranged by Aon, sitting above a $50 million primary layer and providing up to $200 million in additional protection. The policies were underwritten by Zurich, Lloyd's syndicates, XL, AIG, Liberty Mutual, AXIS and others for the year from September 2017.
The bank sought coverage for two settlements.
The first, worth $31.92 million, resolved the Reilly proceeding - a class action over consumer credit insurance products that ANZ sold to credit card and personal loan customers. Customers said they never asked for the insurance, never understood they had it, and in some cases were told it was compulsory when it was not. ANZ collected the premiums, kept a 20% commission, and passed the rest to its subsidiary underwriters OnePath Life and OnePath General.
The second, worth $85 million, resolved the O'Brien proceeding - a class action over "flex commissions" on car loans arranged through ANZ's Esanda business. Car dealers could set the customer's interest rate above ANZ's base rate. The higher they set it, the more commission they earned. The commission structure and the dealer's role in setting the rate were not disclosed to borrowers.
The excess policies defined "Loss" broadly as the legal liability of the insured to pay any amount. But they carved out "fees, commissions, or other charges paid or due to the Insured."
The court held that insurance premiums are charges. Interest is a charge. The 20% commission ANZ received for distributing the credit insurance products was, on its face, a commission - the product disclosure statements said as much. The amounts ANZ was forced to repay in both settlements were amounts it had collected from customers and was not entitled to keep.
That is not loss. It is repayment.
The court put it plainly: an insured does not suffer a loss in the relevant sense when it repays something that it should never have received.
ANZ argued that premiums are different from fees and commissions, that interest is fundamentally unlike a charge, and that the narrower wording in the Loss carve-out - compared with a broader exclusion clause - meant the two provisions should be read differently. The court rejected each argument. A premium is a charge. Interest is routinely described as being "charged" - including in ANZ's own product disclosure documents.
One detail cut against ANZ's position sharply. The policies had been drafted by Aon, ANZ's own broker, not by the underwriters. That meant the usual rule of reading unclear policy language against the insurer did not apply.
Even if the settlements had qualified as Loss, a separate exclusion - Exclusion 11 - would have blocked them independently. That clause excluded coverage for any claim "based on, arising out of, relating to or involving, directly or indirectly, the actual or alleged charging of excessive, undisclosed or otherwise improper" fees, profits, commissions, costs or other charges.
The court found the connecting language to be very broad. The Reilly proceeding alleged products of no value sold without consent. The O'Brien proceeding alleged undisclosed flex commissions designed to inflate interest rates. Both squarely involved the alleged charging of excessive or improper amounts.
Defence costs fell the same way. Because the underlying claims were not covered, there was no entitlement to indemnity - and without that, no obligation on underwriters to advance defence costs.
The court indicated willingness to grant ANZ leave to appeal, given the significance and finality of the ruling. The outcome means ANZ absorbs the full $117 million in settlements plus years of defence costs across both proceedings.
For financial institutions insurers and coverage teams, the decision draws a hard line: where a claim is fundamentally about the return of money the insured collected through its own products and services, there is no insurable loss - regardless of how the underlying claimants frame their case.
