Insurance contracts and ‘unfair’ terms

In Australian Securities and Investments Commission v Auto & General Insurance Company Limited [2024] FCA 272 (22 March 2024), the Australian Securities and Investments Commission (ASIC) contended that home and/or contents insurance policies containing notification obligations on the part of people insured were unfair within the meaning of ss12BF(1)(a) and 12BG(1) of the ASIC Act.

The case concerned contracts for insurance issued under various brands such as Budget Direct, ING and Virgin Insurance, entered into from 5 April 2021.

This was the date on which legislation came into effect following the Hayne Royal Commission that amended the Insurance Contracts Act 1984 (Cth) (ICA) to make insurance contracts subject to the consumer protection regime in the ASIC Act.

The PDS for the insurance contracts contained a notification clause sub-headed, “Tell us if anything changes while you’re insured with us”, which ASIC contended was unfair within the meaning of s12BF(1)(a) of the ASIC Act.

In construing the meaning of the notification clause, Jackman J rejected as leading to absurdity, a literal meaning of the word “anything” (at [41]). His Honour considered that when read in the context of the PDS and other contractual documents, and in light of the purpose of insurance contracts, the notification clause requires the insured to notify the defendant if there is any change to the information about the insured’s home or contents that the insured had already disclosed to the defendant (at [42]-[46] and [62](a)).

He also concluded it meant that if the insured failed to notify the defendant, the defendant had the right to refuse to pay a claim, reduce the amount it paid, cancel the contract or not offer to renew the contract, and such measures would need to be consistent with commercial standards of decency and fairness (at [62(b)]).


In order to determine if the notification clause was unfair, Jackman J considered the criteria in s12BG(1) as to whether the term produced a significant imbalance in rights and obligations, was not reasonably necessary to protect legitimate interests, and would cause detriment if relied on, taking into account the extent to which the term is transparent.

On the issue of imbalance, ASIC submitted that a novel question was raised as to the interaction of the unfair terms regime of the ASIC Act and s54 of the ICA, which reduces the insurer’s liability to the amount that fairly represents the extent to which the insurer’s interests were prejudiced by an act of the insured. ASIC submitted that the unfairness of the term of the contract is to be assessed without reference to s54 of the ICA (at [77]), which would cause a significant imbalance.

The Court rejected this argument. Jackman J found that the notification clause is to be construed in the context of the obligation to act with the utmost good faith as required in s13 of the ICA as part of the overall legal environment in which the terms of the contract operate (at [80]). This means that insurers must act consistently with commercial decency and fairness (at [81]).

His Honour considered that this duty would prevent the defendant from any opportunistic reliance on the notification clause (at [82]) and meant that the substantive effect of s54 of the ICA is consistent with the notification clause on its proper construction. Accordingly, his Honour considered it not necessary to consider how the analysis required by s12BG(1) of the ASIC Act relates to s54 of the ICA (at [82]).

His Honour considered the defendant’s legitimate interests include its ability to choose which risks it will insure against (at [91]) and that it is reasonably necessary to protect those interests to be able to obtain information relevant to those risks [at [92]).

Jackman J accepted ASIC’s submissions that reliance on the notification clause would necessarily be to the detriment of the insured, even if that disadvantage is not significant or substantial (at [97]). On the issue of transparency, the Court also found in favour of ASIC that s12BG requires not just transparency as to form but clarity of meaning (at [101]) and accepted ASIC’s submission that the notification clause in the defendant’s PDS lacked transparency to a significant degree (at [103]).


However, his Honour concluded that the lack of transparency did not change the conclusions he had reached as to the lack of significant imbalance (at [107]) or the existence of a legitimate interest (at [109]). As these criteria are essential to s12BG(1) and were not satisfied, the notification clause was not unfair (at [113]).

  The case was dismissed with costs.

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