ASIC sues Auto & General over alleged 'unfair' contract term

Australia’s corporate watchdog is suing Auto & General over a contract term requiring its policyholders to notify the insurer ‘if anything changes about your home or contents’.

Customers cannot practically meet that obligation, the Australian Securities and Investments Commission (ASIC) says, and it is therefore unfair.

“It is unclear what policyholders are required to do to comply with such a broad obligation,” ASIC Deputy Chair Sarah Court said.

“It is also unclear what their rights are when making a claim,” she said, adding it could mislead or confuse the customer as to their true obligations and rights under the contract.

ASIC is seeking declarations that the term is void, and plans to seek injunctions and corrective orders.

An Auto & General spokesperson told insuranceNEWS.com.au the insurer believes only five customers have had claims refused or reduced in relation to the term. Since mid-September, it has not been refusing or reducing claims brought by customers, or cancelling their policies by relying on the term that is the subject of ASIC’s proceedings.

“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 said.

ASIC’s legal proceedings allege unfair terms in Auto & General home and contents insurance contracts issued for the past two years, saying the contract imposes an “unclear obligation” on the customer regarding what they need to disclose to Auto & General.

It also alleges it causes a significant imbalance in the parties’ rights and obligations, is not reasonably necessary to protect Auto & General’s legitimate interests, and would cause detriment to policyholders if the term were relied on.

If the customer does not meet the notification obligation, the term suggests Auto & General has a broader right to refuse claims – or reduce the amount payable – than is available under the Insurance Contracts Act, ASIC says.

Contract terms need to be proportionate, transparent and clear, Ms Court says, so 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,” she said.

The alleged unfair contract term appears in Home & Contents Insurance Policy product disclosure statements branded Auto & General, Budget Direct, Australia Post, ING, Catch, Virgin and Qantas. The Auto & General PDS applies to 1st For Women, Best Buy, Maxxia, Ozicare and Retirease branded policies.

Auto & General no longer issues new Australia Post, Catch and Maxxia branded policies.

The action comes after unfair contract term protections were expanded to include insurance contracts with consumers and small businesses after a recommendation by the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry.

The Royal Commission found it was too easy for insurers to deny claims based on a policyholder’s failure to meet broad disclosure obligations.

A Treasury Laws Amendment (More Competition, Better Prices) Act 2022 will from November introduce civil penalties under the ASIC Act for breaches of the unfair contract term prohibition.