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Motor warranty class action settled for $9.5 million

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Members of a motor warranty class action have agreed to settle the lawsuit for $9.5 million, significantly lower than the $47.6 million they were seeking from Davantage Group, a subsidiary of listed fleet leasing company McMillan Shakespeare.

Federal Court Justice Jonathan Beach announced the terms of the financial compensation in a ruling on Friday, months after the two parties agreed to settle it last October and more than a year after he ruled the product contracts had been “intended to operate to permit denial of full coverage” of repair claims.

Justice Beach says the compensation “represents a small recovery when one has regard to the estimated aggregate value of the group members’ claims” but points out that Davantage’s financial position has deteriorated, with net assets of just $956,000 at June 30 2019, compared to $26.6 million a year earlier.

Furthermore, its parent company McMillan Shakespeare did not propose to indemnify Davantage in respect of any settlement that it agreed to pay or any judgment entered against it.

It was also noted that Davantage’s excess layer insurers - CGU Insurance, Dual Australia Pty Ltd, and Berkley Insurance Australia – have all denied indemnity, as has its primary insurer, Suncorp-owned Vero Insurance.

“In summary, I accept that the $9.5 million payment offered by Davantage after commercial negotiation represents the best recovery that could be achieved,” Justice Beach said.

“I say this in circumstances where Davantage has no capacity to satisfy a substantial judgment on the applicant’s and group members’ claims in the proceeding and each of the relevant insurers have denied coverage.

“In summary, in my view it is fair and reasonable and in the interests of group members to settle the proceeding for the global sum of $9.5 million.”

Consumer Action Law Centre CEO Gerard Brody says the class action provided some measure of access to justice for insurance customers who have been ripped off.

“Rubbish warranties have been sold for far too long and this penalty is some good news,” he told insuranceNEWS.com.au today.

“But the sad fact is that only a fraction of potential claimants signed up to the class action so thousands of low-income families who have been ripped off by junk insurance have missed out.

“It’s time this scam is knocked on the head once and for all.”

Click here for the court settlement details.