A court has upheld a decision in favour of Auto & General regarding unfair contract terms, dismissing an appeal by the corporate regulator.

The appeal filed by the Australian Securities and Investments Commission was heard on August 28 last year and the Federal Court judgment was delivered this afternoon. 

Justice Roger Derrington rejected all three principal grounds of appeal, while justices Michael O’Bryan and Elizabeth Cheeseman upheld one ground and rejected two.  

“It follows that the appeal be dismissed,” Justice O’Bryan said in a brief hearing before the full judgment’s publication online. 

Auto & General has welcomed the decision. 

“We recognise that ASIC has an important job to do and this is a complex matter,” a spokesperson told insuranceNEWS.com.au. “We are proud of our people that work hard to get things right and in this case the courts have found in our favour.” 

The insurer says it stopped relying on the clause at the centre of the dispute on September 15 2022 after becoming aware of ASIC’s concerns, and formally replaced it on May 4 2023. 

The legal action concerned home or contents policies sold between April 5 2021 and May 4 2023. Auto & General issued about 1.377 million insurance contracts during the period, including renewals.  

The terms at the centre of the action included: “Tell us if anything changes while you’re insured with us,” and: “While you’re insured with us, you need to tell us if anything changes about your home or contents.”  

The terms stated that if policyholders did not provide the notifications, Auto & General could reduce or refuse to pay claims, or cancel or not offer to renew contracts. 

ASIC argued in launching the action that the terms imposed an unclear obligation on customers regarding what they needed to disclose to Auto & General. 

Justice Derrington said, keeping in mind the market in which the policies were offered, the expression of the scope of the cover “descended to a level of simplicity”. 

“Of course, in attempting to provide an easily understood articulation of the parties’ respective rights in a complex legal relationship, the insurer encountered the risk of the simplified expression being viewed by those with an eye zealously attuned to the detection of error, to assert the existence of a misstatement,” he said. “That is what has occurred here.” 

The legal action was the first taken by ASIC against a general insurer under unfair contract terms laws after they were extended to the industry in April 2021. 

The decision is available here.