A $2 million fine imposed on Hollard for claim handling failures is the first civil penalty for an insurer breaching its duty of utmost good faith, the corporate regulator says.

Australian Securities and Investments Commission chair Sarah Court says the outcome sends a warning to insurers about the devastating impact poor claim handling can have on consumers during some of the most difficult times in their lives.

Hollard admitted it breached the duty of utmost good faith in handling a home claim lodged by a couple in regional Victoria after October 2021 storms – an industry-declared catastrophe.

The policy was issued by CommInsure, which Hollard acquired in September 2022, and the contraventions extended from November 2021 to April 2023.

The Federal Court’s Justice Catherine Button said Hollard’s claim handling fell well short of the basic levels of fairness and reasonableness that community standards of decency and fair dealing require, and aspects were “hard to fathom”.

“In particular, the failure to appoint an engineer for about eight months after the need for one was identified on the first inspection, the glacial progress of the claim handling while the insureds’ house decayed around them, and the progress of mould growth cannot be explained simply as the product of staff busyness or poor communication with suppliers,” she said.

Barrister Joel Harris says on LinkedIn that the case shows regulatory risk comes not just from ensuring the right decision is made on cover, but also that day-to-day handling of a claim meets the good faith obligation. “None of the insurer’s conduct was deliberate or dishonest, but the compounding effect of the delays still breached its duty,” he said.

Financial Rights Legal Centre policy development principal Drew MacRae says the fine sets a precedent and has implications for improving the insurance code of practice.

“I honestly hope all Insurance Council of Australia board members keep this case in mind when signing off on a redrafted code to send to ASIC for approval,” he said.

Consumer Action Law Centre assistant director, policy and campaigns Meg Dalling says it's an important case, with ASIC moving to enforcement after completing a number of reviews, and the regulator had sought a $30 million penalty.

"It just shows you how very very serious ASIC considered this case," she said. "But we regard this as just one of many, so there is a lot that the insurance industry needs to do to improve its practices."

Hollard acknowledged the court’s decision and says it has significantly improved its claims handling and is committed to ongoing investment.

“We extend our deepest apologies and sincerely regret the impact of this experience on the customer,” a spokesperson said. “We recognise that, at the time, we fell materially short of our obligations in the handling of this claim.”

Find the court decision here.