The Australian Securities and Investments Commission is “considering” an appeal court decision in favour of Auto & General in a contract term dispute.

The regulator had argued that Auto & General requiring policyholders to notify it if “anything changes” concerning their home and contents was an unfair contract term and imposed an unclear obligation.

The Federal Court ruled against ASIC last March and the regulator’s appeal was dismissed this month.

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

The regulator contended errors in the first judgment included transparency failings, but it conceded that “if anything changes” should not be taken literally and related to material matters.

“ASIC’s argument involves an inherent contradiction,” the judgment says.

“By accepting that the notification term should be construed as being qualified by a materiality criterion, ASIC must be taken to have accepted that a reasonable consumer would understand the notification term in that manner.”

The action was the first by ASIC against a general insurer under widened unfair contract terms laws.

The regulator has also targeted a policy term in the life sector. In May, the Federal Court hit HCF Life with a $750,000 penalty over a misleading pre-existing condition term in some policies, but last year it dismissed an allegation that it was an unfair contract term.

Radford Lawyers principal solicitor Mark Radford says despite the Auto & General decision, insurers “should not breathe a sigh of relief”.

“The majority signalled the importance of transparency and section 13 of the Insurance Contracts Act may not be a panacea for unfair contract term risks,” he told insuranceNEWS.com.au.

“Considering this decision and the HCF Life decision regarding misleading or deceptive conduct, many insurers need to reconsider the risk of continuing their current approach.”

HWL Ebsworth Lawyers says the decision “has raised and left unanswered” questions about the impact of the Insurance Contracts Act in assessing a policy term under the unfair contracts regime.

Auto & General has welcomed the decision and says in a “customer-first approach” it stopped relying on the clause in September 2022 after becoming aware of ASIC’s concerns, and formally replaced it from May 4 2023.