On 4 April 2023, the Australian Securities and Investments Commission (ASIC) commenced proceedings in the Federal Court against Auto & General Insurance Company Limited (Auto & General). This is the first case in which there has been an allegation of unfair contract terms in an insurance contract. Unfair contract terms protections expanded to apply to insurance contracts from 5 April 2021 and prior to that insurance contracts were exempt from these protections.
ASIC alleges that a term requiring customers of Auto & General to notify it “if anything changes about your home or contents” is unfair because the term:
- imposes an obligation on customers to notify Auto & General if ‘anything’ changes about their home or contents, which is practically impossible for customers to satisfy;
- imposes an unclear obligation on the customer in relation to what they need to disclose to Auto & General;
- suggests that Auto & General has a right to refuse a claim or reduce the amount payable under a claim if the customer does not meet the notification obligation which is broader that the rights available under the Insurance Contracts Act 1984; and
- could mislead or confuse a customer as to their true obligations and rights under the insurance contract.
ASIC also alleges the term is unfair within the meaning of s12BG of the ASIC Act because the term:
- causes a ‘significant imbalance’ in the parties’ rights and obligations under the contract;
- is not reasonably necessary to protect Auto & General’s legitimate interests; and
- would cause detriment to customers if the term were relied on.
What does this mean for your company?
This litigation serves as a timely reminder of the recent changes to the unfair contract terms regime. From 9 November 2023, a company may be liable for a penalty of up to $50,000,000 if it proposes, applies, relies or purports to apply or rely on, an unfair contract term in a standard form consumer or small business contract.
What do you need to do?
Given the significant penalties that may be imposed and the broader application of the new unfair contract terms regime, we recommend that all businesses obtain legal advice in relation to all standard form consumer and small business contracts before 9 November 2023.
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Published: 19 May 2023