By Adrian Papaianni, Partner, and Leon Chen, Associate
In a significant decision for insurers and policyholders alike, the Full Court of the Federal Court of Australia has unanimously ruled that a home and contents insurance clause requiring customers to notify their insurer “if anything changes while you’re insured with us” (the Notification Clause) is not an unfair contract term under the regime (specifically, in section 12BG of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act)).
While all three judges arrived at the same conclusion, their reasoning diverged. The majority, O’Bryan and Cheeseman JJ, found that the primary Judge’s erred in its construction of the Notification Clause while concluding that the clause was not unfair. Whereas, Derrington J in a concurring judgment, endorsed the primary Judge’s construction and also concluded the clause was not unfair. This case is one of the more recent authorities on how the unfair contract terms provisions interact with the Insurance Contracts Act 1984 (Cth) (IC Act).
On 4 April 2023, the Australian Securities and Investments Commission (ASIC) commenced proceedings against Auto & General Insurance Company Limited, alleging that the Notification Clause in its product disclosure statements was unfair under the unfair contract terms provisions.
ASIC’s evidence showed the insurer had relied on the Notification Clause to cancel eight policies after claims were lodged. Six claims were refused and two were paid.
At first instance, Jackman J, the primary Judge, held that the Notification Clause referred to changes concerning the information already provided by the insured that affected the insured risk. His Honour stressed that the purpose of an insurance contract is to share risk on an informed basis, and that a literal interpretation of the word “anything” in the Notification Clause would lead to absurd results being produced and may even lead the insured to wrongly believe that they need to disclose every trivial change in their life or property. Instead, the Notification Clause was said to require the consumer to give consideration and notify the insurer of material matters that would affect the insured risk.
On appeal, ASIC accepted the Notification Clause could not be read literally but argued that it should be construed as requiring notification of changes “material” to the insured risk. However, ASIC argued that a reasonable consumer would not be aware of the difference of would be “material” or “immaterial” and that a consumer would not even be aware of a need to consider this distinction which results in the Notification Clause being unfair. ASIC also warned that, if upheld, such clauses could be used to deny otherwise valid claims.
The insurer argued that:
References were made to several legislative provisions which demonstrated that an insurer would be prevented from exercising an outright refusal to pay a claim because of a failure to disclose. Instead, an insurer is only permitted to reduce or refuse to pay a claim in accordance with the prejudice the insured suffered as a result of the non-compliance
On appeal, the Full Court was asked to consider if the primary Judge had erred in:
The Full Court unanimously dismissed ASIC’s appeal, upholding the primary judge’s decision but for different reasons.
The majority, O’Bryan and Cheeseman JJ, disagreed with the primary Judge’s construction of the Notification Clause. It was emphasised that, as this was a consumer insurance contract, the clause should be interpreted from the perspective of a reasonable consumer or an ordinary policyholder reading the terms, rather than what a reasonable businessperson who was familiar with the commerciality of insurance policies and industry practice regarding whether certain information affected the insured risks.
Furthermore, it was held that the Notification Clause was reasonably necessary to protect the insurer’s legitimate commercial interests by ensuring access to accurate, up‑to‑date information needed to assess risk and set premiums. It was stressed that insurers are entitled to rely on policyholders to notify them of relevant changes, especially those materially affecting underwriting risk and potentially causing prejudice to the insurer.
In a separate concurring minority judgment Derrington J endorsed the primary judge’s construction. It was held that the Notification Clause required consumers to be aware of, and notify their insurer of, material changes to the information initially provided which could affect the insured risk and premiums payable. It was noted that these policies were deliberately drafted in plain language to make rights and obligations easy for consumers to understand, but cautioned that such simplicity could invite over‑scrutiny by “those with an eye zealously attuned to the detection of error [may] assert the existence of a misstatement” (at [2]) (which was a comment directed at ASIC’s case in these proceedings).
The Full Court’s decision and reasoning provides clear guidance on how the Unfair Contract Terms regime under the ASIC Act interacts with the statutory protections in the Insurance Contracts Act. It confirms that notification clauses, when properly framed and applied, can serve a legitimate commercial function without tipping the rights and obligations in a way that is unfair to consumers. Importantly, the judgment also highlights that the IC Act’s safeguards on remedies for non‑disclosure mean insurers cannot simply refuse a claim outright for a failure to notify; the insurer’s decision must be proportionate to any actual prejudice suffered and does not require an ordinary policy holder to consider or disclose every trivial change in the person’s life or property.
For insurers, this case emphasises the need to ensure that the policy terms are clear, unambiguous and is written in plain English, especially when drafting terms such as the Notification Clause. Ambiguous or overly complex wording will create a risk that the term may be unfair as it may cause a significant imbalance in the rights and obligations of the parties and not be reasonable or necessary to protect the parties’ legitimate interest.
For the insured and policyholders, this case emphasises the importance of reviewing and, where appropriate, notifying your insurer of material changes which could affect the risks that an insurer is insuring. However, even if there is a material fact that you failed to disclose, note that the IC Act provides some level of protection by limiting any coverage denial so that the denial is proportionate to the actual prejudice suffered by the insurer as a result of the non-disclosure.
ASIC v Auto & General Insurance Company Limited [2024] FCA 272 (link to case here) – initial proceedings
ASIC v Auto & General Insurance Company Limited [2025] FCAFC 76 (link to case here) – appeal
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