The Federal Court has ruled a contract term in Auto & General home and contents policies requiring customers to notify the insurer of any changes to insured properties is not unfair.

Justice Ian Jackman handed down his decision today, saying the insurer’s legitimate interests include its ability to choose which risks it will insure. 

He dismissed proceedings, lodged last April by the Australian Securities and Investments Commission (ASIC), with costs. 

Justice Jackman says the information-gathering process ensures that Auto & General is not covering risks which it is not willing to insure against. 

“The [insurer] therefore has a legitimate interest in being able to cancel any policy if it becomes aware that the policy is now outside its willingness to accept risks, in the sense that it would not have written the policy if it had been aware of the risk,” Justice Jackman said. 

“Similarly, the [insurer] has a legitimate interest in not having to pay claims where the loss giving rise to those claims has been caused by a risk that the defendant would not have been prepared to insure against.” 

ASIC says it is considering the judgment. 

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

At the heart of the dispute is the insurer’s notification clauses in the policies’ product disclosure statements: “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”. 

ASIC had previously argued that customers could not practically meet that obligation, and it is therefore unfair.

“It is unclear what policyholders are required to do to comply with such a broad obligation,” ASIC Deputy Chair Sarah Court said.

But Justice Jackman disagreed.

“The literal meaning of the word ‘anything’ … should readily be rejected,” he said. “The contents of an insured’s home change whenever groceries are brought home from an everyday shopping outing, and again when they are consumed in preparing and eating meals. 

“No rational person would think that the notification clause was intended to compel the insured to notify the defendant of such routine and everyday changes.

“In my view, the construction contended for by the [insurer] is clearly correct.” 

Auto & General has responded to the ruling. “We respect the importance of good regulation to protect consumers, and we will continue to work constructively with ASIC,” a spokesperson told insuranceNEWS.com.au. 

Click here for the ruling.