The Australian Securities and Investments Commission (ASIC) has launched Federal Court action against insurer Youi over the handling of a hail damage claim, as it takes a tougher legal approach in its regulation.

ASIC alleges Youi breached the Insurance Contracts Act by failing its duty of utmost good faith obligations in the case, which was referred to the regulator by the Hayne royal commission last year.

A finding in favour of ASIC could strengthen its hand in future similar cases, with legislative changes that apply for offences after March 13 last year allowing the regulator to seek financial penalties.

The Youi matter, filed in the Federal Court in Queensland, relates to a claim lodged in January 2017 after a severe storm hit the NSW town of Broken Hill two months earlier. The claim took nearly two years to settle, with repairs finally completed in November 2018.

ASIC says Sunshine Coast-based Youi failed to act consistently with commercial standards of decency and fairness with regard to the interests of an insured person.

“In particular, when responding to a claim arising out of damage sustained to the roof of the insured’s home as caused by a severe weather event, Youi failed to handle the claim in a fair, transparent and timely manner,” the filing says. “As a result, there were lengthy delays to the completion of repairs to the insured’s home.”

Policyholder Sacha Murphy told the royal commission that her family was left with an exposed roof, no air-conditioning and a range of other problems as a result of the damage.

Ms Murphy, who was pregnant at the time, was also concerned about being exposed to lead contamination, a recognised issue in Broken Hill.

The ASIC filing says make-safe works were inadequate and until May 18, 2018 – 14 months after the storm – the property was structurally insecure and in a condition that allowed further damage.

It says Youi failed to inform the insured about its issues with the builder and failed to take reasonable steps to consider and respond to a formal complaint made on November 2, 2017.

Youi has acknowledged ASIC’s announcement that it will start civil proceedings in the Federal Court, a statement saying the company “has previously acknowledged mistakes it made in relation to aspects of the individual claim”.

“Youi is continually looking for ways to improve its customer service and operational performance and has made a number of changes to its claims operations and procedures over the last few years to deliver improved outcomes,” spokeswoman Belinda Zordan said.

A time and date for a hearing is yet to be advised.