1. Executive summary
In Australian Securities and Investments Commission v Auto & General Insurance Company Limited [2025] FCAFC 76, the Full Court dismissed ASIC’s appeal concerning a notification term in approximately 1.38 million standard-form home and contents insurance contracts issued by Auto & General Insurance Company Limited.
The impugned term required insureds to tell Auto & General “if anything changes” about their home or contents during the policy period. It also stated that, if an insured did not notify the insurer, Auto & General might refuse or reduce a claim, cancel the policy or decline to renew it.
ASIC alleged that the term was unfair under s 12BG of the Australian Securities and Investments Commission Act 2001 (Cth). The primary judge rejected that case. On appeal, O’Bryan and Cheeseman JJ held that the primary judge’s construction of the term was erroneous but nevertheless concluded that ASIC had not established the elements necessary to prove unfairness. Derrington J agreed that the appeal should be dismissed, although he preferred the primary judge’s construction of the term.
The Full Court held, on the basis on which ASIC conducted the appeal, that the notification obligation should be construed as requiring disclosure only of changes material to the insured risk. So construed, the term did not cause a significant imbalance in the parties’ rights and obligations and was reasonably necessary to protect Auto & General’s legitimate interest in choosing which risks it would insure and on what terms.
The appeal was dismissed and ASIC was ordered to pay Auto & General’s costs. No declaration of unfairness, injunction or pecuniary penalty was made.
The decision is significant because it clarifies that:
- unfair contract term analysis depends on the term’s proper construction;
- transparency is mandatory contextual consideration, but not a freestanding statutory element;
- lack of transparency may contribute to a finding that a term is not reasonably necessary to protect a legitimate interest;
- a strongly opaque term will rarely be reasonably necessary where transparent alternatives are available;
- insurance contracts must be considered together with the statutory protections in the Insurance Contracts Act 1984 (Cth), although the Full Court left aspects of that interaction unresolved; and
- litigation choices and concessions about contractual construction can determine whether an unfair terms case succeeds.
2. Citation and context
Case: Australian Securities and Investments Commission v Auto & General Insurance Company Limited
Neutral citation: [2025] FCAFC 76
Court: Full Court of the Federal Court of Australia
Judges: Derrington, O’Bryan and Cheeseman JJ
Judgment date: 5 June 2025
Hearing date: 28 August 2024
Proceeding: NSD 463 of 2024
Appeal from: Australian Securities and Investments Commission v Auto & General Insurance Company Limited [2024] FCA 272
Outcome: Appeal dismissed; ASIC ordered to pay Auto & General’s costs.
The appeal concerned the interaction between:
- the unfair contract terms regime in Subdivision BA of Division 2 of Part 2 of the ASIC Act; and
- the regulation of insurance contracts under the Insurance Contracts Act 1984 (Cth).
3. The insurance term
Between 5 April 2021 and 4 May 2023, Auto & General entered into or renewed approximately 1,377,900 home and contents insurance contracts containing the relevant notification term.
The contracts were agreed to be:
- standard-form contracts;
- consumer contracts; and
- contracts involving a financial product for the purposes of the unfair contract terms regime.
The term was accompanied by symbols identifying it as important information and something the insured needed to tell the insurer. It was presented in legible font.
The term had three components:
- an obligation to tell Auto & General “if anything changes” about the insured’s home or contents;
- a statement of potential consequences if the insured failed to do so; and
- examples of changes that Auto & General wanted to be told about.
The evidence showed that, between 5 April 2021 and 15 September 2022, eight claims resulted in Auto & General relying on the term to cancel a policy. Six claims were refused and two were paid. After 15 September 2022, Auto & General did not cancel policies or refuse or reduce claims in reliance on the notification term.
4. Procedural posture
ASIC sought declarations that the notification term was unfair within s 12BG(1) and therefore void under s 12BF(1) of the ASIC Act.
The primary judge dismissed ASIC’s proceeding, finding that the term was not unfair.
ASIC appealed on three principal grounds:
| Ground | ASIC’s allegation |
|---|---|
| Construction | The primary judge incorrectly construed the notification term |
| Significant imbalance | The primary judge incorrectly assessed whether the term caused a significant imbalance, including the effect of its transparency |
| Legitimate interests | The primary judge incorrectly assessed whether the term was reasonably necessary to protect Auto & General’s legitimate interests |
O’Bryan and Cheeseman JJ upheld the first ground concerning construction but rejected the second and third grounds. Because ASIC did not establish the statutory unfairness criteria, the appeal was dismissed.
Derrington J agreed with the dismissal of the appeal but did not agree that the primary judge had erred in construing the term. His Honour adopted the primary judge’s construction and otherwise agreed with O’Bryan and Cheeseman JJ.
5. Statutory test for an unfair contract term
A term is unfair under s 12BG(1) only if all three statutory conditions are satisfied:
| Element | Requirement | Onus |
|---|---|---|
| Significant imbalance | The term would cause a significant imbalance in the parties’ rights and obligations | ASIC |
| Legitimate interests | The term is not reasonably necessary to protect the legitimate interests of the advantaged party | Auto & General must prove reasonable necessity because of the statutory presumption |
| Detriment | The term would cause financial or other detriment if applied or relied upon | ASIC |
The assessment is conducted as at the date of the contract. The Court must also consider the contract as a whole and the extent to which the term is transparent.
A significant imbalance may arise where a term confers a beneficial power or discretion on the supplier or imposes a disadvantageous burden, risk or duty on the consumer, so as to tilt the contractual relationship significantly in the supplier’s favour.
6. Appeal findings
| Issue | Full Court finding | Outcome |
|---|---|---|
| Proper construction | O’Bryan and Cheeseman JJ found that the primary judge’s construction involved error; Derrington J disagreed | ASIC succeeded on ground one by majority |
| Materiality qualification | On ASIC’s case, the obligation applied only to changes material to the insured risk | Accepted for the appeal |
| Significant imbalance | A materiality-qualified notification obligation did not significantly tilt the parties’ rights and obligations in Auto & General’s favour | ASIC failed |
| Legitimate interest | Auto & General had a legitimate interest in choosing the risks it insured and obtaining information about material changes to those risks | Established |
| Reasonable necessity | The notification obligation, as construed, was proportionate and fell within the range of permissible terms | ASIC failed |
| Transparency | The term was not perfectly transparent, particularly as to the effect of insurance legislation, but this did not establish unfairness on ASIC’s case | Insufficient |
| Appeal | Grounds two and three failed despite success on ground one | Appeal dismissed |
| Costs | Auto & General was the successful party overall | ASIC ordered to pay costs |
7. Proper construction of the notification term
O’Bryan and Cheeseman JJ observed that, read literally, the words “if anything changes” imposed an unreasonable burden because they appeared to require notification of every change to the insured home or contents, irrespective of significance.
However, ASIC did not conduct its case on the basis that the term applied literally to every change. ASIC submitted that the term should be construed as containing an implied materiality qualification connected with the insured risk. It simultaneously argued that a reasonable insured would not understand that qualification, making the term insufficiently transparent.
The majority regarded those positions as logically inconsistent. Contractual construction determines what the words convey to a reasonable person in the position of the parties. If the term is properly construed as containing a materiality qualification, the reasonable consumer must be taken to understand it in that way for the purposes of the construction exercise.
This forensic inconsistency was central to the failure of ASIC’s appeal.
Compliance significance
Businesses should not infer that broad wording such as “tell us if anything changes” is always acceptable. The majority expressly observed that the term, read literally, would impose an unreasonable burden.
The safer drafting approach is to state expressly:
- which changes must be notified;
- the relationship between the change and the insured risk;
- the time for notification;
- the possible consequences of non-notification; and
- the statutory limits on the insurer’s response.
8. Significant imbalance
ASIC had to prove that the term would cause a significant imbalance in the parties’ contractual rights and obligations.
The Full Court held that a requirement to notify the insurer of changes material to the insured risk did not cause such an imbalance. Insurance involves the pricing and acceptance of risk. If circumstances materially affecting that risk change during the policy period, requiring the insured to disclose the change has a meaningful relationship with the subject matter of the contract.
The Court noted that Auto & General’s rights were also affected by the operation of the Insurance Contracts Act, including statutory good faith and restrictions on how an insurer may respond to post-contractual acts or omissions. The parties proceeded on the assumption that those statutory effects could be considered when assessing the contractual balance.
The Court nevertheless cautioned that the precise interaction between the unfair contract terms regime and the Insurance Contracts Act had not been fully argued and was not conclusively resolved.
9. Transparency
Under s 12BG, the Court must consider the extent to which the term is transparent. Transparency includes whether the term is:
- expressed in reasonably plain language;
- legible;
- presented clearly; and
- readily available to the affected party.
Transparency is not a separate fourth element of unfairness. A term does not become unfair solely because it could have been more clearly expressed. However, opacity may affect whether the term creates a significant imbalance, causes detriment or is reasonably necessary to protect a legitimate interest.
O’Bryan and Cheeseman JJ accepted that most insureds would probably not understand the full effect of provisions such as ss 13 and 54 of the Insurance Contracts Act on Auto & General’s contractual rights. To that extent, the term lacked transparency.
Nevertheless, the lack of transparency was not sufficient to establish significant imbalance because, on ASIC’s construction, the substantive obligation was limited to changes material to the insured risk.
10. Reasonable necessity and legitimate interests
Auto & General’s legitimate interests included:
- choosing which risks it would insure;
- determining the terms and price on which it would accept those risks; and
- receiving information about material changes affecting the risk during the contract.
The Court accepted that “reasonably necessary” does not require the supplier to prove that the term is the only possible wording or that it is absolutely necessary. The provision permits a range of proportionate contractual responses.
The important broader principle is that transparency may directly affect the reasonable necessity assessment.
O’Bryan and Cheeseman JJ stated that a lack of transparency may, by itself, support a finding that a term is not reasonably necessary to protect a legitimate interest. Their Honours observed:
“It would rarely, if ever, be reasonably necessary to protect a party’s legitimate interests by a contractual term that was strongly lacking in transparency”: at [175].
Where a term is not in reasonably plain language, is illegible, is presented unclearly or is difficult to access—and transparent alternatives are available—the opacity may demonstrate that the term exceeds what is reasonably necessary.
The notification term survived because, on ASIC’s accepted construction, it did not suffer from a fatal lack of transparency and imposed a proportionate obligation connected with material changes to the insured risk.
11. Interaction with the Insurance Contracts Act
The case provides important but qualified guidance on the concurrent operation of the unfair contract terms regime and insurance legislation.
The parties proceeded on the basis that the parties’ contractual rights and obligations could be considered as modified or affected by statutory provisions including:
- s 13, implying a duty of utmost good faith; and
- s 54, limiting an insurer’s ability to refuse a claim because of an act or omission occurring after the contract was entered into.
The Full Court decided the appeal on that assumption because the parties had not challenged it. The Court did not finally determine the broader legal question of how all protections under the Insurance Contracts Act should be incorporated into the s 12BG analysis.
Operational significance
Insurers should not rely on statutory protections to cure avoidably broad or opaque drafting. Even where legislation ultimately restricts the insurer’s enforcement rights, a policy term should communicate its practical effect in language a consumer can reasonably understand.
Conversely, unfair terms analysis should not ignore statutory provisions that form part of the legal environment governing the parties’ rights and remedies.
12. Orders and remedies
| Order | Outcome |
|---|---|
| ASIC’s appeal | Dismissed |
| Unfair term declaration | Not made |
| Term declared void | No |
| Pecuniary penalty | None |
| Injunction | None |
| Costs | ASIC ordered to pay Auto & General’s costs of the appeal |
Although ASIC succeeded on one ground concerning construction, Auto & General succeeded on the appeal overall. The Full Court rejected an issue-by-issue costs apportionment because the result was not properly characterised as mixed.
13. Relevance for insurers and financial services businesses
The decision is directly relevant to insurers but has broader application to all financial services businesses using standard-form consumer or small-business contracts.
Clear drafting remains essential
The fact that Auto & General ultimately succeeded does not validate broad notification terms generally. The litigation itself illustrates the risk created by simplified but imprecise drafting.
Terms should expressly identify:
- the scope of the customer’s obligation;
- any materiality or reasonableness threshold;
- the supplier’s response rights;
- statutory restrictions on those rights; and
- relevant examples.
Transparency must be assessed substantively
Legibility and formatting are not enough. A term may be visually clear but legally opaque.
Product governance should ask whether an ordinary customer can understand:
- what must be done;
- when it must be done;
- why it matters;
- what the supplier may do; and
- what legal limits apply.
Alternative drafting is relevant
A business defending a term as reasonably necessary should be able to show why less restrictive or more transparent alternatives would not adequately protect its legitimate interests.
Historical and later versions of the same term may become important evidence. A clearer replacement term may support an argument that the earlier wording was avoidably opaque, although the existence of an alternative does not automatically make the original term unfair.
Contract terms should be reviewed with the statutory overlay
Financial services contracts often operate alongside mandatory legislation. Legal review should consider both:
- the express contractual rights and obligations; and
- how legislation modifies, constrains or supplements them.
14. Recommended controls
| Audience | Control type | Legal rationale | Risk indicator | Practical control |
|---|---|---|---|---|
| Board and product governance committee | Governance | Unfair terms create enterprise-wide legal and remediation exposure | Standard term used across large customer population | Require periodic UCT review and attestation |
| Legal team | Preventative | Proper construction determines substantive fairness | Broad wording such as “anything changes” | Expressly include materiality and scope limitations |
| Product design | Preventative | Contract must be assessed as a whole | Obligation appears in isolated policy section | Map term against all counterbalancing rights |
| Customer communications | Preventative | Transparency is mandatory | Legal consequences not apparent to customers | Use plain-English explanation and practical examples |
| Claims function | Detective | Actual reliance may reveal detriment | Claim declined under broad discretionary term | Monitor use and escalate recurring reliance |
| Compliance | Detective | Opaque terms may not be reasonably necessary | Transparent alternative available | Conduct comparative drafting assessment |
| Insurance risk | Governance | Legitimate interest must be identifiable | Notification obligation unrelated to risk pricing | Document the risk-protection rationale |
| Change governance | Preventative | Later wording may be used as evidence | Term materially revised after legal challenge | Record reasons for change and historical assessment |
| Internal audit | Detective | Formatting alone does not establish transparency | Reliance on readability testing only | Test consumer comprehension and legal effect |
| Remediation team | Corrective | Void terms may affect large cohorts | Potentially unfair term identified | Suspend reliance and assess customer remediation |
15. Recommended next steps
Insurers and other financial services providers should:
- identify standard terms imposing broad notification, variation or discretionary obligations;
- determine the proper legal construction of each term;
- test whether any implied qualification should instead be stated expressly;
- document the legitimate interest protected by the term;
- assess whether the term is proportionate to that interest;
- compare the term with less restrictive and more transparent alternatives;
- consider the effect of all relevant statutory protections;
- review actual instances in which the term has been relied upon;
- test the term with ordinary consumers rather than legal or technical specialists; and
- preserve evidence supporting the drafting, approval and ongoing review process.
16. Broader impact
The decision confirms that unfair contract term analysis turns on the proper construction of the clause and the statutory test as a whole, not on broad or unattractive wording alone. A term will not be unfair merely because it could be drafted more clearly; ASIC must still establish significant imbalance and detriment, while the business may rely on a legitimate interest that the term reasonably protects. The outcome also shows that the way a case is pleaded and argued can be decisive, particularly where a regulator advances a construction that narrows the practical burden imposed by the term.
For insurers and other financial services providers, the judgment should not be treated as approval of vague notification clauses. The Full Court recognised that wording such as “tell us if anything changes” may be problematic if read literally, and emphasised that strong opacity will rarely be reasonably necessary where clearer alternatives are available. Businesses should therefore state materiality thresholds, customer obligations, consequences of non-compliance and relevant statutory limits expressly, rather than relying on courts to imply qualifications.
More broadly, the case strengthens the role of transparency within unfair terms governance. Although transparency is not a standalone element, it can affect whether a clause creates imbalance or exceeds what is reasonably necessary to protect a legitimate interest. Standard-form contract reviews should therefore assess not only legal enforceability, but also whether an ordinary customer can understand the clause’s scope, practical effect and relationship with mandatory statutory protections.
17. Referenced cases
Karpik v Carnival plc [2023] HCA 39 — statutory approach to unfair contract terms, transparency and assessment of the contract as a whole.
Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd (2015) 239 FCR 33 — significant imbalance and statutory onus.
Jetstar Airways Pty Ltd v Free [2008] VSC 539 — counterbalancing contractual terms and assessment of significant imbalance.
Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 (2022) 277 CLR 445 — operation of the duty of utmost good faith in insurance.
This analysis is suitable for internal legal and compliance review, but final positions should be confirmed against the complete judgment, current legislation and any subsequent appellate developments.