Background
ANZ sought indemnity under three excess insurance policies for settlement payments and defence costs arising from two representative proceedings. The policies formed part of an insurance tower covering, among other things, loss resulting from third-party civil-liability claims. Their definition of “Loss” excluded “fees, commissions, or other charges paid or due to the Insured,” and exclusion 11 addressed claims arising from the charging of excessive, undisclosed or otherwise improper fees, profits, commissions, costs or other charges.
The Reilly proceeding concerned consumer credit insurance products and principally sought repayment of premiums and the setting aside of policies; ANZ agreed to pay $31.92 million in settlement. The O’Brien proceeding concerned motor-vehicle finance in which dealers could set interest rates above ANZ’s base rate, with the resulting margin affecting commissions. Its monetary claims principally sought the difference between interest charged at the contract rate and interest that would have been charged at the base or another benchmark rate; ANZ agreed to pay $85 million. The Court determined a separate question concerning whether those payments and the related defence costs constituted covered “Loss.”
The Court’s Holding
Beach J answered “No” for all four amounts. The settlement payments did not constitute “Loss” because they represented the return or replacement of premiums and interest previously paid to ANZ or its insured subsidiaries, and those receipts fell within the policy language excluding “fees, commissions, or other charges paid or due to the Insured.” Treating such repayments as insured loss would also conflict with the indemnity character of the policies by allowing ANZ to recover amounts it allegedly had not been entitled to retain.
The Court further held that, even if the settlement payments otherwise qualified as “Loss,” exclusion 11 would exclude them because the underlying proceedings arose from or involved allegedly excessive, undisclosed or improper charges. The associated defence costs were likewise not covered: exclusion 11 applied to the claims as a whole, and the policies did not require payment of defence costs where indemnity for the underlying claim had been denied. Costs of the coverage proceeding were reserved, and the parties were directed to propose consequential orders.
Key Takeaways
- A broad definition of insured “Loss” may still exclude settlements that effectively repay fees, premiums, interest or other charges received by the insured.
- The substance of the underlying claim and relief sought—not merely labels such as compensation, damages or restitution—determines whether a settlement falls within coverage.
- Where an exclusion applies to the entire underlying claim, defence costs associated with that claim may also be excluded.
Why It Matters
The decision illustrates how the indemnity principle can shape the construction of financial-institution liability policies. An insured generally cannot convert the repayment of amounts it allegedly should not have retained into an indemnifiable loss merely by resolving the liability through a settlement.
For insurers and policyholders, the ruling also underscores the breadth that wording such as “arising out of,” “related to” and “involving” can give an improper-charges exclusion, including its potential effect on both settlement payments and defence costs.