Background
A couple’s rural Victorian home was seriously damaged by a storm in October 2021. Their insurer, Hollard Insurance Partners Limited, assigned the claim to an external claims manager, but the handling of the claim was marked by repeated delays and shortcomings while the insureds continued living in a deteriorating home.
Hollard admitted a single contravention of section 13(2A) of the Insurance Contracts Act 1984 (Cth), arising from the combined effect of specified failures between November 2021 and April 2023. Those failures included delays in engaging a structural engineer, arranging emergency works, providing temporary accommodation and addressing mould; errors concerning damaged fencing; insufficient consideration of relevant reports; and inadequate written explanations for a proposed roof-damage cash settlement.
The sole disputed issue was the appropriate civil penalty. ASIC sought $30 million, while Hollard proposed between $100,000 and $300,000. The parties agreed that the applicable statutory maximum was $81.6 million, calculated as 10% of Hollard’s relevant annual turnover.
The Court’s Holding
Justice Button declared that Hollard’s combined claims-handling failures breached the contractual duty of utmost good faith implied by section 13(1) and therefore contravened section 13(2A). The Court imposed a pecuniary penalty of $2 million and ordered Hollard to pay ASIC’s costs.
The Court found that the conduct was sustained, serious and harmful, but was not deliberate or malign. It involved multiple instances of delay, inattention and inadequate claim progression rather than a single error. The Court also emphasized that ASIC had not brought a case alleging that Hollard’s systems themselves constituted the contravention.
The $2 million penalty was sufficient for specific and general deterrence. ASIC’s proposed $30 million penalty would have been oppressive in light of the nature of the conduct, Hollard’s financial circumstances and the deterrence required, while Hollard’s proposed range lacked sufficient sting for an insurer of its size.
Key Takeaways
- A prolonged combination of claims-handling failures can constitute a single breach of an insurer’s statutory duty of utmost good faith even without deliberate or dishonest conduct.
- The statutory maximum is an important reference point, but it does not dictate the penalty; the court must impose an amount proportionate to the contravention and sufficient to achieve deterrence.
- Cooperation, remediation, financial circumstances and the absence of prior similar findings may mitigate penalty, but they do not erase the seriousness of sustained delays and inattention affecting vulnerable insureds.
Why It Matters
The decision confirms that the duty of utmost good faith is a substantive obligation governing claims handling, not merely an abstract contractual principle. Insurers may face significant civil penalties when accumulated failures leave policyholders waiting for essential assessment, protection, accommodation and repairs.
At the same time, the judgment draws a careful boundary around penalty assessment: courts must focus on the admitted contravening conduct, not the insureds’ entire experience or an unpleaded systems case, and must select a penalty that deters without becoming oppressive.