- The Federal Court ruled that ANZ’s A$117 mn in consumer credit insurance and car loan class action settlements did not qualify as insured losses under its excess insurance programme.
- The disputed policies provided up to A$200 mn in excess coverage above a A$50 mn primary layer, with insurers including Zurich, AIG, Liberty Mutual, AXIS and Lloyd’s syndicates.
- The court found that repayments of improperly collected premiums, interest and commissions were excluded from coverage, with a separate policy exclusion independently preventing recovery.
ANZ Group Holdings has lost a Federal Court dispute over A$117 mn in class action settlements after an Australian court ruled that the payments and associated legal defence costs were not covered under the bank’s excess insurance policies.
In a judgment delivered on October 9, the court sided with insurers that had refused to reimburse ANZ for settlements arising from alleged misconduct involving consumer credit insurance and undisclosed commissions on vehicle loans.
The ruling centred on whether repayments of amounts improperly charged to customers could constitute an insured loss under the bank’s liability insurance arrangements.
Australia and New Zealand Banking Group maintained three layers of excess insurance arranged by broker Aon, providing up to A$200 mn in additional protection above a A$50 mn primary layer.
The policies covered the period beginning in September 2017 and were underwritten by Zurich, Lloyd’s syndicates, XL, AIG, Liberty Mutual, AXIS and other insurers.
The bank sought indemnification for two class action settlements involving separate consumer financial products.
The first, the Reilly proceeding, resulted in a A$31.92 mn settlement over consumer credit insurance sold to credit card and personal loan customers.
Claimants alleged that they had been sold insurance without requesting it, had not understood they were insured or had been incorrectly informed that purchasing coverage was compulsory.
ANZ collected the premiums, retained a 20% commission and transferred the balance to its insurance subsidiaries, OnePath Life and OnePath General.
The second dispute, the O’Brien proceeding, involved A$85 mn in settlements relating to flex commissions on automobile loans distributed through ANZ’s Esanda business.
Under the arrangements, car dealers could charge borrowers interest rates above those initially approved by the bank, receiving larger commissions as the difference increased.
In one example, a customer in western Sydney was charged 12.38% interest despite ANZ approving the loan at 8.35%. The dealer’s ability to set a higher rate and receive additional commission was not disclosed to the borrower.
Why the insurance policies excluded ANZ’s settlements
The excess policies defined “Loss” broadly as an insured party’s legal liability to pay an amount, but expressly excluded “fees, commissions, or other charges paid or due to the Insured.”
The Federal Court determined that insurance premiums, interest charges and commissions fell within that exclusion.
ANZ’s repayment of amounts collected from customers that it was not entitled to retain therefore did not constitute an insured loss.
The bank argued that insurance premiums should be distinguished from fees and commissions and that interest payments were fundamentally different from other charges.
It also submitted that differences between the wording of the Loss definition and a separate exclusion clause supported a narrower interpretation.
The court rejected those arguments, finding that premiums and interest were charges within the meaning of the policies. ANZ’s own product disclosure documents supported that interpretation.
Another consideration was that Aon, acting as ANZ’s insurance broker, had drafted the policy wording. Consequently, the conventional principle of interpreting ambiguous insurance provisions against the insurer did not apply.
Separate exclusion also prevented recovery
The court found that a second provision, Exclusion 11, would independently prevent recovery even if the settlements otherwise qualified as insured losses.
The clause excluded claims connected directly or indirectly with the actual or alleged charging of excessive, undisclosed or otherwise improper fees, profits, commissions, costs or other charges.
Its wording extended broadly to claims arising from, relating to or involving such conduct. The Reilly proceeding concerned insurance products allegedly sold without consent or adequate value, while the O’Brien case involved undisclosed commissions that increased borrowers’ interest costs. Both disputes therefore fell within the exclusion.
The court also rejected ANZ’s claim for legal defence costs. Because the underlying proceedings were not covered, the insurers had no obligation to indemnify the settlements or advance the associated defence expenses.
The judgment confirms that liability insurance does not necessarily protect financial institutions against the cost of returning improperly collected customer payments, even where the underlying disputes result in substantial class action settlements.
