Claims handling under scrutiny: Federal Court penalises CommInsure (now Hollard) and warns insurers on utmost good faith
Australian Securities and Investments Commission v Hollard Insurance Partners Limited [2026] FCA 1487
Overview
The Federal Court has imposed a $2 million civil penalty against Hollard for a contravention of section 13(2A) of the Insurance Contracts Act 1984 (Cth) (ICA). The penalty was the first of its kind.
Hollard admitted a single contravention of section 13(2A) of the ICA, constituted by seven combined claims‑handling failures over about 18 months in relation to a storm damage claim on a home insurance policy.
Justice Button emphasised that the duty of utmost good faith is a substantive, enforceable standard that applies directly to claims handling, not merely to underwriting or policy wording.
Outsourcing, fragmented systems and inadequate oversight did not excuse the claims handling failures. The acts and omissions of the outsourced claims manager were attributed to Hollard under section 75V of the ICA.
Insurers should treat this as a warning: prolonged delays, poor expert use, weak surge planning and unclear settlement communications can trigger ASIC enforcement and significant penalties even on a single claim that ultimately pays above the sums insured.
Background
Please note most of the events that occurred in respect of this claim, including delays, occurred prior to Hollard acquiring CBA’s general insurance business, known as CommInsure, on 30 September 2022.
Hollard (formerly CommInsure) was the home and contents insurer of a rural property in Scotsburn, Victoria. In October 2021, a severe storm, later declared an insurance catastrophe, caused significant damage to the property and water ingress. The homeowners lodged a claim promptly and Hollard allocated it to its outsourced claims manager, Construct Services (CS).
Over the following 18 months, the homeowners experienced what Justice Button described as an extended 'saga', living in a deteriorating home while critical steps in the claim progressed slowly or not at all.
In April 2023 the homeowners complained to AFCA, which issued a determination in their favour and required Hollard to pay comprehensive storm‑related repairs (or cash settlement), ongoing temporary accommodation and non‑financial loss compensation. Hollard eventually paid approximately $1.55 million on the claim plus at least $243,000 in accommodation costs, well in excess of the sums insured.
ASIC and AFCA are parties to a memorandum of understanding and have a data-sharing framework for identifying systemic misconduct, serious dispute trends and potential breaches of financial services laws by licensees. For this reason, it is assumed that the matter was referred to ASIC from AFCA, and ASIC then commenced civil penalty proceedings under the ICA. Hollard admitted one contravention of section 13(2A) of the ICA based on agreed facts. The only disputed issue in the proceedings was the appropriate penalty.
The contravention: Hollard’s claims handling failures
Justice Button’s declaration identified seven types of contravening conduct, illustrating how practical claims‑handling missteps can amount to a breach of the duty of utmost good faith under section 13 ICA.
1. Delay in engaging a structural engineer
Hollard’s claims manager, CS, identified the need for a structural engineer in November 2021 after an inspection revealed damage to roof rafters and ongoing water ingress. Hollard approved the engagement on 24 January 2022. Despite this, no engineer was engaged until 26 July 2022, after repeated complaints by the homeowners and internal recognition that the engagement had not been actioned. This eight‑month delay meant there was no timely expert assessment of structural safety, storm causation or necessary remediation, while water ingress continued. Hollard admitted this as part of the contravention.
2. Boundary fencing: repeated scope errors and slow rectification
The storm caused extensive fencing damage. The initial scope allowed for 300 metres of farm fencing, which the homeowners promptly said was insufficient and omitted damaged internal chicken-wire fencing. The fencing was measured several times, but the correct measurements were not incorporated into the quote until almost eight months later.
3. Further make‑safe and water ingress
Hollard’s claims manager and expert both reported that earlier make‑safe efforts had not stopped water ingress and warned of ongoing damage if repairs were not carried out. On 31 May 2022, the homeowners sent urgent emails to the claims manager reporting worsening leaks and expressing concern about sagging ceilings and possible mould. Despite this, further emergency make‑safe works were not arranged until the end of June 2022.
4. Temporary accommodation
Although the policy provided up to 52 weeks of accommodation if the home was uninhabitable, practical access to this cover was limited. The homeowners were told that they would need to pay accommodation costs upfront and seek reimbursement. They considered that they could not afford to do so and remained at the property. Hollard’s internal notes recorded in September 2022 that the property 'is not liveable’ and that accommodation should be arranged. However, effective arrangements were not made until an independent engineer warned in late March 2023 that the homeowners should vacate urgently.
5. Failure to properly consider expert reports
Hollard excessively relied on the conclusions of a CS assessor that undersized roof trusses at the property were a pre‑existing defect and not storm‑related damage. This was despite Hollard having:
an expert report which attributed roof damage and bowing trusses to storm winds;
an engineer stating damage 'could be attributed to the storm event' and recommending further inspection of trusses; and
the assessor’s own comment describing damage 'consistent with violent winds and storm damage' and warning of ongoing water ingress.
Hollard admitted that between October 2022 and April 2023 it failed sufficiently to consider the conflict between the assessor’s view and the two expert reports when deciding to offer cash settlement for the external roof damage.
6. Inadequate explanation of cash settlement decision
From October 2022 to April 2023, Hollard’s written communications about cash settlement were confusing and incomplete. On 5 October 2022, Hollard advised the homeowners that damage to the roof was accepted and that the claims manager recommended full roof replacement. However, the communication did not clearly explain what portion of the roof was covered, or why.
Later communications referred to 'partial acceptance' and offered a $1000 goodwill payment conditional on 'full and final settlement' and confidentiality, without a plain‑language explanation of what was being accepted or declined. An April 2023 decision letter relied on general exclusions for defects and wear and tear to decline cover for sagging due to 'undersized trusses', but did not engage with the expert reports which treated storm winds as a contributing cause.
The court held that, between October 2022 and April 2023, Hollard failed to communicate its reasoning and the value of the cash settlement ‘in a sufficiently clear manner’.
7. Delay in addressing mould
In November 2022, the homeowners reported to Hollard that there was mould growing inside the property. Further concerns were raised in February 2023. Despite this, mould remediation was not arranged for almost five months after it was reported.
Outcome and the court’s reasoning
Section 13(1) ICA implies into every insurance contract a mutual obligation that each party act towards the other with 'utmost good faith' in respect of any matter arising under or in relation to the contract. Under section 13(2A), an insurer’s failure to comply with this implied term is considered a contravention and attracts a civil penalty.
Justice Button concluded that, taken together, the claims-handling failures meant Hollard’s claims handling 'fell well short' of the basic level of fairness and reasonableness required by community standards of decency and fair dealing.
Drawing on Delor Vue [1] and CGU v AMP [2], Justice Button emphasised:
- Insurers must have regard to more than their own interests when exercising rights and powers under the contract.
- The lack of ‘utmost good faith’ is not confined to dishonesty; it covers failures to act with due regard to the homeowners’ interests and commercial standards of decency and fairness.
His Honour highlighted the particular importance of home insurance: for most households the home is both their most significant asset and the centre of their emotional and practical life, making timely and effective claims handling especially critical.
Justice Button accepted ASIC’s case, as admitted by Hollard, that the combined conduct between November 2021 and April 2023 breached the duty of utmost good faith. The failures were sustained rather than isolated and included repeated delays in critical steps and failures to use and communicate expert evidence properly. Although the conduct was not deliberate or dishonest, it showed a serious lack of regard for the homeowners’ interests while they depended on Hollard to progress their claim.
Section 75V of the ICA attributes the acts and omissions of outsourced claims managers to the insurer. Insurers therefore need direct visibility of key information and clear accountability for engaging experts and monitoring their reports. The court imposed a $2 million penalty to achieve specific and industry-wide deterrence.
Takeaways and practical steps for insurers
The decision confirms that claims handling is a core focus of ASIC’s enforcement under the ICA. The duty of utmost good faith in section 13 is a practical and enforceable obligation governing the management of individual claims, particularly where the safety and habitability of a home are affected.
Systems issues, outsourcing and catastrophe pressures will not shield insurers from liability where prolonged delay and poor communication leave policyholders in unsafe or deteriorating homes, even if the eventual payments exceed the sums insured.
The Federal Court’s decision comes ahead of an updated General Insurance Code of Practice which is expected to include enhanced consumer protections, deal with claims handling in relation to extreme weather events and focus on customer experience.
Insurers should treat the decision as a clear compliance and culture signal. Utmost good faith must be embedded in claims governance, catastrophe planning and day-to-day decision-making. The $2 million penalty also demonstrates the potential regulatory and financial consequences of material claims handling failures. The maximum available penalty was $81.6 million, being 10 per cent of Hollard’s annual turnover.
To reduce the risk of similar contraventions, insurers should (without limitation):
Review claims handling frameworks and training against the practical requirements of utmost good faith, including timeliness, expert use, clear communication and the treatment of vulnerability.
Properly interrogate and reconcile conflicting expert evidence. Document clear reasons for preferring one view, particularly where it is adverse to the insured, and avoid relying on less qualified assessors where engineering or specialist reports support a different conclusion.
Audit long‑aged home and catastrophe claims for delays in critical steps and gaps in expert evidence use, and remediate where needed.
Re‑evaluate contracts and data‑sharing with external claims managers to ensure real‑time visibility of key information and compliance with section 75V ICA.
Ensure cash settlement communications use plain English and clearly identify what is accepted and declined. Explain the reasoning by reference to the policy wording and expert evidence. Inconsistent or opaque communications over an extended period may themselves constitute failures of utmost good faith.
Treat serious AFCA determinations about claims handling failures as potential precursors to ASIC enforcement, not as the end of the matter, and consider proactive remediation and, where appropriate, early engagement with ASIC for high-risk claims involving significant delay, safety issues or vulnerable customers.
Establish board‑level reporting on claims KPIs, AFCA outcomes and aged claims, making utmost good faith a recurring governance lens rather than a purely legal concept.
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