Finally, poor claims handling costs an insurer
The day a judge put a price on being given the runaround
By Andrew Crane ·
A Federal Court judge has fined an insurer $2 million for the way it handled one family’s storm claim. It is the first time that has ever happened. Here is what the judgment actually says, why it matters to anyone who holds a policy, and why it should have been $30 million, not 2.
Anchor: Australian Securities and Investments Commission v Hollard Insurance Partners Limited [2026] FCA 1487, Justice Button, Federal Court of Australia, 9 October 2026.
Background view
It’s an unspoken truth that insurers use the way they deal with customers to pressure negotiations that favour them. This comes in a wide array of behaviours: delays in providing alternative accommodation; delays in decision-making; expert reports that read as if the insurer had written them itself; veiled threats to cancel cover altogether; the offer of a “cash settlement” that does not fully cover the cost of repairs. There’s a wide array of what policyholders might call “bad behaviour” that has long appeared to go unpunished. Complaints to the ombudsman have hit a record three years running. Suddenly, a flare has gone up with a groundbreaking court judgment.
The short version
On 29 October 2021 a storm tore through a rural property at Scotsburn, outside Ballarat. A hot-water system fell over on the roof, tiles cracked, water came in over the son’s bed. The couple who lived there had held insurance with the same company, under one brand or another, for more than forty years. They lodged their claim two days later.
Eighteen months on, the insurer told them the roof was not covered because the trusses were “pre-existing”. A year after that, AFCA told the insurer it was wrong. Two and a half years after that, a judge fined the insurer $2 million, not for the decision, but for the way it got there.
What the court found
Hollard admitted a single breach of its duty of utmost good faith under section 13 of the Insurance Contracts Act. The breach was built from seven things, each with its own dates (judgment, paragraph 29):
- Eight months to engage a structural engineer after its own assessor said one was needed on the first inspection (15 November 2021 to 26 July 2022).
- Nearly eight months of getting the fence measurements wrong, repeatedly, until the homeowners measured it themselves (paragraphs 45 to 53).
- A month to arrange further make-safe works after being told the first ones had failed and water was still coming in (paragraphs 54 to 64).
- Nearly seven months to provide temporary accommodation after the insurer’s own claim manager said the house was unsafe to live in (paragraphs 65 to 76).
- A decision to cash-settle the roof that did not sufficiently consider three reports the insurer held, all of which said the storm did it (paragraphs 77 to 84).
- Unclear written reasons for that decision (paragraphs 85 to 108).
- Five months to do anything about the mould (paragraphs 109 to 113).
The judge’s words for the overall pattern: “the glacial progress of the claim handling while the Insureds’ house decayed around them” (paragraph 177). Some of the conduct, she said, “cannot be explained simply as the product of staff busyness or poor communication with suppliers.”
The line that matters
Justice Button closed with this (paragraph 192):
“A penalty of $2 million will send a message to insurers that the duty of utmost good faith is real; it is not an empty verbal formula. Rather, it is a substantive, and reciprocal, obligation between insurers and insureds. It is one that attaches to claims handling as much as other matters relating to the contract of insurance.”
Reciprocal. That is the word to hang onto. Utmost good faith has always been demanded of you: answer every question on the proposal form honestly, or the policy can be voided. The judge’s point is that the obligation runs the other way just as hard. The insurer owes it to you, and it owes it when you claim, not just when you pay.
Comment
Crikey, $2 million sounds like a lot until you read paragraph 4: the maximum available was $81.6 million, and ASIC asked for $30 million. The judge knocked that back hard, partly because Hollard had spent more than $30 million on a new claims system after buying the CommInsure business in 2022 (paragraphs 133 and 157), and partly because, in her view, a smaller number still stings.
Reasonable people can argue about the number, and I would be one of them. This is an industry that profited over $5 billion last year and so often treats its customers with contempt. But what nobody can argue about any more is the principle. For forty-two years the duty of utmost good faith sat in the Act like little more than a nice sentiment. Since 2021 it has carried a civil penalty, and as of 9 October 2026 a court has used it. That is the scoreboard, and it reads one–nil after a very long first half.
The other thing worth noticing: the insurer had already paid the family more than $1.5 million and settled everything before ASIC sued (paragraphs 119 to 122). When you consider what they put their customers through, and just how deep the insurance industry has its hands in our pockets, the penalty seems small.
Sources
- ASIC v Hollard Insurance Partners Limited [2026] FCA 1487 (Button J, 9 October 2026), paragraphs 1 to 5, 29, 119 to 122, 177, 192. Full text: judgments.fedcourt.gov.au.
- ASIC media release 26-236MR, “Hollard fined $2 million for serious insurance claim delay”, 9 October 2026.
- Insurance Contracts Act 1984 (Cth), sections 13, 75A, 75B.
- Industry profit: KPMG, General Insurance Insights and Analysis 2026 (APRA data): general insurers’ net profit after tax $5.2 billion in calendar 2025, down from $6.1 billion in 2024.
- Complaints: Australian Financial Complaints Authority, Annual Review 2024–25: 34,231 general insurance complaints, up 17 per cent, a third consecutive record.