Home insurance nightmare ends in landmark $2m penalty

The penalty followed a legal action by the Australian Securities and Investments Commission (ASIC) in April last year, alleging the insurer breached its duty of utmost good faith when managing a claim lodged by a couple in October 2021, just two days after a storm damaged their roof.

The proceedings also found that Hollard delayed arranging alternative accommodation, overlooked expert assessments, and failed to keep the couple properly informed as the claim dragged on.

The federal court fined Hollard $2 million for delays in assessing and repairing the damage and for failing to prevent further deterioration, and ordered it to cover ASIC’s legal costs.

The case followed severe storms that swept across Victoria in late October 2021, damaged the regional family’s roof, and triggered an insurance claim that took more than three years to resolve.

Although Hollard initially accepted the claim, it reversed its decision 15 months later and rejected it in April 2023.

ASIC found the insurer had breached its duty of utmost good faith through significant delays, poor communication and other failures in managing the claim.

After the family complained to Hollard in late 2022, the insurer offered $1,000 as a goodwill payment to settle the matter, which the family rejected and escalated to the Australian Financial Complaints Authority (AFCA).

Hollard eventually paid $1.55 million, including payments reflecting the total loss of the home, but took more than three years from the initial claim to finalise the payments.

With the roof damage left unresolved, the property deteriorated as moisture, mould and decay spread throughout the home, eventually rendering it uninhabitable.

ASIC previously said the property needed to be demolished and rebuilt.

In delivering judgment, Justice Button said that “the saga” faced by the family had been stressful and traumatic.

“They were given the runaround in more ways than one, and lived in their ever-deteriorating home, as the saga wore on,” Button said.

Justice Button said the insurer’s handling of the claim was difficult to justify, particularly its eight-month delay in appointing an engineer despite identifying the need during the first inspection, while the home continued to deteriorate and mould spread.

“The capacity for harm to come to insureds holding home insurance is particularly acute given the value of the home as an asset in many Australian households, and the power disparity between insurer and insured in progressing claims.”

“It is incumbent on insurers to ensure that their claims handling accords with the duty of utmost good faith. Hollard’s contravening conduct here fell well short of that standard.”

ASIC chair Sarah Court said the ruling marked the first civil penalty against an insurer for failing to meet its duty of utmost good faith, highlighting the serious consequences of mishandled claims and lengthy delays for policyholders.

“Hollard’s serious claim handling failures left a family in limbo for years and living in a home that was uninhabitable.

“When Australians make an insurance claim, they are often facing some of the most difficult times in their lives. This decision confirms that insurers must act fairly, communicate clearly and make decisions without unnecessary delay, and must put their customers first,” Court said.