Australia and New Zealand Banking Group Limited v Zurich Australian Insurance Limited [2026] FCA 1490
The Federal Court has held that ANZ’s excess liability insurers do not have to indemnify it for the $116.92 million it paid to settle two class actions, or for the costs of defending them. The decision identifies two separate routes by which claims of this kind can fall outside cover. One is a carve-out from the definition of Loss. The other is an exclusion for improper charging.
What were the ANZ class actions about?
ANZ held excess cover from $50 million to $250 million for the 2017–18 policy period.
The first class action concerned credit card and loan insurance that ANZ sold to its customers. The products were underwritten by ANZ’s wholly owned insurance subsidiaries and, in part, by an unrelated insurer. ANZ received a 20% commission from its subsidiaries for distributing the products.
The applicants alleged the products were of no real value or unsuitable, and that some customers were sold them without consent or were told they were compulsory. They sought repayment of the premiums, ANZ’s commission and the interest charged on the premiums. ANZ paid $31.92 million to settle the claims.
The second class action concerned motor vehicle finance. Dealers could set the interest rate above ANZ’s base rate and were paid a “flex commission” calculated on the difference. The plaintiff alleged the dealers’ role in setting the rate was not disclosed to borrowers. The relief sought was essentially the difference between the interest paid and the interest that would have been paid at the base rate. ANZ paid $85 million to settle those claims.
What did the Court need to decide?
Both settlements were made without the insurers’ consent. The Court was asked, on the assumption that the settlements and defence costs were reasonable, whether each of them was Loss under the policies and, if so, whether cover was excluded.
How does the policy define “Loss”?
The policies defined Loss as “the legal liability of the Insured to pay any amount”, but carved out from that definition “fees, commissions, or other charges paid or due to the Insured”.
The premiums and interest fell within the carve-out from the definition of Loss
ANZ argued that neither the premiums nor the interest were “fees, commissions, or other charges” for the purposes of the carve-out from the definition of Loss. The Court disagreed on both counts, finding:
- A charge is a price or cost imposed in exchange for something. A premium is the price charged for insurance cover, so it is a charge. The 20% of each premium paid to ANZ for distributing the products was also a commission.
- On interest, the Court saw no sensible reason to treat a loan application fee as a charge but not the interest paid over the life of the same loan. ANZ’s own documents often referred to “interest charged”, and ordinary usage supported the same conclusion.
- The carve-out applies to fees, commissions and other charges as such. Unlike Exclusion 11 (discussed below), the insurer does not need to show the charges were improper.
ANZ also argued that the premiums were paid to the underwriting insurers, not to ANZ. The Court rejected this, finding that:
- The policy defined “Insured” to include ANZ’s subsidiaries, so amounts paid to them were paid to the Insured.
- ANZ was also the first recipient of the money, because it debited the premiums to customers’ accounts.
- The 20% commission went to ANZ in any event.
Does the way a claim is framed affect the carve-out?
The Court looked at what the insured was being asked to pay, not how the claim was pleaded. It made no difference whether the relief was framed as restitution or as compensation for misleading conduct. Nor did it matter whether the charging of fees was an essential element of the causes of action.
The Court explained the carve-out by reference to the indemnity principle. The policy is meant to respond to the insured’s legal liability to third parties where the insured has actually suffered a net loss, not where its liability is simply to return money it, or its subsidiaries, received from those same parties. The Court acknowledged that this is not an absolute rule, and that some restitutionary claims are compensatory. Here, though, the claims were for the return of premiums, commissions and interest the bank had received, on the claimants’ case that it should not have kept them.
Exclusion 11 and how it applied
Exclusion 11 of the policy applies to “that part of any Claim … based on, arising out of, relating to or involving, directly or indirectly, the actual or alleged charging of excessive, undisclosed or otherwise improper fees, profits, commissions, costs or other charges by the Insured”.
The Court held that even if the settlement sums had been Loss, Exclusion 11 would independently have defeated cover. It described the exclusion as both broader and narrower than the carve-out.
It is broader because it applies to any claim that is “based on, arising out of, relating to or involving, directly or indirectly” the relevant charging. Those connecting words set a wide threshold and do not require the claim to be for the charges themselves.
It is narrower because the charging must be excessive, undisclosed or otherwise improper. The carve-out has no equivalent requirement.
The exclusion applies to “actual or alleged” charging. The Court therefore reasoned from what the claimants alleged in the two class actions, without finding that the charges were in fact improper.
In the first class action, the allegations were that the products had no real value or were unsuitable, that customers were charged for them without consent or under a misapprehension that they were compulsory, and that ANZ had a conflict of interest in selling them. If those allegations were established, the premiums and interest would have been excessive and improper. The Court held that the entirety of that claim fell within the exclusion.
In the second class action, the central allegation was that the dealers’ role in setting the interest rate, and their financial interest in setting it as high as possible, was never disclosed to borrowers. On those allegations, the above-base-rate interest fell within “undisclosed or otherwise improper” charging. Again, the Court held the entirety of the claim was captured.
ANZ’s defence costs were also excluded
ANZ argued that its defence costs were a separate head of Loss and were not affected by the carve-out. The Court rejected the claim for defence costs, but did not decide that argument. It relied on two other points:
- Because Exclusion 11 applied to the whole of each claim, it also excluded the costs of defending that claim.
- Insurers were required to advance defence costs “except where Underwriters have denied indemnity”. The Court held the insurers were entitled to deny indemnity, so they were not required to advance costs for the first class action. It applied similar reasoning to the second.
What this means for insurers
The decision supports declining cover for class actions that are really about the return of fees, commissions or charges the insured received, whatever the pleaded cause of action. The question is what the payment represents, not what it is called. There are, however, limits to bear in mind.
First, this is a first-instance decision, made on a separate question about a specific policy wording. Different wording could produce a different result.
Second, the claims here were essentially for the return of amounts the insured had charged and received. A claim that only partly involves such amounts will need a careful analysis of its substance.
What happens next?
The Court’s answer to the separate question would finally determine the proceeding against ANZ, but the final orders have not yet been made. The Court has said it would be prepared to grant ANZ leave to appeal, so an appeal is a real prospect. Anyone relying on the decision should watch for the final orders and any appeal.
This article may provide CPD/CLE/CIP points through your relevant industry organisation.
The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.
FAQs
Find quick answers to common questions about this topic.
Can we decline cover for a class action that is really about the return of fees or charges the insured received?
The decision supports declining cover in those circumstances, whatever the pleaded cause of action. The question is what the payment represents, not what it is called.
Do the carve-out and Exclusion 11 operate separately from each other?
Yes. The Court held that even if the settlement sums had been Loss, Exclusion 11 would independently have defeated cover. The two routes to declining cover operate separately.
Does the framing of the claim affect whether the carve-out applies?
No. The Court looked at what the insured was being asked to pay, not how the claim was pleaded. It made no difference whether the relief was framed as restitution or as compensation for misleading conduct. Nor did it matter whether the charging of fees was an essential element of the causes of action.
Is this decision binding?
This is a first-instance decision, made on a separate question about a specific policy wording. Different wording could produce a different result. The Court has said it would be prepared to grant ANZ leave to appeal, so an appeal is a real prospect. Anyone relying on the decision should watch for the final orders and any appeal.
