Insurers not liable for ANZ class action settlements or defence costs

The Federal Court of Australia, in Australia and New Zealand Banking Group Limited v Zurich Australian Insurance Limited [2026] FCA 1490, has held that ANZ was not entitled to indemnity under its excess liability policies for $116.92 million paid to settle two consumer class actions, or for the associated defence costs. The decision gives substantive content to the indemnity principle and confirms that liabilities to return premiums, commissions, interest or other charges received by an insured may fall outside the definition of Loss, irrespective of whether the underlying claim is framed in restitution or damages.

Background

ANZ was insured under a $250 million insurance tower. The primary insurance policy provided $50 million of cover. Three excess layer policies supplied a further $200 million across successive layers. The respondents, including Zurich Australian Insurance Limited, were the participating excess insurers.

The excess policies covered Loss resulting from a Claim against ANZ by third parties for Civil Liability arising out of or attributable to a Wrongful Professional Act in the provision of Financial Services.The definition of Loss included ANZ’s legal liability to pay compensation, damages and restitution of a compensatory nature and, as a separate limb, Defence Costs and Expenses. It expressly did not include “fees, commissions, or other charges paid or due to the Insured”.

The policies also excluded Loss in respect of any part of a 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 (overcharging exclusion).

ANZ sought indemnity for settlement payments and defence costs arising from two representative proceedings (the Reilly proceeding and the O’Brien proceeding).

The Reilly proceeding concerned consumer credit insurance products offered with ANZ credit cards and personal loans. The plaintiffs alleged that the products were unsuitable, of no real value, or sold without proper consent or disclosure. The relief claimed was substantially the repayment of, or damages measured by, premiums, commissions and interest. ANZ paid $31.92 million to settle the proceeding.

The O’Brien proceeding concerned motor vehicle finance arranged through accredited dealers. ANZ set a base interest rate, but dealers could set a higher contract rate and receive a commission calculated by reference to the difference. The plaintiffs alleged that the arrangement and the dealers’ financial interest were not disclosed. The monetary relief sought was substantially the difference between the interest paid at the contract rate and the interest that would have been paid at the base or market rate. ANZ paid $85 million to settle the proceeding.

The Court was asked, as a separate question, whether either settlement payment or the associated defence costs constituted Loss for the purposes of the excess layer policies and, if so, whether they were excluded from cover.

Decision

The Court answered the separate question against ANZ. None of the settlement payments or defence costs was Loss. Further, if any of those amounts had otherwise constituted Loss, the overarching exclusion would have applied.

Beach J treated the definition of Loss as giving effect to the essential character of the policies as contracts of indemnity. An insured does not ordinarily suffer a net Loss when required to return an amount that it was not entitled to receive or retain. The characterisation of the underlying claim therefore depended on its substance and effect, not the cause of action selected or the way in which relief was pleaded.

The words “fees, commissions, or other charges” were construed broadly. A premium was a charge in its ordinary sense: the price paid for insurance cover. The fact that “premium” appeared elsewhere in the policies did not remove premiums from the catch-all expression “other charges”. In any event, the 20% of premiums paid to ANZ for distributing the products was plainly a commission.

Interest was also an “other charge”. It was an amount charged by ANZ for the use of borrowed money and was described in the relevant product documents as “interest charged” or “interest charges”. The Court rejected ANZ’s attempt to confine “other charges” by the ejusdem generis principle. That principle was a guide to construction, not a mechanical rule, and there was no commercial reason to distinguish between a fee charged for processing a loan and interest charged after the loan was advanced.

In the Reilly proceeding, the premiums, commissions and interest sought to be recovered were therefore outside Loss. It did not matter that premiums were ultimately disbursed to underwriting insurers. Two of those insurers, OnePath Life and OnePath General, were wholly owned subsidiaries of ANZ and therefore within the definition of “Insured”. ANZ had also not shown that its share of the settlement included any premiums received by QBE, the third underwriter. In any event, ANZ charged the premiums to customers’ credit card or loan accounts, collected them and received a direct and indirect economic benefit.

In the O’Brien proceeding, the settlement represented an alleged liability to return interest received above the base rate. Permitting recovery from the excess insurers would have allowed ANZ to obtain indemnity for an amount it had received and was alleged not to have been entitled to retain. That would defeat both the carve-out and the commercial operation of the policies as contracts of indemnity.

The overcharging exclusion applied

The overcharging exclusion provided a complete alternative answer. Its connecting language, including “based on”, “arising out of”, “relating to” and “involving, directly or indirectly”, was very broad. The Reilly claims involved allegedly excessive, undisclosed or improper premiums and interest charged for products said to be unsuitable, worthless or sold without informed consent. The O’Brien claims involved undisclosed or improper interest charges generated by the flex commission arrangement. Each settlement therefore fell within the exclusion.

Defence costs were also unrecoverable

The defence costs were also not recoverable, for two reasons. First, the overcharging exclusion applied to Loss in respect of the relevant Claims and therefore extended to Defence Costs and Expenses incurred in defending them. Secondly, the advancement condition contemplated defence costs being payable only where the insured was entitled to indemnity for the Claim. Once indemnity was denied and that denial upheld, there was no independent entitlement to defence costs. On that basis, the Court considered it arguable that the defence costs also fell outside the definition of Loss, without needing to decide whether the carve-out applied to them directly.

Implications

The decision is significant for financial institutions and their insurers because it prevented attempts to convert the repayment of amounts received by an insured into an indemnifiable Loss merely by framing the underlying liability as damages or compensation. Several practical points emerge for insurers:

• Substance prevails over pleading form
  Coverage turns on the true nature and effect of the liability asserted against the insured. A settlement of claims pleaded in damages may still represent the return of fees, premiums, commissions, interest or other amounts received by the insured. Claims handlers should identify what the claimant is substantively seeking to recover and trace the relevant payment flows before characterising the liability.
• The indemnity principle has practical work to do
  The Court did not treat the indemnity principle as an abstract background concept. It informed the construction of Loss and supported the conclusion that an insured suffers no net Loss by returning an amount it was not entitled to receive or retain. Insurers should test whether the claimed payment reflects a genuine depletion of the insured’s assets or the disgorgement of an identified receipt.
• Catch-all language may extend beyond the listed examples
  The expression “fees, commissions, or other charges” was not confined to charges closely identical to fees and commissions. It extended to insurance premiums and loan interest. The decision cautions against using ejusdem generis as a mechanical means of narrowing commercially broad policy language, particularly where the proposed distinction would produce no sensible commercial result.
• Group structures and payment flows require close analysis
  A payment need not remain with the named insured to engage a carve-out referring to amounts paid or due to the insured. The defined insured may include subsidiaries, and the named insured may itself charge, collect or economically benefit from amounts later disbursed elsewhere. At the claims stage, insurers should obtain product documents, account records, commission arrangements and intra-group payment material rather than relying only on the pleaded recipient of the money.
• Broad conduct exclusions may capture the whole claim
  The exclusion applied because the underlying proceedings were connected with allegedly excessive, undisclosed or improper charges. Its broad connective language captured the entirety of each settlement. Where a claim includes allegations about product value, informed consent, conflicts, undisclosed remuneration or pricing above a disclosed benchmark, insurers should examine whether a fees or charges exclusion responds to the claim as a whole, rather than only to a discrete restitutionary component.
• Defence costs may follow the indemnity outcome
  The separate identification of Defence Costs and Expenses within the Loss definition did not create freestanding cover. Because the overcharging exclusion applied to the whole of each Claim, and the advancement condition only required defence costs to be advanced where the insured was entitled to indemnity, the associated defence costs were not recoverable. The precise wording remains critical, but insurers should consider the interaction between the insuring clause, the definition of Loss, exclusions and advancement provisions before treating defence costs as severable from the underlying indemnity question.