The Legal 500 Insurance Disputes Comparative Guide: Australia 2026

We are pleased to have contributed to the 2026 edition of The Legal 500 Insurance Disputes Comparative Guide, authoring the Australia chapter.

The chapter provides a practical overview of the legal, regulatory and market issues shaping insurance disputes in Australia. It explores key developments affecting insurers and insureds, including emerging risks, evolving consumer protections, class actions and the increasing impact of technology on insurance disputes.

The chapter is intended to support in-house counsel,insurers and international firms seeking clear, current insight into the Australian insurance disputes landscape. The full Australia chapter is available to read online, with a downloadable PDF provided below.

Australia: Insurance Disputes

1. What mechanism do insurance policies usually provide for resolution of disputes between the insurer and policyholder?

Insurance policies in Australia will often provide for disputes concerning allocation between covered and uncovered loss, or disputes about whether a liability claim should be settled or defended, to be the subject of binding determination by a senior barrister.

Aside from those matters, disputes between insurers and policyholders are also typically subject to an internal dispute resolution process, where a complaints officer at the insurer reviews a decision. If the policyholder is not satisfied with that decision or prefers to bypass that process, referral can be made to the Australian Financial Complaints Authority (AFCA) if the dispute falls within its jurisdiction, or otherwise by a Court.

Arbitration is not a feature of the dispute resolution environment for disputes concerning policyholders and insurers in Australia. That is because arbitration provisions in contracts of general insurance are void under section 43 of the Insurance Contracts Act 1984 (Cth).

2. Is there a protocol governing pre-action conduct for insurance disputes?

Each State and Territory Supreme Court, and the Federal Court of Australia, have different pre-action protocols that must be complied with before commencing proceedings. These protocols are detailed in each Court's rules and practice notes. These rules and practices notes generally apply to commercial disputes and are not usually specific to insurance disputes. By way of example, the Civil Dispute Resolution Act 2011 (Cth) requires parties to take genuine steps to resolve their dispute before commencing proceedings in the Federal Court of Australia.

3. Are local courts adept at handling complex insurance disputes?

State and Territory Supreme Courts and the Federal Court of Australia (FCA) (together with Courts that hear appeals from those jurisdictions) are experienced and suitable for handling complex insurance disputes.

The FCA established a specialised insurance list for short matters in 2016. The aim of this list is to provide the insurance commercial community with prompt and efficient resolution of legal issues where a crucial issue could be decided discretely and swiftly, without the need for an extensive hearing. The list is not intended to deal with all insurance claims, but principally short matters, in particular, of policy interpretation and concerning the operation of insurance legislation.

4. Is alternative dispute resolution mandatory?

If an insurance dispute is before AFCA, conciliation is required before AFCA will proceed to a determination of the dispute.

If an insurance dispute is before a Court, then in most commercial disputes, the Court will likely order that the parties mediate. State and Territory Supreme Courts and the FCA have powers to compel the parties to mediate and in most commercial disputes, the Court will require the parties to mediate unless there are good reasons why a mediation should not occur.

5. Are successful policyholders entitled to recover costs of insurance disputes from insurers?

AFCA is generally a no cost jurisdiction such that costs are not usually awarded in favour of the successful party. However, before AFCA, an insurer may be ordered to pay a limited contribution to policyholder's legal costs in certain cases.

If an insurance dispute is being heard in a Court, the general rule is that costs follow the event, meaning the successful part(ies) will ordinarily be entitled to an order to recover their costs from the unsuccessful part(ies). This is the usual approach in insurance disputes, and it applies equally to insurers and policyholders. Orders in relation to costs do however remain within the Court's discretion and other costs orders may be ordered depending on the circumstances of the case.

6. Is there an appeal process for court decisions and arbitral awards?

As arbitration provisions in insurance policies are void under section 43 of the Insurance Contracts Act 1984 (Cth), insurance disputes are rarely arbitrated in Australia.

There is an appeal process for Court decisions. For the State and Territory Supreme Courts and the FCA, the process is to appeal to the relevant Court of Appeal. Appeals beyond the relevant Court of Appeal require special leave to appeal to the High Court of Australia. The High Court of Australia is the highest Court in Australia and there is no right of appeal beyond the High Court.

7. How much information is the policyholder required to disclose to the insurer? Does the duty of disclosure end at inception of the policy?

The duty of disclosure for general insurance contracts is governed by the Insurance Contracts Act 1984 (Cth).

For consumer insurance contracts, the duty of disclosure is now a requirement on the insured to take reasonable care not to make a misrepresentation to the insurer before entering into the contract.

For all other general insurance contracts, the insured must disclose every matter known to them that is a matter that they either know is relevant to the insurer's decision whether to accept the risk and if so, on what terms, or every matter a reasonable person in the circumstances could be expected to know to be a matter so relevant.

The duty of disclosure applies up until the point the contract of insurance is entered into.

8. What remedies are available for breach of the duty of disclosure, and is the policyholder's state of mind at the time of providing the information relevant?

Remedies for breaching the duty of disclosure under general insurance contracts are limited to those in the Insurance Contracts Act 1984 (Cth). The policyholder's state of mind matters, as remedies differ for fraudulent and non-fraudulent breaches.

If the duty of disclosure or the duty to take reasonable care not to make a misrepresentation are breached fraudulently, then the insurer can avoid the contract.

If the insurer is not entitled to avoid the contract, or being entitled to avoid the contract has not done so, then the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the breach had not occurred.

9. Are certain types of provisions prohibited in insurance contracts?

Any term which seeks to exclude, restrict or modify the operation of the Insurance Contracts Act 1984 (Cth) is void by section 52 of that Act.

Arbitration provisions, certain 'other insurance' provisions, and provisions that permit the insurer to vary the policy to the prejudice of parties other than the insurer are also void under the Insurance Contracts Act 1984 (Cth).

Standard form consumer and small business general and life insurance contracts are also generally subject to the unfair contract terms regime under the Australian Securities and Investments Commission Act 2001 (Cth). Policy terms may be void if a Court declares them to be unfair under that regime.

10. To what extent is a duty of utmost good faith implied in insurance contracts?

Section 13(1) of the Insurance Contracts Act 1984 (Cth) implies a provision in all general insurance contracts requiring each party to act towards the other party, in respect of any matter arising or under or in relation to it, with the utmost good faith.

By sub-paragraph(3) of that provision, the duty applies to third party beneficiaries under the contract because they are a 'party' to the contract for the purposes of that implied duty.

11. Do other implied terms arise in consumer insurance contracts?

Generally no, however, consumer insurance contracts are subject to the unfair contract terms regime under sections 12BF to 12BM of the Australian Securities and Investments Commission Act 2001 (Cth). This regime may result in terms declared unfair as being void.

12. Are there limitations on insurers' right to rely on defences in certain types of compulsory insurance, where the policy is designed to respond to claims by third parties?

The most common compulsory insurance in Australia is workers' compensation and third-party motor vehicle insurance. Both forms of insurance are highly regulated, and the insurance must offer the cover mandated under the applicable laws.

13. What is the usual trigger for cover under insurance policies covering first party losses, or liability claims? Are there limitation periods for the commencement of an action against the insurer?

First party policies are usually 'occurrence' based policies that are triggered upon the happening of the insured event, such as physical damage to property insured.

Liability policies can be occurrence-based, triggered by the event causing injury or damage, or 'claims made', which are typically triggered when the insured receives a claim, such as a written demand for relief or the start of legal proceedings.

The usual limitation period for any action against the insurer is 6 years from the date on which the insurer breached its obligations under the policy, which is typically the date of wrongful declinature or the date on which it first became unreasonable for the insurer to withhold indemnity. Under first party property policies, the limitation period may be 6 years from the date of the occurrence of the insured event.

14. Which types of loss are typically excluded in insurance contracts?

Different types of insurance will often exclude similar categories of risks.

First party property policies usually exclude or limit coverage for war, terrorism, nuclear events, flood, erosion, subsidence, unoccupied property, poor design or workmanship, and normal wear and tear.

Liability policies generally exclude or limit coverage for fraud, dishonesty and intentional crimes (subject to final adjudication), contractually assumed liabilities, known facts, damage to insured's products, pollution discharge, insolvency-related claims, property under insured's control, and property being worked on.

15. Do the courts typically construe ambiguity in policy wordings in favour of the insured?

Courts will only construe ambiguity in policy wordings in favour of the insured as a principle of last resort, after the orthodox principles of contract interpretation have failed to resolve the ambiguity.

16. Does a 'but for' or 'proximate' test of causation apply, and how is this applied in wide area damage scenarios?

The 'proximate' test of causation applies. Proximate cause is generally considered as the "real," "effective," "dominant," or "most efficient" cause of loss, using common sense. There may be multiple proximate causes of a loss.

In wide-area damage scenarios, the Court will apply the applicable principles of insurance contract interpretation and the proximate cause test when required by the policy wording. Australian Courts have also applied the Wayne Tank principle such that cover is generally available if the loss has two or more proximate causes providing none of the proximate causes are expressly excluded.

17. What is the legal position if loss results from multiple causes?

Australian Courts have applied the Wayne Tank principle such that that cover is generally available if the loss has two or more proximate causes providing none of the proximate causes are expressly excluded. If any of the proximate causes are excluded, then cover for the loss is generally excluded.

18. What remedies are available to insurers for breach of policy terms, including minor or unintentional breaches?

Section 54 of the Insurance Contracts Act 1984 limits the remedies available to an insurer for a breach of policy terms arising from an act or omission of the insured occurring after the policy was entered into. In many cases, the insurer's remedy will be limited to the extent of any quantifiable prejudice it suffered as a result of the breach. That is so even where the policy may seek to confer some other remedy on its terms.

Section 56 of the Insurance Contracts Act 1984 (Cth) restricts insurers' remedies for fraudulent claims. Insurers cannot avoid the contract but may deny the claim. If only a minor part of the claim is fraudulent, the Court may order the insurer to pay any amount deemed just and equitable.

19. Where a policy provides cover for more than one insured party, does a breach of policy terms by one party invalidate cover for all the policyholders?

Many policies in Australia will include severability provisions that expressly state that pre-contractual nondisclosure or misrepresentation, or post contractual breach of policy terms, by one insured party will not prejudice the rights of recovery under the policy for another insured party.

In the context of post contractual breach of policy terms, where the interests of the insured parties are separate under a composite policy, the breach of a policy term by one party does not typically invalidate cover for other insureds.

20. Where insurers decline cover for claims, are policyholders still required to comply with policy conditions?

This depends on the nature of the policy conditions and the obligations on the insured. In a general sense, the answer is yes if the underlying policy period has not expired, meaning the policy remains in force (unless explicitly cancelled).

Further, it has been held in Australia that the obligation not to act fraudulently continues even after an insurer has declined a claim.

21. How is quantum assessed, once entitlement to recover under the policy is established?

The assessment of quantum will be guided by policy terms, limits, conditions and exclusions.

First party property policies may indemnify an insured on an agreed value basis, reinstatement and replacement, or indemnity. Policies may include basis of settlement clauses providing how the loss of certain property is to be quantified and how business interruption loss is to be calculated.

22. Where a policy provides for reinstatement of damaged property, are pre-existing plans for a change of use relevant to calculation of the recoverable loss?

This depends on the wording of the policy.

Many business interruption policies will require the loss to be adjusted to allow for variation in circumstances affecting the business before or after the property damage which would have affected the business had the damage not occurred. In almost all cases, the purpose of the adjustment is to ensure the indemnity represents as nearly as may be reasonably practicable the results which, but for the property damage, would have been obtained during the indemnity period after the damage.

23. After paying claims, are insurers able to pursue subrogated recoveries against third parties responsible for the loss? How would any such recoveries be distributed as between the insurer and insured?

Insurance contracts in Australia typically provide for insurers to be subrogated to the rights of an insured in respect of any potential recovery for a covered loss. The policy may specify the priority of distribution from the proceeds of any recovery and/or the parties may contract separately after a loss to agree on the priority of distribution, and the rights and obligations of the parties in respect of the recovery generally.

In the absence of any policy terms setting out the priority of distribution or any subsequent agreement, section 67 of the Insurance Contracts Act 1984 provides different regimes depending on whether the recovery is effected by the insurer or the insured.

If the recovery is effected by the insurer exercising its rights of subrogation, then the insurer has priority to recover the amount it paid in respect of the loss and its administrative and legal costs incurred in connection with the recovery, before any amount is distributed to the insured for its uninsured loss.

If the recovery is effected by the insured, then the insured has priority to recover its uninsured loss and its administrative and legal costs incurred in connection with the recovery, before any amount is distributed to the insurer for the amount it paid in respect of the loss.

In either case, if the amount recovered exceeds the entitlements of both parties set out above (i.e. the total insured and uninsured loss together with the administrative and legal costs of the recovery), the party effecting the recovery is entitled to the excess.

24. Is there a right to claim damages in the event of late payment by an insurer?

If the late payment by the insurer amounts to a breach of the terms of the policy, an insured may seek damages for losses that are consequential to the insurer's breach. Further, interest is payable by the insurer under section 57 of the Insurance Contracts Act 1984 (Cth) for the period that it was unreasonable for the insurer to withhold payment.

25. Can claims be made against insurance policies taken out by companies which have since become insolvent?

Third party claimants may make direct claims against insurers under insurance policies taken out by companies which have since became insolvent. By way of example:

• In New South Wales, section 4 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 provides that a claimant may recover the amount of an insured liability from the insurer in proceedings before a court. Based on this provision, third party claimants usually apply for leave to proceed directly against the insurer under section 5 of that Act to recover any insured liability against an insolvent company.
• Direct claims can also be made against insurers pursuant to section 601AG of the Corporations Act 2001 (Cth), if the insured company is deregistered and had liability covered by insurance before deregistration, and section 562 of the Corporations Act 2001 (Cth), where a claimant has the right to any insurance proceeds payable to the liquidator in respect of the insured company's liability to the claimant.

26. To what extent are class action or group litigation options available to facilitate bulk insurance claims in the local courts?

Class actions or representative proceedings may be brought in the Federal Court of Australia and most States in Australia, such as Victoria and New South Wales. Class actions generally require more than seven people with similar claims that share a substantial common issue of fact or law. Class actions can and have been used to facilitate bulk insurance claims in Australia, such as COVID-19 business interruption class actions in the Federal Court of Australia.

27. What are the biggest challenges facing the insurance disputes sector currently in your region?

Following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry handing down its final report in February 2019, there has been a consistent trend to increased consumer protection and redress mechanisms in the insurance industry in Australia. This includes the move to regulate claims handling as a financial service, the incorporation of insurance contracts into the unfair contract terms regime, the replacement of the duty of disclosure with the duty to take reasonable care not to make a misrepresentation for consumer insurance contracts, and the increase of penalties available to the regulator for breaches by insurers of their Australian Financial Services Licence and good faith obligations.

A significant challenge facing the insurance disputes sector is being able to manage and efficiently resolve policyholder disputes, particularly for consumers, in a landscape of heightened consumer protection and awareness, increased regulator focus, and an external dispute resolution scheme (AFCA) that is generally considered consumer friendly and is often criticised for inconsistency in its decisions.

Social inflation also adds increased cost and complexity to claims, including rising climate-related losses, construction cost inflation, and a robust class action and litigation funding environment.

Catastrophic injury claims continue to push higher, particularly in relation to assessments and evidence concerning care related costs and with increasing verdicts.

28. How do you envisage technology affecting insurance disputes in your jurisdiction in the next 5 years?

Insurers are seeing greater volume and frequency of insureds and self-represented claimants using Artificial Intelligence (AI) to lodge and prosecute their claims. The use of AI by the insureds and claimants often makes the claim more complex and demands greater resources and time to prepare a considered response.

That said, the advances in technology, including AI, will deliver efficiencies in nearly all aspects of the dispute resolution ecosystem. We expect to see improvements in online Court systems and increased use of AI in discovery, research, and document preparation.

29. What are the significant trends and developments in insurance disputes within your jurisdiction in recent years?

Cyber risk and associated litigation concerns are increasingly evident in Australia's legal system. Following several major data breaches since 2022 – such as Optus, Medibank, and Qantas – there have been notable Privacy Act reforms, including the Privacy Legislation Amendment (Enforcement and Other Measures) Bill 2022 (Cth), and the introduction of a Federal statutory privacy tort.

AFCA reports a 17% rise in general insurance complaints for 2024-25, mainly due to poor outcomes and delays in claim handling. Environmental and climate change class actions, including those related to infrastructure, are rising due to increased regulation and increased community attention.

30. Where in your opinion are the biggest growth areas within the insurance disputes sector?

Insurance disputes are rising rapidly, with claims up 16% from 2024 to 2025. Complaints about misleading product and service information increased by 365%, while general insurance claims – especially TPD – grew about 17%. This reflects the trend of increased consumer protection in insurance that we have seen since the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Abuse claims also saw significant growth and we expect this to continue, following recent decisions handed down by the High Court expanding the circumstances in which institutions and organisations can be found liable in the context of such claims.

The rapid advancement of technology, including AI, has led to more data breaches, deepfakes, and ransomware attacks, driving greater demand for cyber risk insurance and resulting in increased claims on these policies. Broader litigation funding beyond securities class actions, along with growing ESG concerns, has led to more class actions and greater pressure on D&O policies.