American Home Assurance Company, in the matter of American Home Assurance Company [2010] FCA 1499

In relation to the proposed scheme for the transfer of the insurance business carried on by the Australian branch of American Home Assurance Company (AHAC) to Chartis Australia Insurance Limited (CAIL), the need for the applicant to comply with s 17C(2)(c) of the Insurance Act 1973 (Cth) (the Act) is dispensed with provided that the applicant complies with paragraphs 2, 3 and 4 below.
In relation to the scheme, the applicant cause a copy of the summary of the scheme approved by the Australian Prudential Regulation Authority (the Approved Summary) to be sent by pre-paid post to: Policyholders of current booked policies (a) All policyholders of a current booked policy issued by the applicant, as identified in the list referred to in paragraph 98(b) of the affidavit of Matthew Everingham (the Everingham Affidavit), and for which the applicant has an address on record, to the most recent address identified in the verification process referred to in paragraph 100 of the Everingham Affidavit; Policyholders with open claims (b) All policyholders of the applicant that have a reported claim relating to insurance policies issued by the applicant, as identified in the report as generated from the AEGIS system and referred to in paragraph 64 of the Everingham Affidavit, and for which the applicant has an address on record, to the most recent address disclosed on the applicant's records; Policyholders with expired policies (c) Those policyholders of expired policies issued by the applicant that are listed in the "Expired Policyholder Notification List" referred to in paragraph 20 of the affidavit of Ian Reed (the Reed Affidavit) and paragraph 88(b) of the Everingham Affidavit, for which the applicant has an address on record, to the most recent address identified in the verification process referred to in paragraph 100 of the Everingham Affidavit; Voluntary Group Accident Employee Insurance (d) Each employer sponsor of the Voluntary Group Accident Employee class of insurance as identified in the report referred to in paragraph 37 of the Everingham Affidavit, and for which the applicant has an address on record, to the most recent address disclosed on the applicant's records; eTravel (e) The third party administrators iTrek and Insure&Go of the eTravel class of business identified in paragraph 48 of the Everingham Affidavit, and request that those organisations provide a copy of the Approved Summary to all holders of current policies issued by the applicant that were written through such organisation; Casualty Bulk booked scheme business (f) Each agent in relation to the Casualty Lines bulk booked scheme business identified in paragraph 72 of the Everingham Affidavit and in respect of which the applicant does not hold policyholder names and address details in its ALPS and AEGIS system and request that each such agent provide a copy of the Approved Summary to all holders of current policies issued by the applicant that were written through each bulk booked scheme as managed by the agent; Aon Scheme (g) To each of Aon Australia and ACE Insurance Ltd and subject to the consent of ACE Insurance Ltd, to any other agent in respect of the Aon Scheme as identified by the applicant and referred to in paragraphs 78 and 79 of the Everingham Affidavit; Corporate Partner Programs (h) Each of the 6 corporate partners referred to in paragraph 82 of the Everingham Affidavit with which the applicant has insurance agreements as part of its corporate partner programs, and request that each such corporate partner create a section on its website linking to a copy of the Approved Summary up until the effective date of the scheme.

REASONS FOR JUDGMENT 1 The applicant, American Home Assurance Company (AHAC), proposes to seek an order under Division 3A of Part III of the Insurance Act 1973 (Cth) (the Act) confirming a proposed scheme for the transfer of its general insurance business to Chartis Australia Insurance Limited (CAIL). Division 3A of the Act consists of ss 17A to 17I inclusive. Section 17B provides that no part of the insurance business of a general insurer may be transferred to another general insurer or amalgamated with the business of another general insurer, except under a scheme confirmed by the Federal Court of Australia. 2 Under s 17C(2)(c), an application for a confirmation of a scheme may not be made unless an approved summary of the scheme is given to every affected policyholder. However, under s 17C(5), the Court may dispense with the need for compliance with s 17C(2)(c) in relation to a particular scheme, if it is satisfied that, because of the nature of the scheme or the circumstances attending its preparation, it is not necessary that that provision be complied with. AHAC has, in anticipation of an application for confirmation of the proposed scheme, applied for dispensation with the need for compliance with s 17C(2)(c). 3 AHAC is an insurance company incorporated in the United States of America. Its ultimate parent is American International Group Inc (AIG). AHAC is registered in Australia as a foreign company under the Act and has been authorised to carry on insurance business in Australia through a local branch operation since 1959. CAIL is incorporated in Australia and is also a wholly owned subsidiary of AIG. CAIL is also authorised under the Act to carry on insurance business in Australia. However, it will not start operating an insurance business until the transfer of insurance business of the Australian branch of AHAC is confirmed. 4 The Australian branch of AHAC conducts insurance and reinsurance business in Australia in two segments. The first segment consists of personal line insurance providing insurance cover primarily for individual consumers, such as sickness, accident and travel insurance. The second segment consists of commercial lines, which cover the corporate and small to medium enterprise markets and include casualty, financial lines, property, business interruption, corporate and group, sickness and accident and travel insurance. 5 Under the Act, an affected policyholder is the holder of a policy affected by a scheme. Clearly enough, the policyholders of policies issued by the Australian branch of AHAC are policyholders affected by the scheme. However, for reasons which I propose to outline briefly, it will be impracticable to comply strictly with s 17C(2)(c) by notifying every affected policyholder. 6 The Australian branch of AHAC has recorded details of its policyholders in a number of different ways. AHAC has carried out numerous searches of its various record-keeping systems in order to identify names and address details for all policyholders for the purpose of complying with s 17C(2)(c). It is proposed that particulars of the scheme will be mailed to all policyholders whose addresses can be identified subject to a qualification to which I shall refer. AHAC proposes to engage an independent mailing house to verify address details prior to the mailing of the relevant material. 7 Relevant information has not been retrieved in respect of some policyholders for various reasons. First, some policies are not renewed on an annual basis but remain in place as long as the weekly or monthly premium payments continue to be made by the policyholder. Because such policies are not renewed annually, policyholder addresses are not reviewed on a regular basis. Consequently, AHAC expects that many of those addresses may not be current. Secondly, for some types of policies, the record-keeping systems of AHAC do not record the details of the policyholders themselves but rather the details of the relevant intermediary, being an employer sponsor or corporate partner. Thirdly, for some types of policies, AHAC's searches only retrieve information about policies that were issued or renewed after 31 October 2007. The reason for that is that a different recordkeeping system was maintained prior to 1 November 2007. In order to generate reports from the earlier systems, it would be necessary to write programmes that would, in turn, need to be tested to ensure the proper information was extracted. That would be a time-consuming and expensive exercise. Finally, for some types of policies, generally broker intermediated policies, there is a delay of up to 90 days between policy inception and the day on which the policy is recorded in AHAC's computer systems. 8 It is proposed that the approved scheme summary will be sent to a number of classes of policyholders of AHAC's Australian branch except to the extent that a current contact address has not been identified. Those classes are as follows: (a) all policyholders that have reported claims; (b) all holders of a current policy recorded in the AHAC computer system; (c) those holders of expired policies where there is likely to be a claim reported on the basis of actuarial estimates; (d) the holders of certain e-Travel policies, booked by travel agents and certain specified commercial inwards reinsurance policies, who will be notified by email. 9 The effect of the dispensation sought is that AHAC will not send relevant material to policyholders for whom it has not been able to identify the name or current contact information. I am satisfied that in relation to the policyholders, whose name or current contact information cannot be identified, that AHAC has performed reasonable searches and made reasonable inquiries in order to obtain current contact information. 10 Further, AHAC will not send the approved scheme summary to the holders of expired policies who are unlikely to report a claim in the future. As to that second category, AHAC undertook an actuarial analysis of the historical claims reporting patterns for each class of its business to identify those holders of expired policies who are most likely to notify a claim in the future. Mr Ian Reed, an actuary, has identified the time lags after policy expiry in which 95 per cent of claims would be reported for each class of AHAC's Australian business. AHAC will send a copy of the approved scheme summary to the holders of expired policies that expired sufficiently recently, such that the effective date of the scheme will fall within the expiry lag period so identified. Mr Reed's evidence indicates that in excess of 70,000 such policy holders have been identified. 11 I am satisfied that there would be minimal utility in attempting to notify the holders of other expired policies, for several reasons. First, the holders of unexpired policies that were not identified by Mr Reed are very unlikely to report a claim after the effective date of the scheme, since such policies expired a relatively long time ago, having regard to the claims reporting tail of the relevant class of insurance business in which those policies are characterised. Secondly, because of the age of the policies, it is likely that the contact details recorded in AHAC's systems will not be current. Thirdly, because AHAC has been conducting insurance business through its Australian branch since 1959, there are likely to be large numbers of such expired policies. AHAC would incur significant costs in sending a copy of the approved scheme summary to such a large number of policyholders, without any likely material benefit. 12 AHAC will take further steps to endeavour to bring the scheme to the attention of policyholders for whom no contact information is available. First, where AHAC's record keeping systems do not record the details of the policyholders themselves, but rather the details of the relevant intermediary, employer, sponsor or corporate partner, AHAC will send a copy of the approved scheme summary to the intermediary, employer, sponsor or corporate partner. Secondly, where the policyholder first became a policyholder, after the cut off date on which the distribution lists for the mail out are finalised, AHAC will provide such policyholders with an information sheet about the scheme. Thirdly, the scheme will be publicised by means of newspaper advertisements in a form approved by the Australian Prudential Regulation Authority (APRA), and in publications approved by APRA. Finally, the scheme will be publicised on the Australian website of CAIL. I am satisfied that those additional steps are adequate to ensure that affected policyholders, who are not supplied directly with an approved scheme summary, will have a means of learning of the scheme. 13 The granting of dispensation under s 17C(5) is a matter of some importance and should not be expected as a matter of course. The policy underlying the requirement of s 17C(2)(c) is to give every affected policyholder a summary of the scheme and an opportunity, if the policyholder desires, to make submissions to the Court in respect of any application for confirmation of the scheme. A right to be heard is of little value if an affected policyholder is unaware of the proposal. 14 It is significant that, on the present application, APRA has been represented and has advanced no opposition to this application for dispensation. I am satisfied that APRA has been adequately informed of the proposal and the consequences of the making of the dispensation order, if it were to be made. In all of the circumstances I am persuaded that the application should be granted and that an order should be made under s 17C(5) dispensing with compliance with s 17C(2)(c), subject to compliance by AHAC with requirements to notify along the lines that I have already foreshadowed. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

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