Members of a class action over life insurance premiums will receive less than one-quarter of the multimillion-dollar payout approved by the Federal Court earlier this month.

The payment settles litigation against the Commonwealth Bank financial planning arm, alleging that insurance division CommInsure charged excess premiums on CBA life policies sold to individuals and through superannuation.

AIA was a party to the action because it acquired CommInsure in April 2021.

The court heard premiums were higher than on equivalent or better products available from other insurers, and Commonwealth Financial Planning, Financial Wisdom and authorised representatives did not disclose this, and were incentivised by fees.

The action was settled in November last year, and the court this month approved the $22.5 million settlement, of which class action group members will receive $5.12 million once legal costs and litigation funding commissions are deducted.

Justice Jonathan Beach notes the amount left for group members “is very modest” when considered as a percentage of the sum.

But he says the prospects of success fell once the proceedings began, and registered group members will receive an amount within the range of likelihood if the case went to trial.

“While it is not said group members’ claims were hopeless or certain to fail, they were likely to fail,” he said.

Justice Beach rejects “numerous objections” from group members who said the amount was inadequate, saying the funder’s return is proportionate to its significant liability and recovery risks. Woodsford Litigation Funding will receive an $8.29 million commission.

The funder originally estimated the action would be worth about $140 million, based on the assumption the average premium on the CommInsure product was 23.4% higher than the cheapest equivalent policies available.

As the proceeding developed, its potential value dropped significantly, and it became commercially borderline, Justice Beach says.

The funder had obtained after-the-event insurance of $3.6 million for costs in case the matter went against it.

Justice Beach says some judges consider ATE cover “double dipping, or as the cost of defraying a component of the very risk that the funder contracted to accept”, but he has approved Woodsford recovering $1.08 million in costs relating to the insurance.

See the judgment here.