Changes to the Australian Consumer Law: the impact for liability and property insurers

By Liam Campion

The definition of ‘consumer’ under the Australian Consumer Law (ACL) will be broadened from 1 July 2021.

Presently, a person or business will be considered a consumer under the ACL if they purchase goods or services:

• that are ordinarily acquired for domestic, household or personal use or consumption; or
• cost up to $40,000.

From 1 July 2021, the threshold for goods and services* that are purchased for any purpose increases from $40,000 to $100,000. In effect, this will mean that the ACL will cover significantly more business transactions relating to goods and services that are not of a domestic nature.

The ACL imposes a number of statutory guarantees on the supply of goods and services to a consumer, including that goods will be:

• of acceptable quality;
• fit for any disclosed purpose;
• match any description, sample or demonstration provided; and
• have spare parts and facilities for repairs

and that services provided to a consumer will be:

• supplied with due care and skill;
• fit for a particular agreed purpose; and
• delivered within a reasonable time.

The evidentiary burden for proving a claim against a supplier under the ACL for breach of implied guarantees is lower than the evidentiary burden for negligence. Accordingly, by extending the definition of consumer to include a person or business who purchases goods and services up to a value of $100,000, the consumer guarantees will apply much more widely, and the liability risk for businesses supplying goods and services will increase.

How will the changes affect insurers? That depends on the type of insurance. We see the impact as follows:

1. For liability insurers, it is unwelcome news. The amendments will see an increase in liability claims and increased exposure for businesses supplying goods and services to other businesses.
2. The news is better for property insurers (of business equipment and assets). It will increase the ability of insurers to exercise subrogated rights of recovery against suppliers, who breach the consumer guarantees.

* As presently drafted, the changes only relate to goods, and not services, though this appears to be an error by Parliament as it is otherwise inconsistent with the Treasury Laws Amendment (Acquisition as Consumer—Financial Thresholds) Regulations 2020 and the Explanatory Memorandum which states that the increased threshold will apply to goods and services. It is expected that prior to 1 July 2021, the changes to the ACL will be corrected to also capture services.