The Consumer Protection Act aims to rid the market of unethical trading, unsafe products, unfair business practices and irresponsible marketing. As such the Act has far reaching implications for the suppliers of goods and services, and their insurers, if it is not fully understood by 1 April 2011.
The Act will increase exposure as all parties in the supply chain can now be held liable. Furthermore, consumers will no longer have to prove negligence on either the part of the producer, importer, distributor or retailer. Instead, “all that now needs to be established is a causal link between the harm and the defective product” explains Kevin Paarman, Manager, Legal Services Unit, Alexander Forbes Risk and Insurance Services (Pty) Ltd.
When similar legislation was introduced in the United Kingdom, general product recalls increased by a 125% between 2004 and 2007. Non-food product recalls increased by a whopping 894%.
“South Africa can expect similar increases in recalls as well as more product liability claims after 1 April 2011 while insurers’ are likely to impose higher premiums and increased deductibles” says Paarman.
Beyond product and recall liability, however, the Act is also likely to have implications for financial or economic loss and inefficacy covers.
As such, retailers should ensure that all their “suppliers have recall plans in place as well as recall insurance cover built into their general risk control and insurance programmes” says Paarman. For example, after April 1 should a customer purchase a defective toaster the customer will now be in a position to seek redress against the retailer or other supply chain parties irrespective of whether the retailer, wholesaler, manufacturer or producer was negligent.
Given the increased risk of liability across the whole supply chain, “insurers and brokers clearly have a responsibility to educate their policyholders on the implications of the Act as well as justify inevitable premium increases” says Paarman.
Since retailers are last in the supply chain they are most at risk of being sued for supplying goods or services that cause harm. Retailers, however, may escape liability if they can prove that it was unreasonable to expect them to have discovered the unsafe product, failure, defect or hazard given their role in merely marketing the goods to the customer. As such, Paarman advises dealers to “check supplier contracts to ensure that there are no escape clauses which pass liability on to the dealer.”
Furthermore, in the event of a claim on the dealer it will be wise for the dealer to join the manufacturer, or any other supply chain party at fault, as a co-defendant in any action and invoke the provisions of section 61(4), namely the circumstances under which a supply chain party may escape liability.
Given these risks, “the insurance market, and brokers in particular, need to fully inform their clients of the implications of the Act and the new risks to which they may be exposed” says Paarman. For example, proper record keeping of discussions with consumers will become necessary in cases where consumers claim harm from a product or service used in a way different from that intended or advertised. Record keeping may also be important in instances where consumers seek to return goods.
The Act also deals with prohibited transactions, agreements, terms and conditions as well as the consumer’s right to information in plain and easily understood language. Moreover, the customer’s attention must be drawn, in plain language, to any notices that limit a suppliers risk or liability or place indemnity obligations on the customer in favour of the supplier.
Importantly, a supplier may no longer make an agreement subject to any term or condition if it limits or exempts a supplier of goods or services from liability or loss attributable to gross negligence.
In short, “disclaimers may not be unfair, unreasonable or unjust and are only permitted to be one-sided if in favour of the consumer” explains Paarman.
This also means that insurers’ ability to seek recourse from the party at fault needs to be reviewed since “it is no longer certain that an indemnity provision or disclaimer from liability will constitute a valid basis for the insured to escape liability or, alternatively, for their insurers to recoup monies” warns Paarman.
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