ABC Drive Northern Tasmania | Steven Brown on Insurance

Did you start a side hustle during the pandemic and got yourself an ABN? If so, it’s time to check the fine print of your home and contents insurance policy as you may not be covered.

ABC Drive Northern Tasmania interviewed our director and commercial lawyer Steven Brown on business insurance and the laws around working from home.

Transcript:

Speaker 1 (00:02):

This is Drive with Kim Napier on ABC Northern Tasmania.

Kim Napier (00:06):

Did you start a side hustle during the pandemic and got yourself an ABN? If so, it’s time to check the fine print of your home and contents insurance policy, as you may not be covered. Steven Brown is a commercial lawyer and principal of Lynn and Brown Lawyers, who joins me to discuss. Good afternoon.

Steven Brown (00:24):

Good afternoon, Kim and listeners.

Kim Napier (00:26):

What’s going on here? Not covered? What’s the story?

Steven Brown (00:31):

Yeah, so we all know insurers have got a penchant or an interest in trying to avoid insurance policies, and so one of the ways in which we’re seeing, since the pandemic, that this is happening is a lot more people are working from and running businesses from home. And they haven’t disclosed that to their insurer, so they’ve got a normal home building and content insurance to your residence, but it doesn’t cover you if you’re then running a business from that premises.

Kim Napier (01:00):

Do, Steven, insurance companies have a responsibility to disclose that kind of information before you take out a policy? Shouldn’t it be one of the questions?

Steven Brown (01:10):

Yeah, certainly. There were two significant changes made last year to the Insurance Contracts Act, which is a federal piece of legislation that covers everyone in Australia, and it predominantly covers insurances that are for a personal consumers. So one of the changes that come out of the Homes legislation is it used to be an obligation of the person seeking the insurance to disclose every matter. So the obligation was on the person being insured to disclose anything that could be of interest to the insurer.

Steven Brown (01:51):

But the Haynes Royal Commission came to a finding, well, that’s not reasonable because, often as individuals, we don’t know what we should be telling an insurer. So they reduced a lot of that duty on the insured and put it more back on the insurer were now an individual just has to disclose every matter if it’s a personal one. So they only have to disclose things that would, I suppose … That you should know to tell someone.

Kim Napier (02:33):

But putting the onus on the consumer is tough, as you said because we are not the experts in the insurance field.

Steven Brown (02:42):

Yeah, that’s correct. So the insurer now must prove that the person should have disclosed it. So a lot of that obligation has been reversed and put onto the insurer’s obligations.

Kim Napier (02:57):

So should insurers change their risk policies or are we going … Is it like going around in circles here?

Steven Brown (03:04):

Well, I suppose what, from the insurer’s point of view, what they’re saying is, well, we were happy to ensure you when you were just living in the property and using it as a normal place of residence, but now, if you’re using it as a place of business, it’s quite a different proposition that we’re ensuring you for. And yes, we would probably give you insurance, but it’s a different risk basis, and therefore there might be different premiums and a different type of policy would be the appropriate policy for you to take out in those circumstances.

Steven Brown (03:36):

But the insurer still, in those circumstances, must put in writing a pro forma disclosure requirement for the insured. But where it sort of falls through the gaps is that the insurer doesn’t know that a business is being run for this. So they think that they’re just dealing with a normal individual’s residential insurance policy, and so proceed down that basis. And so they don’t make a disclosure because they don’t know that a business is being operated from that premises.

Kim Napier (04:10):

Are there any rules around … You only need an ABN if you think you’re going to earn over $75,000 a year. Is that correct?

Steven Brown (04:17):

That is correct.

Kim Napier (04:19):

So if you don’t have an ABN and you’re selling cupcakes from home, is your home and contents insurance still covered or is that considered a business? Anything where you are making money?

Steven Brown (04:32):

Ooh. Well, that’s where we deal with the law has many grey areas. The law is not black and white.

Kim Napier (04:38):

So it’s grey.

Steven Brown (04:39):

Yeah. There are many greys in law, kid. So it would be interesting as to whether or not something is a hobby or a business. There’s a whole lot of case law on the point. If you are running a commercial enterprise, then it’s a business. But what is a commercial enterprise? If I, had some beehives in my backyard and I sold the honey to my friends and family, am I running a business? Probably not. If I had a room in my house that was dedicated to importing a whole lot of goods and then selling them online, I probably am running a business. If I made cupcakes and sold them at a local school market that operated every other weekend, am I running a business? Mm. Maybe, maybe not.

Kim Napier (05:31):

There are lots of grey areas. What about someone who buys and sells on eBay, as an example?

Steven Brown (05:37):

Yeah, so that was that example.

Kim Napier (05:37):

Of a grey… Yeah.

Steven Brown (05:39):

If I have a dedicated room at home where I’m storing things, and I’ve got a website, and I’m distributing, or even if I’m distributing through one of these well recognized, I know we’re on the ABC, so I won’t drop any names, but one of these well recognized online shopping forums, then I think you are running a business. There are many businesses globally now that are worth a lot of money and are doing millions of dollars worth of trade that run like that, and they get bigger, and then the person goes and gets a warehouse. But at some point, they’re running it from home, and they could be moving a significant amount of product.

Kim Napier (06:17):

Well, this is like a can of worms stuff. So in short, if you … Let’s go with the cupcake scenario. I like that one, probably because it’s coming up to dinnertime. I’m a little bit hungry. If you’re listening to this and you have a side hustle where you make money from baking the cupcakes in your home and selling them, and you don’t have an ABN, should you be ringing up your insurer and saying, “Hey, I make cupcakes? I don’t have an ABN. I make a little bit of cabbage out of it, 50 bucks a week. Do I need to check the fine print of my policy to make sure I am covered for home and contents?”

Steven Brown (06:59):

So, as a lawyer, we deal with risk minimization for clients. And one of the ways to do that is to disclose stuff like that. So have the conversation. What the law now says is that the person that’s seeking insurance has a duty to take reasonable care not to make a risk representation.

Kim Napier (07:20):

Yeah. Okay.

Steven Brown (07:20):

So that then has extremely limited the obligation on the person that’s seeking the insurance. But you wouldn’t want to be the person that’s in the situation where, when you go to make the claim on your insurance policy and you claim that you lost 20 kilos of flour and then the insurer says, “Well, why would you have 20 kilos of flour at home?” And they’re like, “Oh, well, I was running a cupcake business.” And they’re like, “Okay. Well, we didn’t ensure you to run a business from these premises.”

Kim Napier (07:51):

Yeah. Okay. So you go under the radar if your window was smashed or someone broke in and stole the television and the computer, but you might not be of something directly related to your side hustle is stolen or broken.

Steven Brown (08:06):

And what we do know is that, if it’s a claim of any significant nature, that a loss adjuster will come out and they’ll look at the property and they’ll want to know what … And investigate the event. And at that time, if it becomes apparent that a business was being operated from the premises, it’s likely to be under the terms of the policy that’s a relevant basis in which they could exclude.

Kim Napier (08:32):

My head’s about to explode. I do. Thank you so much for explaining that, Steven Brown. I’m just going to say, in short check, the fine print of your home and contents insurance policy, and what are yours?

Steven Brown (08:45):

And if in doubt, have a conversation with your insurance company.

Kim Napier (08:50):

Nice one.

Steven Brown (08:50):

Better off to find out in advance than after the event. That’s the worst possible situation for you.

Kim Napier (08:57):

Exactly. Steven, thank you so much for having the conversation this afternoon.

Steven Brown (09:01):

Thank you, Kim.

Kim Napier (09:02):

Steven Brown, commercial lawyer and principal of Lynn and Brown Lawyers.