That's about a 5% reduction in gearing which is pretty big. Also, since the air volume has been reduced, the load rating of the smaller tyre will be substantially less than the original.
The former will throw your speedo out by a 5% (on top of what it is already under reading as OE).
The latter may take the smaller tyre outside the minimum load rating required by your car.
I would ask them which of these would be causing the liability issue.
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