(MacPhail v Allianz Insurance)
Marcus Smith J has upheld the decision of HHJ Parfitt at first instance, rejecting a claim by Mrs and Mrs MacPhail under an insurance policy covering liability for “accidental” nuisance or trespass. The liability arose because the MacPhails’ basement extended beyond the boundary line of their neighbours’ property. The basement was built by a developer, and it was the developer who took out the insurance policy. Policy coverage extended to the MacPhails, but only if the developer would itself have been entitled to indemnity. It follows that the issue of whether the nuisance and trespass were “accidental” fell to be judged from the perspective of the developer. Although HHJ Parfitt found as a fact that the developer genuinely (albeit wrongly) believed that the basement would not go over the boundary, he also found that the developer knew there was a risk it was wrong about this. The judge thus concluded that the trespass was not “accidental”, meaning that the Policy was not triggered. On appeal, Marcus Smith J upheld this conclusion.
What are the practical implications of this case?
The key issue in the case was whether the developer’s trespass onto the neighbours’ property was “accidental”. The insured argued that because, as the trial judge found, the developer believed there would be no trespass, it necessarily followed that the trespass that in fact occurred was “accidental”. Marcus Smith J rejected this argument. He said that to determine whether a trespass was “accidental” required a more nuanced inquiry, critical to which was the trial judge’s finding that the developer “willingly” took the risk of trespass. This meant that the trespass fell outside the realm of an “accident” and therefore outside the scope of cover.
The practical implication of this case is that property developers will not be covered by their public liability insurance if they willingly or knowingly take the risk that they are building on land which is not theirs. This is so, even if they genuinely believe that the land in question is theirs. What should developers do if faced with such a dilemma? In short, they should seek to agree with the neighbouring landowner where the boundary lies; and if no agreement is possible, they should take legal advice. They will only benefit from insurance that covers “accidental” trespass if they can demonstrate that they were either unaware of the risk of trespass or, having become aware, had gone on to satisfy themselves as best they can of the true position.
What was the background?
The case concerned the development of three houses on Henderson Road, London. Two of those – numbers 30 and 32 – were two halves of a semi-detached house. The plan was for there to be a 90cm gap between number 30 and the existing number 28, with a shared path between the properties. Number 30 was built with a basement, the outside wall of which extended to the flank wall of number 28 – i.e. underneath the entirety of the shared path between numbers 28 and 30.
The owners of number 28, Mr and Mrs Gueterbock, considered that the boundary line between the properties lay down the middle of the shared path. They therefore regarded number 30’s basement as encroaching onto their land because it went beyond that boundary. They issued proceedings against the MacPhails (who by then had purchased number 30 from the developer), which dispute was subsequently settled. The MacPhails in the meantime had brought third-party proceedings for breach of contract against the developer; and the developer in turn made a claim under the policy (issued by Allianz) and joined them as a fourth party.
The policy provided cover “against legal liability to pay compensation and claimants’ costs and expenses in respect of accidental … nuisance, trespass, obstruction or interference with any right of way, light, air or water occurring within the Territorial Limits during the Period of Insurance in connection with the Business.”
As set out above, the key issue on the insurance claim was whether the nuisance and trespass was “accidental”. The trial judge held that it was not. As the developer was aware, there was extensive material to show that the boundary lay not at the flank wall but at the midpoint of the gap between the properties. The developer therefore willingly took the risk of committing a trespass, meaning that it was not “accidental”.
What did the court decide?
The developer appealed on the ground that HHJ Parfitt was wrong to conclude that the trespass was not “accidental”. This raised two issues. First, had the judge misstated the legal test as to what constituted an “accidental” loss? Second, had the judge misapplied the law to the facts?
On the first issue, it was common ground that the law was correctly stated in Colinvaux and Merkin’s Insurance Contract Law (2022), which defined “accident” as an act (whether intentional or otherwise) which had “unintended consequences”. But there was a gloss to this, which that there was no accident if the consequences, though unintended, were “inevitable so that the assured can be regarded as having acted with reckless disregard for them”. The trial judge was also referred to authorities that spoke of the insured “courting” the risk. In the judge’s view, this was synonymous with the insured “willingly” taking the risk.
On appeal, Marcus Smith J said the judge’s articulation of the law was correct. In particular, he rejected the developer’s criticism of the judge’s reformulation of “courting the risk” to “willingly taking the risk”:
“It seems to me that the Judge’s formulation is actually quite a good one, provided one does not lose sight of the fact that it is the borderline between reckless and non-reckless conduct that one is focussing on. That borderline really concerns a person’s “appetite for risk” (if I can introduce my own attempt at rephrasing), with intentional conduct unequivocally on the non-accidental side of the line, and a state of mind consciously and reasonably not even anticipating the risk on the accidental side of the line.”
On the second issue, namely whether the judge misapplied the law to the facts, Marcus Smith J held that there was plenty of evidence to show that the developer was aware of the risk of trespass. Moreover, there was material to suggest that the developer deliberately avoided telling the Gueterbocks about its plans for the basement because it knew that they would complain and assert that the basement was encroaching onto their land. In the circumstances, it was plainly open to the trial judge to conclude that there was a high degree of recklessness and that the trespass was therefore not an “accident”.
Article by Tom Bell – first published by LexisNexis