The Chancery Division of the High Court has handed down judgment in the case of MacPhail v Allianz Insurance plc [2023] EWHC 1035 (Ch).
The Central London County Court had previously held that a property constructed by a developer had trespassed upon the land of an adjoining owner, but that Allianz were not liable to provide indemnity in respect of that trespass on grounds that it was not accidental as required by the indemnity clause in the public liability cover provided by Allianz. The developer’s principal (and owner of the trespassing property), Mr MacPhail, appealed the County Court’s decision on grounds the Judge below had mis-stated the legal test on what constituted an accidental loss, and had also misapplied the law on accidental losses to the facts of the case.
The High Court held that the Judge below had in fact applied the correct legal test, and that he had correctly applied it on the facts. Accordingly, the appeal failed.
Background
Mr MacPhail was the owner of land at 30 Henderson Road in London SW18 and, subsequently, the director of a development company, Henderson Court Limited (“HCL”). HCL developed three houses in a terrace, including one at 30 Henderson Road for Mr MacPhail, who became a director of HCL shortly before the development works were finished. A dispute arose between Mr MacPhail and the owners of the property next door at 28 Henderson Road who alleged that No.30 had been constructed over the boundary line between the two properties and thus constituted a trespass. That claim was settled by Mr MacPhail who then brought proceedings in the Central London County Court against HCL for breach of contract and against Allianz for a declaration on cover.
The claim against Allianz alleged that Allianz were liable to indemnify HCL for HCL’s liability to Mr MacPhail, and also to indemnify him directly under an indemnity to principal clause, in both cases under the public liability section of Allianz’s policy.
Following a five day trial His Honour Judge Parfitt found that: (i) the boundary line between No.28 and No.30 ran down the centre of a shared side path between the two properties, such that the trespass claim against Mr MacPhail would have succeed at trial had it not been settled; and (ii) HCL were in breach of contract to Mr MacPhail by building over that centre line. Mr MacPhail’s claim against HCL therefore succeeded.
However, the Judge also found that the public liability cover in Allianz’s policy did not respond to that liability, as the trespass was not an accidental one as required by the insuring clause in that cover. In particular, the Judge held that another director of HCL, Mr Harris, who was in control of the works, had acted recklessly in extending the basement of No.30 up to the flank wall of No.28 because he knew there was a risk that the owners of No.28 would assert the boundary was not along their flank wall, and there was also a risk they would be right in that assertion.
Mr MacPhail appealed that coverage finding to the Chancery Division of the High Court. First, he argued that the Judge had inadvertently varied and lowered the test as to what was or was not an accident and so made an error of law. Second, he argued that, on the facts available to him, the Judge could not properly conclude there had been a “high level of recklessness” on the part of HCL that precluded the policy from responding, not least given the Judge’s finding that Mr Harris had believed the flank wall was the true location of the boundary.
Allianz asked the Court to uphold the Judge’s decision, inter-alia, for the reasons given by him in the court below.
Judgment
Mr Justice Marcus Smith, in a Judgment likely to be of interest to anyone dealing with coverage issues under public liability policies, found HHJ Parfitt’s analysis to be correct on both counts.
On the first issue, the Judge concluded HHJ Parfitt had correctly applied the test set out in Colinvaux and Merkin’s Insurance Contract Law (2022) on the meaning of an “accident” for the purposes of an insuring clause in a public liability cover, namely whether a decision had been taken to “court the risk”. HHJ Parfitt’s formulation of this being a “willingness to take the risk”, or an attitude of “there’s a risk, let’s do it” was no more than putting a slightly archaic phrase into more modern language.
On the second issue, Mr MacPhail had argued that because HHJ Parfitt had concluded Mr Harris believed the boundary was along the flank wall of No.28, this precluded any finding of recklessness because he had simply extended No.30’s basement accordingly and so the trespass was accidental. The Judge found that was not the correct way to approach the issue, since doing so said nothing about the quality of Mr Harris’ belief, i.e. how confident he and HCL were in that belief. In the Judge’s view, even if Mr Harris believed that the boundary was at the flank wall, he must have known that the contrary was at least arguable and that the owners of No.28 would almost certainly take the point had they known the extent of No.30’s basement. Thus, HHJ Parfitt was entitled to conclude that there was a high degree of recklessness and that the claim under the policy was not accidental and so not covered.
Accordingly, the appeal was dismissed.
Dan Abbey, Partner at DAC Beachcroft acted for Allianz, instructing Nigel Tozzi KC of 4 Pump Court.
If you wish to discuss this further, please feel free to get in contact with our Property Team at DAC Beachcroft Claims Limited.
