KNAPP AND KNAPP v ECCLESIASTICAL INSURANCE GROUP PLC AND SMITH

For the purposes of section 2 of the Limitation Act 1980, a negligence claim accrues when the claimant first suffers real, rather than negligible, damage. Later events which make the loss more serious or easier to value ordinarily affect quantum, not accrual.

A client who pays for insurance but receives a policy which is voidable and not binding on the insurer has at once received less than the valid cover promised. The resulting risk of avoidance is assessable loss. A hypothetical early claim cannot assume that the client knew of a defect which the adviser’s breach of duty had concealed.

The claimants’ farm outbuildings were damaged by fire in October 1990. Their insurer later purported to avoid the contents policy for material non-disclosure. The claimants sued the insurer and, in the alternative, their insurance broker in negligence for failing to ensure disclosure when the policy was renewed in April 1990.

Master Turner struck out the claim against the broker as time-barred. Sir Peter Webster, sitting in the Queen’s Bench Division, allowed the claim to proceed, holding that loss was not suffered until the insurer elected to avoid the policy in April 1991. The broker appealed. The central issue was whether actionable loss arose on renewal, when the claimants obtained a voidable policy, or only on the fire or the insurer’s avoidance.

1. Appeal allowed unanimously. Hobhouse LJ gave the leading reasons. Buxton LJ gave concurring reasons and Butler-Sloss LJ agreed. The order permitting the negligence claim to proceed was set aside and Master Turner’s striking-out order was reinstated.
2. Under section 2 of the Limitation Act 1980, a tort claim accrues when the breach has caused real damage. It is immaterial that the claimant did not then know of the damage, or that subsequent events make its extent more serious or more readily quantifiable. The court followed the established approach in Cartledge v Jopling [1963] AC 758, Pirelli v Oscar Faber [1983] 2 AC 1, and the Court of Appeal authorities concerning defective professional advice.
3. On renewal, the claimants paid a premium but did not receive binding indemnity from the insurer. They instead received a policy which was voidable for non-disclosure. That was an immediate deficiency in the contractual rights obtained and therefore actionable economic loss. The risk that the insurer might avoid the policy, and the consequences of an eventual fire, affected the amount of damages rather than whether loss had first occurred.
4. The ability in theory to remedy the non-disclosure did not prevent loss. The claimants were unaware of the defect because of the broker’s alleged breach, and could not reasonably be expected to eliminate a risk of which they had not been told. Hobhouse LJ also held that the hypothetical inquiry formulated by Bingham LJ in Moore v Ferrier [1988] 1 WLR 267 must not assume knowledge which the defendant’s breach had denied the claimant. Buxton LJ added that it was not a universal or conclusive test for the date of accrual.
5. The first-instance insurance cases were correctly decided and consistent with the binding authorities. The broker’s negligence became actionable about 12 April 1990. The writ issued in October 1996 was therefore outside the six-year period and the claim was time-barred.

• Court of Appeal (Civil Division) — Allowed the second defendant broker’s appeal, set aside Sir Peter Webster’s order, and reinstated the strike-out of the negligence claim as time-barred.
• High Court, Queen’s Bench Division (Sir Peter Webster) — Held on 30 January 1997 that the claim against the broker could proceed because actionable loss was not shown before the insurer sought to avoid the policy.
• Master Turner — Struck out the claim against the broker as time-barred. That order was reinstated by the Court of Appeal.