KNAPP AND KNAPP v ECCLESIASTICAL INSURANCE GROUP PLC AND SMITH

A cause of action in negligence accrues when the claimant first sustains real and non-negligible damage. Knowledge of the damage and the later emergence of its full financial consequences are immaterial.

An insured sustains immediate damage when, through a broker’s negligence, a premium purchases a voidable policy instead of binding cover. The risk that the insurer may avoid the policy has a monetary value. Later avoidance concerns quantification rather than accrual. The broker cannot rely on the theoretical ease of correcting the defect where the broker’s own failure to advise leaves the insured unaware of it.

The claimants paid a renewal premium for contents insurance arranged by their broker. Following a fire, the insurer purported to avoid the policy from inception for material non-disclosure. The claimants sued the insurer and brought an alternative negligence claim against the broker.

The broker sought to strike out the alternative claim under section 2 of the Limitation Act 1980. Master Turner granted the application. Sir Peter Webster reversed that decision, holding that measurable loss had not necessarily arisen before the insurer elected to avoid the policy.

The broker appealed. The central issue was whether damage occurred when the voidable renewal cover attached, or only when the fire occurred or the insurer avoided the policy.

Appeal allowed unanimously. Hobhouse LJ delivered the leading judgment. Buxton LJ gave concurring reasons, and Butler-Sloss LJ agreed.

1. A negligence cause of action accrues when the claimant sustains real damage beyond the negligible. The claimant’s ignorance and any later increase or more precise quantification of the damage do not postpone accrual. That result follows from Cartledge v Jopling and Pirelli General Cable Works Ltd v Oscar Faber & Partners.

2. The claimants suffered actual damage when the renewed policy attached. They paid a premium but received voidable cover rather than the binding indemnity which the broker should have obtained. They were therefore worse off and had failed to receive the contractual right to which competent performance would have entitled them. The likelihood and consequences of avoidance affected the valuation of that loss, not its existence.

3. The defect’s possible remediability did not prevent immediate damage. The broker’s duty included advising the claimants about disclosure and obtaining effective cover. The broker’s breach left them unaware of the defect and deprived them of a practical opportunity to correct it. A hypothetical assessment of an earlier action could not assume knowledge which the claimants lacked because of that breach.

4. Per Buxton LJ, the passage in Moore v Ferrier described as the “Bingham test” was not a universal criterion for identifying the date of damage. It demonstrated that damage already identified under established principles would rarely be incapable of monetary assessment. The hypothetical action must not be allowed to displace actual damage through artificial assumptions.

5. The Commercial Court decisions in Iron Trade Mutual Insurance Co Ltd v Buckenham and Islander Trucking Ltd v Hogg Robinson & Co Ltd correctly applied the governing principles. Sir Peter Webster was wrong to decline to follow them and to treat voidable cover as having the same value as binding cover.

The cause of action arose on or about 12 April 1990, more than six years before issue of the writ. The claim against the broker was time barred. Sir Peter Webster’s order was set aside and Master Turner’s strike-out order reinstated. Leave to appeal to the House of Lords was refused.

1. Court of Appeal (Civil Division): The broker’s appeal was allowed. Sir Peter Webster’s order was set aside and Master Turner’s strike-out order reinstated.
2. High Court, Queen’s Bench Division: Sir Peter Webster allowed the claimants’ appeal from the Master and held that the negligence claim was not bound to fail as time barred.
3. Master: Master Turner struck out the claim against the broker as time barred.