Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London \/ English insurance markets, all looked at from a pro-policyholder perspective.<\/p>\n
Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.<\/p>\n
Some cases are, in our view, bad for policyholders, wrongly decided, and in need of being overturned. We highlight those decisions as The Bad.<\/p>\n
Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.<\/p>\n
#22 (The Ugly): MacPhail v Allianz Insurance plc [2023] EWHC 1035 (Ch).<\/em><\/strong><\/p>\n In dismissing an appeal made by a property owner seeking an indemnity for a trespass claim made by his neighbour, the Chancery Division of the High Court has provided guidance on the test for what constitutes an \u201caccident\u201d in the context of a public liability policy, and when actions will cross the line into recklessness.<\/p>\n Background<\/strong><\/p>\n A development company, Henderson Court Limited (\u201cHCL\u201d), of which MacPhail was a director, undertook the development of a three-house terrace on Henderson Road in London, the development included MacPhails\u2019 own property, number 30. Upon completion of the development, their neighbour at number 28 alleged that McPhail\u2019s basement encroached on their land as it had been extended beyond the boundary line and therefore amounted to trespass.<\/p>\n MacPhail settled the claim with his neighbour and proceeded to pursue a claim against Allianz, with whom HCL held public liability insurance that included an \u2018indemnity to principal\u2019 clause allowing for recovery by the third party that had suffered the damage.<\/p>\n The court found Allianz was not responsible for indemnifying MacPhail\u2019s loss because, although MacPhail had a legal liability to his neighbours, the trespass was not \u201caccidental\u201d as required by the terms of the policy. This was because one of the other directors of HCL, Mr Harris, who was in charge of the works had acted recklessly in permitting the basement to be extended to the flank wall of number 28.<\/p>\n MacPhail appealed the decision stating that the Judge had erroneously applied the law in relation to the applicable test for \u201caccidental\u201d and \u201crecklessness\u201d.<\/p>\n The Decision<\/strong><\/p>\n On appeal, the court upheld the first instance decision.<\/p>\n Firstly, the court agreed with the application of the test for \u201caccidental\u201d at first instance. As set out in Colinvaux\u2019s Law of Insurance and agreed between the parties, this is as follows:<\/p>\n \u201cIt is settled law that an accident, for the purposes of an insurance policy, is from the assured’s point of view an act, intentional or otherwise, which has unintended consequences. However, if the consequences were intended by the assured, or if the consequences while unintended were inevitable so that the assured can be regarded as having acted with reckless disregard for them, then it is clear from the authorities that there is no accident and the assured is precluded from recovery by the terms of the policy itself as well as on the grounds of public policy. The principle is that, by embarking upon a course of conduct that is obviously hazardous the assured intends to run the risk involved\u2026”<\/em><\/p>\n The judge, HHJ Parfitt, had found that the construction of the basement in number 30 to the flank wall of number 28 was intentional and the act of trespass could not have been accidental as there was a willingness to take the risk that it was.<\/p>\n A criticism of the use of the phrase \u201cwillingly taking the risk\u201d over the more usual, but archaic, phrase \u201ccourting the risk\u201d was rejected, and was not found to lower the test or alter the threshold. The appeal judge, Smith J commented as follows:<\/p>\n \u201cIt 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 re-phrasing), 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.\u201d<\/em><\/p>\n Secondly, Smith J considered whether Harris had acted recklessly in failing to consider where the true boundary line would be. MacPhail argued that there couldn\u2019t possibly be a finding of recklessness when Harris didn\u2019t know where the boundary line was. However, Smith J stated that in the test for recklessness, it is not a question of belief or understanding alone, but one of the quality of that belief or understanding. The court found that whilst Harris may have believed that the boundary line coincided with the flank wall of number 28, that he must have known that it was at least arguable that it didn\u2019t, and therefore he acted recklessly.<\/p>\n