Crossing the boundary – reckless or accidental?

MacPhail v Allianz Insurance plc [2023] EWHC 1035 (Ch)

The Chancery Division of the High Court recently handed down judgment in a dispute between Allianz and an insured as to whether a liability arising through trespass was ‘accidental’ as required by the policy. The judgment provides a helpful reminder of the principles that will be applied when assessing the borderline between reckless and non-reckless conduct. It also stands as a salutary warning that where insureds unreasonably engage in actions that present an obvious risk, they are deemed to have ‘courted the risk’ intentionally and the consequences suffered are not considered accidental.

Background

Mr and Mrs MacPhail owned land on Henderson Road, London, and Mr MacPhail was a director of the development company Henderson Court Limited (HCL). HCL developed three residences including the property in question, 30 Henderson Road, following their destruction by a bomb during World War II.

A boundary dispute arose between the neighbours who owned 28 Henderson Road and HCL on the basis that the neighbours held the belief that number 30 had been constructed in such a way that it overreached the shared boundary, amounting to trespass. Mr MacPhail agreed on a private settlement with the neighbours. He subsequently brought a claim against Allianz Insurance for a declaration on cover (as the policy contained an indemnity to principal clause).

Judge Parfitt hearing the original case held that (1) the boundary line in question between the two properties ran down a shared path and, as such, if Mr MacPhail had not agreed on a private settlement with the neighbours, the court would have found in their favour, and (2) Mr MacPhail was not entitled to cover under the policy on the basis that the legal liability to the neighbours for trespass was not accidental within the meaning of the insuring clause. The reasoning behind this was that a second director of HCL, Mr Harris, had extended the basement of number 30 in such a way that he knew, or reasonably ought to have known, that the neighbours would contest that the flank wall did not mirror the boundary. The judge also held that Mr Harris ought to have been alive to the risk that the neighbours would be correct in any such assertion, particularly given that number 28 did not have a basement or a cellar.

Mr MacPhail appealed to the High Court on two grounds. Firstly, he argued that the judge had misstated the law and had lowered the test in respect of what should be deemed accidental. Secondly, he contended that the judge had misapplied the law and that there was insufficient evidence for a finding of recklessness on the part of Mr Harris of HCL. 

The decision

Mr Justice Marcus Smith sitting in the High Court upheld the judgment of the lower court on both counts. On the first, he concluded that the test had been applied correctly in respect of the meaning of the term ‘accidental’. The correct consideration was whether the insured had taken the decision to ‘court the risk’ – i.e. an awareness of the risk and a decision to proceed regardless. The term ‘accident’ in respect of insurance policies equates to ‘an act, intentional or otherwise, which has unintended consequences’. If those consequences were either intended or inevitable to the degree that the party in question can be deemed to have acted with reckless disregard for them, it is not considered to be an accident. The law sets out that by engaging in actions that present an obvious risk, one courts the risk intentionally.

Judge Parfitt in the lower court had referred to “willingly” taking a risk by a person whose attitude may be summarised as “yes, there’s a risk, but let’s do it”, as a more up-to-date version of the phrase “courting the risk”. Mr Justice Smith did not consider that this had lowered the test nor did it amount to an error of law. In fact, he considered that the trial judge’s formulation was actually quite a good one, provided that one does not lose sight of the fact that it is the borderline between reckless and non-reckless conduct that one is focusing upon in a case such as this.  

On the second issue, Justice Smith held that just because Mr Harris thought the flank wall represented the boundary, this did not equate to the trespass being deemed accidental because it did not take into consideration how confident Mr Harris was in that belief. Mr Harris, in the eyes of the court, should have been aware, even if fairly confident in his belief, that the neighbours would almost certainly take issue with the position of the boundary and there was a considerable risk that they would be right.

Mr Justice Smith, therefore, found that the trial judge had been entitled to conclude that there had been a high degree of recklessness and that the claim under the policy was not accidental. As such, the appeal was dismissed.

Commentary

Given that Mr MacPhail agreed an out-of-court settlement of circa £240,000 with the neighbours, including costs, one can assume that his own legal fees accrued to date and the settlement agreed in 2021 have amounted to the error being a notably costly one. The case, therefore, presents a stark warning to insureds that if they decide to run unreasonably high risks, any resulting liability is unlikely to be deemed ‘accidental’ within the meaning of a typical PL insuring clause.

The assessment of whether particular conduct falls one side of the line between accidental or reckless is clearly very fact-specific, so each case will need to be considered on its merits. This judgment does, however, provide a helpful summary of the relevant principles and an indication of how they might be applied in other potentially borderline cases.