Category: Insurance case law · Reviewed by Matt Bartlett, Director · Founder · Last reviewed June 2026
Decision on the standard of care expected from a surveyor carrying out a mortgage valuation, and the limits of that scope where the inspection is visual and non-intrusive.
Mrs Lloyd applied for a building society mortgage to purchase a residential property. The building society instructed Mr Butler, a chartered surveyor, to inspect and value the property for mortgage purposes. The inspection was carried out on the conventional Royal Institution of Chartered Surveyors basis for a mortgage valuation, namely a limited visual inspection of those parts of the property that were readily accessible, without moving furniture, lifting floor coverings or carrying out invasive testing.
The surveyor’s report identified the property as suitable security for the loan sought. Mrs Lloyd proceeded to purchase. After completion she discovered that the property suffered from defects that, on her case, ought to have been picked up by a competent surveyor on a mortgage valuation, including issues that were visible at the time of inspection. She sued the surveyor in tort, relying on the principle established by Yianni v Edwin Evans & Sons [1982] QB 438 and confirmed by Smith v Eric S Bush [1990] 1 AC 831 that a mortgage valuer owes a duty of care to the lay purchaser.
The dispute centred on the standard expected of a competent mortgage valuer carrying out a limited visual inspection rather than a full structural survey, and on whether the surveyor had fallen below that standard in failing to identify or report on particular defects. Expert evidence was led on both sides as to what a reasonably competent valuer would have noticed and recorded in the conditions presented at the property.
The principal issue was the scope and standard of the duty of care owed by a surveyor carrying out a mortgage valuation, as distinct from a building survey or homebuyer report. The court was required to consider what a reasonably competent surveyor would be expected to identify on a non-intrusive visual inspection of the kind contemplated by a mortgage valuation, and whether the defects of which the claimant complained fell within or outside that scope.
A subsidiary issue was the measure of damages where a surveyor has been found to be in breach. This raised the familiar question of whether the appropriate measure was the cost of remedying the defects or the diminution in value of the property at the date of purchase, an issue authoritatively addressed in Watts v Morrow [1991] 1 WLR 1421.
The court held that the surveyor had been negligent in respect of certain defects which a reasonably competent mortgage valuer should have observed and reported. The judge accepted that a mortgage valuation does not require the surveyor to undertake the kind of detailed structural investigation appropriate to a building survey, but it does require a careful visual examination of the principal elements of the property — roof, walls, ceilings, floors, services so far as visible, and the immediate surroundings — and the recording of anything which would be of significance either to the lender’s security or to a lay purchaser relying on the report.
The judge found that the defects in question were such that a reasonably competent surveyor would have noticed them on a proper visual inspection of the type contemplated, and would have recorded them or, where appropriate, recommended further investigation. The failure to do so amounted to a breach of the duty owed both to the lender and, applying Smith v Bush, to the purchaser.
Damages were assessed on the diminution in value basis, in line with the principled approach later confirmed in Watts v Morrow, rather than on the cost of remedying the defects.
A surveyor instructed to carry out a mortgage valuation owes a duty to the lender and to the purchaser to perform a careful visual inspection appropriate to that scope of instruction. The surveyor is not required to undertake the more extensive investigation appropriate to a building survey, but is required to identify and report defects that would be apparent to a reasonably competent valuer on a careful visual inspection, and to recommend further investigation where the visible signs warrant it. Damages for breach are measured by diminution in value rather than cost of repair, save in exceptional circumstances.
Lloyd v Butler is one of a cluster of post-Smith v Bush decisions that gave practical content to the standard of care expected of mortgage valuers. From the surveyor PI underwriting perspective the case is important because it illustrates two points that recur in claims experience: first, that the scope of the instruction (mortgage valuation versus HomeBuyer versus full building survey) defines the standard, and second, that even within the limited scope of a mortgage valuation a careful visual inspection imposes real obligations.
For PI insurers, the case is part of the body of authority used by claims handlers and panel solicitors to test the defensibility of mortgage valuation claims. Insurers expect insured firms to use RICS standard terms of engagement and to record carefully the basis on which any inspection has been conducted, including any limitations imposed by access, weather or occupants’ belongings.
For brokers placing surveyor PI, the case underscores the importance of the proposal form questions about the proportion of mortgage valuation work undertaken, the firms’ adoption of RICS practice notes and the use of inspection checklists. The diminution in value measure also affects loss quantification — typically smaller per-claim quantum than a cost-of-repair measure — and accordingly informs primary layer sizing.
By Matt Bartlett, Director, on 2026-06-06. Next review: 2026-12-06.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-06. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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