Category: Insurance case law · Reviewed by Jake Leat, Associate Director · Last reviewed June 2026
House of Lords decision overruling Anns v Merton, holding that pure economic loss caused by a defective building is not recoverable in negligence and reshaping the regime for defect claims against builders, designers and approving authorities.
Mr Murphy purchased a semi-detached house in Brentwood, Essex, in 1970. The house had been built on a concrete raft foundation. The plans for the foundation had been submitted to Brentwood District Council pursuant to the Public Health Act 1936 and the building byelaws then in force. The council’s building control function included consideration of the plans by consulting engineers retained by the council.
Several years after Mr Murphy moved in, cracks appeared in the structure. Investigation revealed that the raft foundation was inadequate and was undergoing differential settlement. The cause was a design defect in the raft, and the council was alleged to have been negligent in approving the design through its consulting engineers, contrary to its statutory duty under the building byelaws.
By the time the defect became apparent, the original builder was effectively beyond the reach of an economic claim. Mr Murphy sold the house at a price reduced by approximately £35,000 to reflect the defects, and sued the local authority for the diminution in value, treating that as pure economic loss caused by the alleged negligence of the council in performing its building control function.
The trial judge found in Mr Murphy’s favour, applying the line of authority that had developed from Dutton v Bognor Regis Urban District Council [1972] 1 QB 373 and Anns v Merton London Borough Council [1978] AC 728. The Court of Appeal upheld that decision. The council appealed to the House of Lords, which assembled a seven-judge panel to reconsider Anns and the wider question of recoverability of pure economic loss for building defects.
The principal issue was whether a local authority, exercising its statutory building control function, owed a duty of care in negligence to a subsequent owner of a dwelling in respect of pure economic loss caused by the defective design of the foundations, where the defect was discovered only after the dwelling had been occupied for some years. The case engaged the deeper question of the proper scope of the tort of negligence in relation to “defective buildings”.
A second issue, of considerable practical importance for the construction industry, was whether the so-called “complex structure theory” — under which different elements of a building could be treated as “other property” relative to each other, with damage to one element by another counting as physical damage — should be accepted, extended or rejected.
The House of Lords unanimously allowed the council’s appeal and overruled Anns v Merton London Borough Council. Lord Keith, Lord Bridge, Lord Mackay LC, Lord Brandon, Lord Ackner, Lord Oliver and Lord Jauncey held that where a defect in a building is discovered before it has caused personal injury or damage to other property, the cost of repairing or replacing the defective building is pure economic loss and is not, in general, recoverable in the tort of negligence.
The House also rejected the complex structure theory as a route to characterising defects in one part of a building as physical damage to another. A building is normally to be treated as a single unit and the cost of remedying defects in any part is pure economic loss.
The local authority was therefore not liable in negligence to Mr Murphy for the diminution in value of his house. The decision left intact the contractual remedies available against the builder and developer, the rights conferred by the Defective Premises Act 1972, and any structural warranty rights such as the NHBC scheme.
A defect in a building which is discovered before it causes personal injury or damage to other property gives rise only to pure economic loss. Such loss is not, in general, recoverable in the tort of negligence either from the builder of the building or from a local authority exercising its statutory building control function. Anns v Merton London Borough Council and the line of authority based on it are overruled to the extent inconsistent with that proposition. The remedies of a building owner in respect of such defects lie in contract, in the Defective Premises Act 1972 and in any structural warranty.
For the construction industry and its insurers, Murphy v Brentwood was the decisive break from a brief period in which the tort of negligence appeared to provide an open-ended route to building defect claims. The decision channelled non-contractual recovery for defects principally into the Defective Premises Act 1972 and structural warranty schemes such as NHBC Buildmark. The architectural and engineering professions still face concurrent tortious duties under Henderson v Merrett where they have assumed responsibility for design or advice; but Murphy curtails the ability to pursue builders and approving authorities for diminution in value.
For PI underwriters, the case underpins the structure of construction PI. Architects and engineers remain exposed in tort for design defects to those who have relied on their professional services. Builders’ principal exposure for defect claims is contractual, supplemented by the Defective Premises Act 1972. Approving authorities and building control bodies have been largely removed from the tortious frame for pure economic loss. Insurers price accordingly, often offering separate latent defects (structural warranty) cover to fill the gap left by Murphy for purchaser losses.
The Building Safety Act 2022 has, in important respects, recalibrated this position for high-risk residential buildings, dramatically extending limitation under the Defective Premises Act and introducing new building liability orders. Murphy nonetheless remains the foundational decision against which subsequent statutory and judicial developments are read.
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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