Category: Insurance case law · Reviewed by Amy Price, Account Executive · Last reviewed June 2026
The House of Lords decision overruling Anns v Merton LBC and reasserting, on Caparo lines, that pure economic loss is not generally recoverable in the tort of negligence absent a Hedley Byrne assumption of responsibility.
In 1969 Mr Murphy purchased a newly built semi-detached house at 38 Vineway, Brentwood, Essex, from a developer. The house was constructed on an in-fill site over a concrete raft foundation. The design of the raft foundation had been submitted to Brentwood District Council, which under the Public Health Act 1936 and associated building regulations was responsible for ensuring compliance with building standards. The council referred the design to a firm of consulting engineers, who approved it.
In 1981 Mr Murphy noticed serious cracks in the walls of the house. Investigation revealed that the raft foundation was defective and had subjected the superstructure to differential settlement. Repairs to the foundation could not be effected economically. Mr Murphy was unable to afford the necessary remedial works and was forced to sell the house in its damaged condition at a significant loss, the property having been valued at approximately £35,000 less than it would have been worth had the foundation been sound.
Mr Murphy sued Brentwood District Council, alleging that the council had been negligent in approving a defective foundation design. His claim was for the diminution in value of the property — a head of loss properly characterised as pure economic loss, since the damage was to the property itself rather than to other property or to persons. There was no allegation of personal injury or of physical damage to property other than the dwelling itself.
The action proceeded on the basis of the duty of care recognised in Anns v Merton London Borough Council [1978] AC 728, which had held that a local authority owed a duty to subsequent owners to take reasonable care in approving foundations. Mr Murphy succeeded at first instance and the Court of Appeal upheld that decision on the basis of Anns. The council appealed to the House of Lords, inviting their Lordships to overrule Anns.
The principal issue was whether a local authority responsible for supervising compliance with building regulations owed a duty of care in tort to the eventual owner of a dwelling in respect of pure economic loss flowing from a defective design or construction it had approved. That required the House of Lords to revisit the foundations of liability for pure economic loss in tort and, in particular, the standing of Anns v Merton LBC, which had been the subject of sustained criticism since its decision.
A wider issue concerned the general framework for the recognition of novel duties of care following Caparo Industries plc v Dickman, decided earlier in 1990, and the proper analytical relationship between physical damage, defective products and pure economic loss in the tort of negligence.
A seven-member House of Lords unanimously allowed the council’s appeal and overruled Anns v Merton LBC and the cases that had followed it, notably Anns-style cases imposing liability on local authorities and builders for the cost of remedying defects in buildings.
Their Lordships held that the loss suffered by Mr Murphy was pure economic loss. The damage was to the very building of which the alleged defect was a part; it was not damage to other property or to the person. Such loss was not recoverable in the tort of negligence in the absence of a special relationship of the Hedley Byrne kind giving rise to an assumption of responsibility for economic loss. No such special relationship existed between the local authority and a subsequent owner of the dwelling.
The House of Lords rejected the so-called complex structure theory, which had been used in some Anns-line cases to characterise damage to one part of a building by another as damage to other property. Their Lordships held that, for the purposes of tortious recovery, a building was to be treated as a single thing.
Lord Bridge, Lord Oliver and Lord Keith all emphasised the policy considerations underlying the result: the law of contract, statutory schemes (such as the NHBC scheme) and direct relationships between builder and purchaser were the proper vehicles for the allocation of risk in relation to defective buildings. The tort of negligence was not designed to operate as a guarantee of building quality at the expense of public authorities or contractors.
Pure economic loss caused by a defect in a building or other product is not recoverable in the tort of negligence against the builder, designer or local authority responsible for approving it, in the absence of a special relationship between the parties of the kind recognised in Hedley Byrne giving rise to an assumption of responsibility for that loss. Anns v Merton London Borough Council was wrongly decided and is overruled.
Murphy v Brentwood DC is a defining authority in the modern English law of negligence and has wide-ranging consequences for professional indemnity insurance. By overruling Anns and reasserting the primacy of contract and statute as vehicles for risk allocation in defective building cases, the decision removed an entire category of pure economic loss claim from the field of tortious liability and from PI insurance exposure.
For PI underwriting the case has several consequences. First, claims against engineers, architects and other construction professionals by remote purchasers of defective buildings cannot ordinarily rely on a general tortious duty; they must establish either a contractual link (often via collateral warranty or assignment) or an assumption of responsibility on Hedley Byrne lines. This shaped the modern practice of obtaining collateral warranties and third-party rights from project consultants. Second, local authorities’ exposure to building-defect claims via PI policies is largely confined to claims for personal injury or damage to other property. Third, the case marks the high point of the retreat from expansive duty of care, on which insurers regularly rely when defending novel third-party claims.
Murphy is also influential outside the construction sphere. The case stands for the broader proposition, restated in Caparo, that pure economic loss in tort is exceptional. PI insurers and brokers therefore frequently see Murphy cited alongside Caparo in defending professional negligence claims by third parties, particularly in chains of advice and product distribution.
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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