Category: Insurance case law · Reviewed by Tim Roche, Director · PI & Commercial · Last reviewed June 2026
House of Lords decision holding that a cause of action in negligence for damage to a building accrues when the damage occurs, not when it is discovered, prompting the Parliamentary intervention of the Latent Damage Act 1986.
Pirelli General Cable Works Ltd retained Oscar Faber & Partners, consulting engineers, to design a tall chimney at its factory. Construction was completed in 1969. The chimney was lined with a lightweight refractory concrete material, the suitability of which the engineers had advised upon.
Cracks developed at the top of the chimney lining as early as 1970, although they could not have been discovered by reasonable diligence at that time. By 1972 the cracks had reached the point where they could have been discovered by inspection, but were not. They were eventually discovered in November 1977 when the chimney was inspected for unrelated reasons. The lining was found to be unsuitable; the chimney required substantial remedial works.
Pirelli issued proceedings against the engineers in October 1978 for negligence in the design of the chimney. The losses claimed were the costs of investigation and remedial works, plus consequential loss. The action was brought in tort, no contractual remedy then being available because the relevant six-year contractual limitation period had expired.
The engineers pleaded that the claim was statute-barred under the Limitation Act 1939 (later replaced for the relevant purpose by the Limitation Act 1980), the limitation period of six years from accrual of the cause of action having long since expired. The question was when the cause of action accrued: when the chimney was negligently designed, when cracking first occurred (around 1970), when the cracking could reasonably have been discovered (around 1972), or when it was actually discovered (1977).
The principal issue was when, for the purposes of limitation, a cause of action in negligence accrues in a case of physical damage to a building caused by a negligent design. The competing analyses were that the cause of action accrued (a) when the building was constructed with a latent defect, (b) when physical damage first occurred to the building, regardless of discoverability, (c) when the damage was, or with reasonable diligence could have been, discovered, or (d) only when the damage was actually discovered. The decision had enormous practical consequences for limitation in construction cases.
The case also implicitly engaged the policy question of whether long latent damage cases — in which a defect remains undetected for many years before manifesting — should be allowed to run, with limitation tied to a discoverability test, or whether finality required a fixed long-stop.
The House of Lords held that a cause of action in negligence in respect of damage to a building caused by negligent design or construction accrues at the date when the physical damage occurs, regardless of whether the damage could then have been discovered. On the facts, the chimney had suffered damage by 1970, when the cracking first occurred. The cause of action accrued at that point. The proceedings issued in 1978 were therefore time-barred under the six-year period applicable to tort claims under the Limitation Act.
Lord Fraser of Tullybelton delivered the leading speech, with which the other members of the House agreed. While their Lordships expressed considerable sympathy for Pirelli, they regarded the orthodox rule that damage was the gist of the tort of negligence and that limitation ran from the moment damage was suffered as compelling. Postponing accrual until discoverability would, they considered, require legislation, and indeed shortly afterwards the Law Reform Committee was invited to consider the position; its recommendations led directly to the Latent Damage Act 1986.
The result was that owners of buildings in which latent defects manifested as damage many years after construction would, in many cases, find their claims time-barred before they had any practical opportunity to bring them.
A cause of action in the tort of negligence for damage to a building caused by negligent design or construction accrues when the physical damage first occurs, not when it is or could reasonably have been discovered. Limitation under section 2 of the Limitation Act 1980 runs from that date. The rule that damage is the gist of the tort of negligence applies notwithstanding that this may produce hardship in cases of latent damage; any modification of the rule is a matter for the legislature.
Pirelli is now of more historical than direct practical importance because the Latent Damage Act 1986 inserted sections 14A and 14B into the Limitation Act 1980, providing an alternative three-year period running from the date of knowledge of the damage and a long-stop of fifteen years from the relevant act or omission. Nonetheless, the case remains essential context for PI underwriting in construction and engineering.
For consultant PI insurers, the Pirelli accrual rule combined with the Latent Damage Act framework defines the temporal envelope of exposure. PI policies are written on a claims-made basis precisely to manage this latency: an architect or engineer may face a claim many years after the act complained of, but coverage depends on the policy in force when the claim is made. This makes uninterrupted PI cover, run-off cover after retirement or merger, and the integrity of the claims-made trigger central concerns for the construction professional.
The Building Safety Act 2022, in extending the Defective Premises Act limitation period to up to thirty years for historical claims and fifteen years prospectively, has reopened questions of limitation in the construction context that the Pirelli–Latent Damage Act framework had largely settled. Insurers and brokers now read Pirelli alongside the Building Safety Act and URS v BDW Trading.
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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