Category: Insurance case law · Reviewed by Matt Bartlett, Director · Founder · Last reviewed June 2026
The House of Lords decision establishing that a surveyor instructed by a mortgage lender owes a duty of care in tort to the purchaser-borrower for whose benefit the valuation is known to be relied upon, and that disclaimers of that duty are subject to the Unfair Contract Terms Act 1977.
The case was heard together with Harris v Wyre Forest District Council. In Smith, Mrs Smith applied to the Abbey National Building Society for a mortgage to purchase a modest house in Norwich. She paid the building society’s standard valuation fee. The building society instructed Eric S Bush, a firm of chartered surveyors, to inspect and value the property. The surveyors produced a valuation report which the building society was statutorily required to send to Mrs Smith and which she received and read.
The report contained a disclaimer to the effect that neither the building society nor its surveyor accepted any responsibility for the accuracy of the report and that Mrs Smith should obtain her own independent survey. In fact the surveyor had negligently failed to identify defects in the chimney structure, the chimney breasts having been removed without proper support. Eighteen months after Mrs Smith moved in, one of the chimneys collapsed through the roof causing significant damage. Mrs Smith sued the surveyors in negligence.
In Harris, the borrowers had applied to the local authority for a mortgage to purchase a property in Cleobury Mortimer. The local authority employed an in-house surveyor who inspected the property and produced a valuation. The borrowers paid the inspection fee but, in accordance with then-prevailing practice, the council did not formally send the valuation to them; they were told only that the council had agreed to lend. They reasonably inferred the valuation must have been satisfactory. The application form contained a disclaimer.
The property in Harris was later found to be effectively unsaleable owing to undisclosed structural defects. In each case, the defendant surveyors argued that they owed no duty of care to the borrower-purchaser, alternatively that the disclaimer was effective.
The case raised two principal issues. First, did a surveyor instructed by a mortgage lender, who knew that the modest valuation fee was being paid by the borrower-purchaser and that the borrower would in practice rely upon the valuation in deciding whether to purchase the property, owe a duty of care in tort to that borrower-purchaser? Second, if such a duty arose, was it excluded by an express disclaimer of responsibility, and how did such a disclaimer interact with the Unfair Contract Terms Act 1977?
The case therefore required the House of Lords to apply the principles articulated in Hedley Byrne and refined in Caparo to a specific commercial context, and to assess the effectiveness of disclaimers under modern consumer-protection legislation.
The House of Lords unanimously held that the surveyors in both cases owed a duty of care to the borrower-purchasers and that the disclaimers were ineffective.
On duty, the situation was the classic Hedley Byrne paradigm with knobs on. The surveyors knew the valuations would be passed to the borrowers (in Smith expressly, in Harris by clear inference), knew the valuations were sought in connection with a purchase at the lower end of the housing market where the borrower could not reasonably be expected to commission their own structural survey, and knew the borrower would rely on the valuation in deciding whether to proceed. There was sufficient proximity between the surveyor and the borrower-purchaser, and it was fair, just and reasonable to impose a duty.
Lord Griffiths observed that those who valued modest dwellings at the bottom of the market knew that purchasers commonly relied on the lender’s valuation and did not obtain their own survey; to deny a duty would leave the most vulnerable purchasers without remedy.
On the disclaimers, their Lordships held that they purported to exclude what would otherwise be a duty of care arising in the tort of negligence. As such, they were caught by section 2(2) of the Unfair Contract Terms Act 1977 and had to satisfy the test of reasonableness. In the particular context — purchasers of modest homes paying a fee for a valuation prepared by professionals — the disclaimers were not reasonable and were not effective.
A professional who provides a valuation or report at the instance of one party, knowing that it will be communicated to and relied upon by a third party for a specific purpose and that the third party is unlikely in the circumstances to obtain independent advice, owes that third party a duty of care in tort. A disclaimer purporting to exclude such a duty is subject to the reasonableness test in section 2(2) of the Unfair Contract Terms Act 1977 and may be held unreasonable where the third party is in a weak commercial position and reasonably relies on the report.
Smith v Eric S Bush is a landmark for surveyors’ and valuers’ professional indemnity insurance and, more broadly, for any PI policy covering professionals whose work product is passed to and relied upon by non-clients. The decision confirms that the duty of care recognised in Hedley Byrne extends to known third parties in a defined transactional context, particularly in consumer markets, and that disclaimer wording alone will not insulate the professional from liability.
For PI underwriting the case has several practical consequences. First, surveyors’ PI policies must clearly respond to third-party claims by purchasers and others who relied on valuations commissioned by lenders, banks and intermediaries. Second, exclusion or limitation wording in surveyors’ engagement letters cannot be relied on as a hard defence; reliance on UCTA-style exclusions requires real evidence that the third party had an opportunity to obtain alternative advice. Third, the case explains why valuers’ PI claims tend to follow the property cycle: when prices fall, lenders and borrowers look to past valuations for recovery.
The principles articulated in Smith have been applied across other professions where work product is foreseeably relied upon by third parties, including accountants giving comfort letters, solicitors providing certificates of title and IT consultants reporting to financiers. The case is therefore a foundational authority not just for surveyors’ PI but for the wider doctrine of assumption of responsibility to identified third parties.
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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