Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627 is the leading authority on how a lender's loss from a negligent overvaluation is measured and when the cause of action accrues. It followed the House of Lords decision in South Australia Asset Management Corp v York Montague (the SAAMCo case) on the scope of a valuer's duty, and dealt with the mechanics of loss and time.
The House of Lords held that a lender suffers recoverable loss when it is worse off than it would have been had the valuation been correct, taking into account the value of the security and the borrower's covenant. The cause of action accrues, and time under the Limitation Act 1980 begins to run, when that measurable loss is first suffered, which is often before the security is realised. The comparison is between the transaction the lender actually entered and the position it would have been in without the negligence.
Limitation is frequently decisive in valuer claims. Because the loss can accrue early, a claim brought years after a repossession may already be time-barred, or may depend on the Latent Damage Act 1986 for a later starting point. The measure of loss and the limitation clock are two sides of the same analysis.
Nykredit remains central to how valuer claims are quantified and timed. Apex explains how the measure of loss and limitation feed into cover and notification on its surveyors' PI guide, and the parallel issues for cost consultants on the quantity surveyors' PI guide. Getting the loss and the limitation analysis right is often where a valuation claim is decided.
Nykredit shows that the loss in a valuer claim can accrue well before anyone realises a claim is coming, which has a direct effect on limitation. Because time can start to run from the moment the lender is measurably worse off, a firm that only reacts when a formal claim lands may find the limitation analysis is already complex. This is one reason the notification provisions in a PI policy reward early use: notifying a circumstance that might give rise to a claim preserves the position under the policy in force at the time, even where the eventual loss is uncertain or years away.
The measure of loss confirmed in Nykredit, the lender's overall shortfall attributable to the overvaluation rather than a simple valuation difference, also affects how a claim is reserved and negotiated. Taken together, the loss and limitation points explain why valuer claims are so often fought on timing and quantum rather than on whether a mistake was made at all.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.