In Smith v Eric S Bush [1990] 1 AC 831 the House of Lords held that a surveyor instructed by a lender to value a modest residential property owed a duty of care not only to the lender but to the purchaser, who the valuer knew was likely to rely on the valuation without commissioning a separate survey. The valuer had negligently failed to note that chimney breasts had been removed without adequate support; a chimney later collapsed. The buyer recovered damages despite there being no contract between her and the surveyor.
The decision widened the class of people to whom a residential valuer can be liable. For a surveyor carrying out mortgage valuations at the lower end of the market, the person who suffers the loss is frequently the buyer rather than the lender, and the buyer can sue in tort even though the fee came from the bank. Any professional indemnity policy written for a firm doing this work has to contemplate third-party claimants who were never the client.
The valuers had relied on a disclaimer of liability. The Lords held that under the Unfair Contract Terms Act 1977 such a disclaimer was subject to the reasonableness test, and on the facts it was not reasonable to exclude liability to a buyer of a modest home who had paid the valuation fee and had no realistic alternative. A blanket exclusion does not, by itself, remove the exposure a PI policy responds to.
Firms that value residential property should read this case alongside the demands of their RICS registration. Apex sets out the wider cover position for valuation practices on its surveyors' PI guide, and the overlap with agency work on the estate and letting agents' PI guide. The point of a careful placement is to make sure the policy contemplates the claimant the law actually allows, not only the party who paid the invoice.
Since Smith v Eric S Bush the residential valuation market has changed, but the principle has not. Automated and desktop valuation models have reduced the number of physical inspections, yet where a firm signs a valuation that a buyer will foreseeably rely on, the duty analysis is the same. The consumer protection reasoning has, if anything, been reinforced by the Consumer Rights Act 2015, which now governs the fairness of terms in consumer contracts and stands alongside the Unfair Contract Terms Act 1977 for business-facing terms.
For a firm arranging cover, the lasting message is about the shape of the exposure rather than any single figure. A valuation practice serving the residential market should assume that a proportion of its claims will come from buyers rather than lenders, that disclaimers will be tested for reasonableness, and that the standard of the inspection, including what a competent valuer should have flagged, will be scrutinised after the event. Cover placed on that understanding is more likely to answer the claim as it actually arrives.
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.