The decision of Lloyd, J. (as he then was) in Hadenfayre Ltd. v. British National Insurance Society Ltd.1 illustrates a way in which underwriters may find themselves liable for unconsidered risks. While it would be possible to guard against the danger in most cases, underwriters are creatures of habit and will not readily change their ways.

In early 1983 the plaintiffs acquired an eight-acre site near Huddersfield which included three disused woollen mills. They then entered into negotiations with Modern Homes (Leeds) Ltd., a firm of demolition contractors. The negotiations were based on a sale of the entire site to Modern Homes for £275,000. This sum was to be payable in weekly instalments comprising both principal and interest. It was expected that Modern Homes would be able to find the cash for the weekly instalments by selling off the materials as and when the buildings on the site were demolished.

The defendant insurance companies had given a binding authority to David J. Burrows (Underwriting Managers) Ltd. to write contingency insurance on their behalf; the underwriters authorized to write the insurance under the cover were Mr King and Mr Doran. The plaintiffs were anxious to obtain insurance cover in case of default on the part of Modern Homes. Meetings took place between Mr Finch of the plaintiff’s brokers and Mr King at which Mr Finch explained the business background of the transaction. On 28th March 1983 Mr King initialled a slip which had been prepared by Mr Finch on the basis of the information available to him. The slip stated that the plaintiffs had already entered into their contract with Modern Homes and that the contract stipulated for Modern Homes to pay the price by instalments of £6,000 per week with effect from 1st April 1983. On that basis the contract price, together with interest, would have been received by the plaintiffs in a little over a year. In fact, the plaintiffs did not complete their negotiations with Modern Homes until 7th April when they concluded their contract. That contract provided for the price and interest to be paid by weekly instalments of £3,000 not £6,000, as stated in the slip.

On 11th July 1983 the defendants issued the insurance policy. The judgment is silent as to the terms of the policy, upon which neither side seems to have based any argument. Presumably the policy was in the terms of the slip and was sent to the plaintiffs or, at least, their brokers.

In October 1983 Modern Homes went into liquidation and on 9th November the plaintiffs made a claim on the defendants for £263,863 under the policy. Shortly afterwards the defendants purported to repudiate liability on the ground that the insurance contract contained in the slip stipulated that the weekly payments would be £6,000 per week from 1st April 1983 and that those terms had been amended without the knowledge of the defendants and without any acceptance of the amendment by them. The plaintiffs, however, said that on 7th April Mr Finch of their brokers had telephoned the office of David J. Burrows and left a message to the effect that before