Axa Corporate Solutions SA v National Westminster Bank Plc

An insurance renewal term may be contractually effective even though the parties contemplate a fuller wording later, provided the agreed words have substantive content and are capable of interpretation and application. The expression terrorism exclusion (wording to be agreed) was sufficiently certain to identify an agreed exclusion. The court determines the parties’ agreement from the renewal communications and the surrounding circumstances, giving particular weight to contemporary documents and the overall probabilities, while treating oral evidence as relevant to their interpretation. Where the parties have agreed the existence of an exclusion but not its detailed application, the court should not construe it in the abstract without agreed or assumed facts.

Axa insured companies in the Royal Bank of Scotland group under annual employers’ liability and public and products liability policies. For the 2002–2003 renewal, Axa’s renewal indication proposed a terrorism exclusion for the public and products liability cover, with the wording to be agreed. The parties later placed the cover, but no fuller exclusion wording was produced. NatWest and Marsh contended that the exclusion had been negotiated out or was ineffective without agreed wording. Axa sought declarations concerning the existence and terms of the exclusion. The central issues were whether the exclusion formed part of the renewed contract and, if so, what could properly be declared about its meaning.

1. Formation of the contract. The 20 March 2002 renewal fax set out the terms on which Axa was prepared to renew. It was communicated to Marsh, RBS/NatWest’s authorised broker. The subsequent firm order and placement of cover therefore incorporated those terms unless the parties agreed to amend them.
2. No agreement removing the exclusion. The evidence did not establish that the proposed public and products liability terrorism exclusion was discussed or negotiated out. The contemporary documents, the absence of any record of a variation, the underwriting guidelines, and the evidence of the placement of the excess layer all supported the conclusion that the term remained part of the contract.
3. Effectiveness of the agreed words. The words terrorism exclusion had substantive content and identified what was excluded from cover. The reference to wording to be agreed contemplated a fuller expression of the same term; it did not prevent contractual agreement. It was a common feature of the London market for fuller wording to follow an agreed slip or short-form statement.
4. Method of assessing evidence. The court followed the guidance in Grace Shipping Inc v C F Sharp (Malaya) Pte Ltd [1987] 1 Lloyd’s Rep 207 at 215, giving crucial weight to contemporary documents and the overall probabilities while recognising that oral evidence may explain documents and assist in assessing the witnesses and probabilities.
5. Construction. It was inappropriate to construe the agreed term in the abstract or to determine the required causal connection without agreed or assumed facts. Any further guidance could be sought by application within the proceedings.

The court determined that the 2002–2003 primary public and products liability cover contained an express terrorism exclusion in the terms terrorism exclusion (wording to be agreed).