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Note: Royal Bank of Scotland (Guarantor/ Insured) insured against employers' liability (EL) and public and products liability (PPL) through an arrangement in which Axa Corporate Solutions (Primary Insurer) provided primary insurance with Glensure Insurance Company Ltd (Secondary Insurer) supplementing it. Secondary Insurer was a 100% captive insurance company controlled by Guarantor/Insured. In renegotiations for 2002-2003, Primary Insurer demanded that Guarantor/Insured provide a standby letter of credit in the amount of US$1.3 million as security on behalf of Secondary Insurer. In addition, Primary Insurer demanded the addition of a terrorism exclusion clause.

Subsequently, victims of terrorist attacks in Israel sued a British subsidiary of Guarantor/Insured under the United States Antiterrorism Act for holding accounts that raised funds for Hamas. Guarantor/ Insured notified Primary Insurer of the claim, but

Primary Insurer claimed that such liability had been excluded in the 2002-2003 renegotiation. Primary Insurer then sued Guarantor/Insured for a declaratory judgment that any liability directly or indirectly caused by or resulting from an act of terrorism was excluded within the 2002-2003 renegotiation. The Queen's Bench Div., Commercial Ct., Hamblen, J., ruled that the policy contained an exclusion whose terms were "Terrorism exclusion (wording to be agreed)".

The parties disputed whether or not the exclusion was a valid part of the renewal agreement. Early in the negotiations, Primary Insurer stated that it was not willing to renegotiate the standby requirement. Guarantor/Insured argued that it had no reason to know the exclusion was a required addition because Primary Insurer did not similarly insist upon the exclusion term and it had never expressly accepted the clause as an additional term. Furthermore, the Guarantor/Insured argued that inclusion of the phrase "wording to be agreed" implied that further discussion was necessary and was too ambiguous to make the exclusion term binding.

The Judge conceded that it is "quite possible that [the exclusion] aspect of the renegotiation was missed by both" parties. However, since the term was written in the fax copy of the agreement, the exclusion clause was determined to have been included in the 2002-2003 insurance contract between Guarantor/ Insured and Primary Insurer. However, the Judge noted that the case was not one that made abstract determinations feasible absent the factual context in which the negotiations occurred.

[JEB/kmw]

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