The submission to the insurer of a duly completed proposal form by the proposer constitutes the formal offer to contract. In an indemnity contract, insurers often extend temporal cover to the proposer between submission of the proposal form and its formal acceptance or rejection. This is the cover note. This is a technical term used by issuers to describe the temporal insurance cover extended to the proposer during the interim period between submission of the proposal from and its formal acceptance or rejection.

  1. The note may be justified on various grounds. Firstly before cover is extended time and care must be taken to access and ascertain the risk being undertaken.
  2. It is argued that the insurance industry is rigid and formal and hence the need for more time.
  3. As explained in Julian Bright Vs H.G. Poland [1960] Lloyds Rep. 420, the typical motorist is an impatient person and demands cover before the traditional steps are complied with. The cover note need note be a formal document. It is siufficient if the insurer intimates to the proposer that cover has been extended from a particular date.

Murfit Vs Rayal Insurance Co. Ltd
[1922] 38 TLR 334

It was held that a letter from the head office of the company stating that cover had been extended in a particular situation constituted a cover note. The cover note operates as a contract of insurance between the insurer and the proposer on the terms and conditions therein embodied or necessarily implied from the nature of the policy applied for. The proposer is entitled to indemnity in the event of attachment of risk during the subsistence of the cover note if the document is comprehensive. The proposer recovers on the basis of its terms and conditions.

  • Jadavji Shamji Panday Vs Oriental Fire and General Insurance Co [ 1957] EA 21
  • General Re-Insurance Case [ 1982] QB 1022
  • Stockton Vs Mason [1978] Lloyds Rep. 430

The legal effect of the cover note lapses when the insurer issues a policy or communicates his rejection of the proposal form. The effect of the policy is backdated to the date of issue of the cover note. The cover note is ordinarily effective for 30 days.

Section 75 of the Stamp Duty Act, provides that a policy should be issued within 30 days of the receipt of the proposal form. However in practice, the duration of cover note varies. If the insurer refuses to take the risk, he must notify the proposer, failing which over note remains effective and the insurer is liable should the risk attach as was the case in

Cartwright Vs Mac Cormick Trafalgar Insurance
[1963]1 ALL ER 11.

The English Companies Act observed inter alia that an insurer must actually signify his rejection of the proposal form expressly in order to bring an end the binding nature of the cover note. Acceptance of the proposal form is the prerogative of the insurer. However an insurer is not obliged to accept any proposal from and in the vent of a refusal, he is not bound to assign any reasons. However the insurer cannot while accepting the proposal from vry or modify its terms without the proposer’s concurrence.
  1. Canning Vs Farquhar [1886] 16 QBD 727
  2. General Accident Insurance Corp Vs Cronk [1901] 17 TLR 334.
Acceptance of the proposal form may be signified in various ways.

  1. Formal Communication – this is an express intimation by the insurer to the proposer that it has accepted the proposal form.
  2. Issue of policy – as a general rule issue of a policy is conclusive intimation of acceptance of the proposal form. The policy becomes legally effective on the date of issue notwithstanding any defects in the proposal form.

McElroy Vs London Assurance Corp. [1894] 24 Lloyds Rep. 287. Where the proposer had not signed the proposal form but the insurer issued a policy, a subsequent attempt to csancel the policy on the ground of the defect failed. It was held thet the policy was binding as its issue was evidence that the company had studied, considered and accepted the proposal form.
Pearl Life Assurance Co Ltd Vs Johnson [1909] 2 KB 88.
However issue of policy does not amount to an acceptance where
    • The proposer does not treat it as such but continues negotiating fro purposes of obtaining a modification of its terms.
    • The policy departs from the proposal form by introducing fresh terms and thus amounts to a counter – offer.
  1. Acceptance of premium – the acceptance and retention of premium raises presumption in the absence of any circumstance leading to a contrary conclusion that the insured had accepted the proposal form. In such a case, the insurer is bound to issue a policy and make good any loss arising.
In the words of Lord Mc Laven at Page 291 in McElroy Vs London Assurance Corporation
“The company is not bound to deliver a policy without payment of the premium. If they accept a premium before delivery of a policy, I should be disposed to hold that the acceptance of the premium and the delivery of the receipt thereof was sufficient to create the obligation to issue a policy. Unless circumstances can be shown to the contrary, the receipt of the premium offered and its retention at once create a contract of insurance.”

·         Re Economic Fire Office [1896] 12 TLR 142
·         Harrington Vs Pearl Life Assurance Co. [1913] 30 TLR 24
  1. Conduct of the Insurer – the fact that premium has not been paid nor the policy issued does not necessarily mean that the proposal from has not been accepted. Evidence may clearly show that it has been accepted and that there is a binding agreement between the parties. On the part of the proposer to pay the premium and on the part of the insurer to issue the policy in which case the insurer cannot refuse to accept the premium when tendered or repudiate the contract.
1.    Thompson Vs Adams [1889] 23 QBD 361
2.    Adie and Sons Vs Insurance Corporation Ltd [1898] 14 TLR 544.
3.    Re Yager [1912] LT 38
4.    Jupiter General Insurance Company Vs Kassand Cotton
5.    White well Vs Auto Car Fire and Accident Insurance Co. [1927] 27 Lloyds Rep. 41
Under Section 21 of the Marine Insurance Act, a  contract of Marine Insurance is deemed concluded when he proposal of the insured is accepted by the insurer.

Acceptance of the proposal form marks the end of the proposer’s duty to disclose material facts and the insurer cannot generally avoid the contract for the non-disclosure of facts coming to the proposer’s knowledge thereafter.


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