As you are aware that a ‘Cover Note or Interim Receipt’, is a documents issued by the insurers during negotiations stage for an insurance to a person proposing to insure with them , by which they acknowledge receipt of payment in respect of premium and undertake to hold him indemnified until they have elided whether to accept his proposal or not.
Simply cover note generally issued to acknowledge that proposal of insurance is pending with the insurance company and from the date of issue of cover note , till the date of issue of insurance policy the insured will be covered though cover note. Generally when a prospects submits its proposal for insurance with insurance company, the insurance company on thee basis of declaration made an documents submitted by the prospects critically analyse the risk associated with the proposal and decide whether to accept the proposal or not and the amount of premium to be charged. It the proposal is accepted by the insurance company and premium has been determined , then insurance company issue a “ Cover Note” ,which confirm the receipt of premium and during its validity or till the date of issue of insurance policy the person seeking insurance cover will be covered through “ Cover Note”.
The object of “ Cover Note or Interim receipt” is to afford interim protection to the assured pending he decision of the insurance company to finally accept or reject the proposal for insurance.
INVESTOPEDIA DEFINES- A cover note is a temporary document issued by an insurance company that provides proof of insurance coverage until a final insurance policy can be issued. A cover note is different from a certificate of insurance or an insurance policy document. A cover note features the name of the insured, the insurer, the coverage, and what is being covered by the insurance.
Insurance companies issue a cover note to provide an individual with proof of insurance before all the insurance paperwork has been processed. During this time, the insurer may continue to evaluate the risks associated with insuring the holder of the cover note, and the cover note will continue to serve as the insured’s proof that coverage has been purchased until the insurer issues the policy documents and certificate of insurance.
In general, the cover note provides the same level of coverage as the full insurance policy, though insurers may place some restrictions while they make any final determinations on the risks associated with the insurance policy.
The “ Cover Note’, usually valid for a period of 15 to 30 days from the date of its issued ,subject to nature of insurance coverage and policy of an insurance company.
INSURANCEOPEDIA DEFINES A cover note is a temporary document an insurer issues to provide proof of coverage for the insured until an official final document becomes available. Not equivalent to a certificate of insurance or other policy documents, it typically lists the insured, insurer, and the coverage.
An insurer issues a cover note as proof of coverage while they continue processing the paperwork to finalize the policy. During this interim period, it can serve as evidence the insured purchase insurance and offers the same coverage as the actual policy though some restrictions may apply. In the event it expires before official documents have been issued, the insurer will issue an extension, or the insurer may need to request one. In case the insured wants to cancel a policy during the allowed cancellation, they may be entitled to a refund as a cover note does not constitute a formal policy.
According to Honorable Hidayatulla J. observation in General Assurance Society v. Chandmull, “a contract of insurance is a species of commercial transactions and there is a well established commercial practice to send cover note even prior to the completion of a proper proposal or while the proposal is being considered or policy is in preparation of delivery. It is a temporary and limited agreement. It may be self contained or it may incorporate by reference to the terms and conditions of the future policy.”
SECTION 147 (4) OF THE MOTOR VEHICLE ACT, 1988, imposes strict liability upon the insurance company to issue cover note to a motor vehicle owner who in turn doesn’t receive his policy within the specified time of cover note. Cover note is effective until the date on which it expires. Any claims arises during this period, the insurer is to pay compensation, and such claims shall be determined according to the terms and conditions of the cover note. The terms and conditions of the cover note may vary.
THE COVER NOTE SHOULD PROPERLY BE STAMPED, ACCORDING TO THE INDIAN STAMP ACT, 1899. Now the question is whether it can be admitted as evidence, when it is not stamped? The answer is, it is like an insurance policy and so under Section 35 of the Stamp Act, it is inadmissible in evidence, but it can be received in evidence on payment of penalty.
However, the interim protection doesn’t amount to policy or an engagement to issue the policy and can’t be issued for any other purpose or any other claim.
SECTION 35 contemplates that the letter of cover note must have the necessary stamp at the time of execution and therefore subsequent stamping will not make it a valid document, which can be used for claiming the amount. Generally, the terms and conditions of the cover note are similar to that of the terms and conditions of the policy. The cover note is not a complete and final contract between contract between the insurer and insured. But it binds both the parties concerning the rights and liabilities of them if any event of a loss occurs during its period.
Cover note comes to an end on the issue of “Certificate of Insurance/policy”. It also comes to an end when the insured receives a cancellation notice of cover note from the insurer.
PLEASE NOTE THAT: the receipt given by insurance company or its agent creates a binding insurance for the period mentioned in the receipt but it can be put an end at any time during that period. The agent may not be authorised to accept the proposed insurance but he may b authorised either generally or in particular to issue a cover note or interim receipt. [Mackie Vs. The European Assurance Society,(1869) 21LT 102].
Murfitt Vs. Royal Insurance Co. Ltd.(1922) 38TLR 334- in this case plaintiff who owned an orchard and a garden alongside a railway, submitted to a subordinate local agent of defendants who were an insurance company a proposal for insuring his trees and fruits against fire. The agent said that the plaintiff would be held covered, pending defendant’s decision whether they would accept the proposal. The fire among trees occurred and after the fire , but before the defendants knew it, the refused to accept the risk. It was held that the agent has no express authority from defendants to make the bargain with the plaintiff. In an action on oral contract made by defendant’s agent , it was held on he facts , that defendants’ agent had implied authority to make the contract , and plaintiff was in the circumstances entitled to recover the insured amount.”
It to be understood that the interim receipt or cover note does not afford conditional protection. The protection will be absolute subject to the determination by the insurance company either during the specified period mentioned the cover note or at its expiry.
PLEASE NOTE THAT-
1. The protection afforded by a “ Cover Note”, may be extended beyond the period specified in it if the insured does not receive any notice by the insurer to determine it. If notice is necessary to determine the validity of “ Cover Note,” then it must be given to the insured or his /her authorised person ,authorised to receive notice by the insurance company.
2. Mere acknowledgement of receipt of premium not amount to an “ Interim receipt or Cover Note”. It is an acknowledgment only by the agent authorised to issue receipt or thee insurance company that premium related to proposal submitted has been received same as other receipt in the normal course of business.
3. The interim receipt does not afford a conclusive evidence of all the terms of the contract, and the interim receipt is not a policy of insurance in the ordinary sense of the word, ad does not purport to contain a complete and final contract between the parties.[ Latiff Ali Fadoo Vs. Royal Exchange Corporation ,(1916) 32 IC540].
4. Mackie Vs. The European Assurance Society ,(1869) 21 LTR 102– it was held that a “ Cover Note or Interim receipt” is in itself a binding contract which governs the right and liabilities of parties in the event of a loss taking place during its currency.
5. A Cover Note is considered as same as “ Slips “ , in case of a Marine Insurance Business. The “ Slips” contains the head of the contract and is in itself a contract of insurance.
6. The assured is entitled to enforce the contract contained in the “ Cover Note”, provided that he has complied with its conditions.
Coleman’s Depositories Ltd. Vs. Life and Health Assurance Association Re, (1907) 2 KB 798-The “ Cover Note”, itself does not state to what extent the assured is protected and is always subject to the conditions expressed in the insurance policy. As against the insured the terms and conditions of the policy form not part of the contract contained in the Cover Note , unless they are expressly incorporated therein or unless the proposer is bound to have been acquainted with them, as against the insurers the Cover Note is subject to the common form of thee policy issued by them.
In the above case a policy of insurance covering the liability of an employer to compensate his workmen for injuries by accident in the course of their employment was made subject to the condition that employer should give immediate notice of any accident causing the injury to a workman , and to a further condition that the observance and performance by the employer of the terms and conditions set out in the policy, so far as they contained anything to be done by the employer ,were of the essence of the contract.
On 28th December,1904 the employer signed a proposal form and received a “ Covering Note”, to which no conditions were attached.
On 3rd January,1905 the insurer sealed , and on 9th January, 1905 delivered to the employer the insurance policy in question, which expressed that it was to be in force from January, 1905.
A workman of the insured was injured by an accident which was believed to be slight , and of which notice was not given at the time to the insurer. Dangerous symptoms supervened and the insured workman died on 15th March, 1905. The notice of the accident was given by the employer to the insurer on 14th March, 1905 just a day before the death of the workman.
The insurer repudiated the claim on the basis that immediate intimation of accident or injury to workman was not given to the insurer by the employer in accordance with conditions in the policy document and that condition was condition precedent to the right of employer to recover the claim.
Arbitrator held that- the condition as to giving the immediate notice of injury, was a condition precedent , but stated his award in the form of a Special case for the opinion of the court, which reversed the order of arbitrator’s decision.
The Court it was held that;
1. In the absence of evidence that the employee either knew of , or had the opportunity of knowing , the existence of the condition at the date of the accident was one with which it was impossible to comply;
2. As regards a risk which resulted in a claim before the insured had knowledge of the condition, the true inference was that the insurers never imposed thee condition on employer , and the latter was , therefore ,entitled to recover on the policy.
It means that the “ Cover Note”, issued by the insurance company is did not contained such express terms and conditions on the basis of which claim was repudiated by the insurance company for an accident occurred during currency of the “ Cover Note”. It should be noted that the express terms and conditions will be mentioned in “ Cover Note” also or otherwise same will be communicated to the insured, while pending of issue of insurance policy.
PLEASE NOTE THAT : The “ Cover Note”, comes to an end ,when insurance policy is issued. If proposal is not accepted the question of the duration of cover note is to be considered with reference to the wording of the “ Cover Note”. The “ Cover Note” remains in force as long as notice of its determination does not reached to the insured. Even duration of “ Cover Note” is itself mentioned in the “ Cover Note”, then it is open to the insurance company to cancel it ,while dealing the proposal before its tenure.
CONCLUSION: from above judicial decisions and definitions , it is clear that a “ Cover Note”, issued by an insurance company to the insured is a binding on both parties. It a confirmation by insurance company to the insured or other parties that subject matter mentioned in the “ Cover Note” is insured against risks pending issue of insurance policy. It is a proof of coverage ,during processing of insurance by the insurer. Some statues mandatorily required insurers to issue “ Cover Note”, to the insured during the processing of insurance coverage. A” Cover Note” should be properly stamped to be considered as evidence in Court of Laws. The insured is covered through “ Cover Note”, during its tenure or earlier determination by the insurer by issuing insurance policy or rejecting the proposal of the insured. Any claim during tenure of “Cover Note”, will be paid subject to complying the terms and conditions mentioned in ‘ Cover Note”. The notice of determination of “ Cover Note”, must be given to the insured and in case of delay in issue of insurance policy, the tenure of “ Cover Note”, may be extended.
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DISCLAIMER: the article produced above is only for information and knowledge of readers. The views expressed are the personal views of the author, it should not be considered as professional advice. We advise readers to consult with insurance professional in case of necessity.
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