COVER NOTE

A Cover note is an interim receipt issued by the insurer. It is temporary in nature.

in practice on making the proposal, the insured company on payment of premium
gives a deposit receipt called Cover note. It is also called an Interim Protection
Note. It contains the same terms and conditions as that of the future policy to be
issued in favour of the insured. It is issued in non-marine and non-life insurances.
Generally it is in regular practice in fire, burglary and motor insurances. It is purely
for temporary period, viz. 15 days or 30 days. It is a well established commercial
practice.
Object of Cover note is to give interim protection to the assured pending decision
of the Board of Directors of the Insurance Company. Insurers of non-life policies
normally empower their agents to grant cover notes valid at the most for a short
period of 15 or 30 days, after satisfying themselves about the the acceptability of
the proposal. Cover note has not been defined in the Insurance Act. But Section
145 (b) of the Motor Vehicle Act, defines a certificate of insurance which includes
a cover note complying with such requirements as prescribed.
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.
Cover note is similar to a Slip in Marine Insurance. The effect of cover note is that
if fire takes place between the date of the receipt of receipt of cover note and the
date of intimation by the insurance company regarding the acceptance or refusal of
the policy, the insurance company will be responsible. Cover note contains a
contract of insurance but it is not a policy of insurance. It is only a protection for
the interim period between the date of proposal and the date of issue of policy; and
therefore the cover note is the protection for a temporary period.
.

. 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.

making an Insurance Cover Note

Insurance cover notes are created by the officials of an insurance company and
each company has its own format and preferences by writing an insurance cover
note. Usually, an insurance cover note is based on the following information.
Date and information about the company and insured
Terms regarding an insurance cover note
Information regarding the type and validity of an insurance policy
Information about the cancellation of the policy.

Cover notes in re-insurance

A slip usually contains just the essential elements of parties' contract, such as the
type of risk, the sum and limit reinsured, the cedent's retention, and the premium to
be paid to the reinsurer. The reinsurer commonly will signify its acceptance by
signing the slip (a practice known as "scratching" in the London market) or issuing
a binder confirming the reinsurance terms. While a cedent's broker aims to obtain
full participation in a reinsurance contract, there are occasions when the broker
secures commitments that exceed 100%. In that situation, the broker will "write

down" the reinsurers' percentages pro rata so that the total subscription equals
100%. Section 72.01[3][c] discusses the effect of formal reinsurance wording and
the interaction between such wording and a slip to which the parties originally
agreed. As Section 72.01[3][d] explains, a reinsurance contract may be amended
by agreement of the parties through an endorsement or rider. Finally, Section
72.01[3][e] cautions that one should not confuse a placement slip and a cover
note. While a slip may evidence a binding reinsurance contract, a cover note
usually represents only an indication from a broker to the cedent that reinsurance
has been placed as directed. Accordingly, a reinsurer generally is not bound by a
cover note.
Section 72.02 deals with the construction and interpretation of reinsurance
contracts, beginning with an analysis of the relationship between the rules
applicable to the interpretation of reinsurance contracts to the rules applicable to
the interpretation of direct insurance policies. This section goes on to analyze the
presumptions made in the reinsurance contract, the significance of the slip, and
incorporation of other terms into the reinsurance contract. It then addresses key
provisions commonly found in reinsurance contracts, conditions and warranties,
issues surrounding choice of law, and ends with a discussion of terms that may be
implied into reinsurance contracts.