To establish the existence of the contract it is not necessary that all its terms should have been separately agreed. As the contract is in common form, there is, as a rule no real negotiation of terms, the agreement being, on the part of the insurer, to issue, and, on the part of the proposer, to take, a policy in the ordinary form issued by the insurer.
There must, however be a clear agreement as to the distinctive features of the particular contract. The parties, therefore, must be ascertained; the insurer must have agreed to insure the particular assured, and the assured must have agreed to the particular insurers. They must be ad idem as regards the subject-matter to the insurance. The period of insurance must be fixed, and there must be agreement as to the sum to be insured and the premium to be paid. Finally, it must be clear that there was, in fact, an offer to enter into the contract on the one side, followed by an acceptance of the offer on the offer on the other, and that thus a complete contract resulted.
Usually the acceptance of the offer will not take place at once, and before it does so, it is the practice for a ‘cover note’ to be issued.
Before acceptance, neither party is bound, and either may withdraw at pleasure. After acceptance, there is a contract from which neither party can withdraw, binding the assured to pay the premium, and the insurers to accept the premium when tendered, to issue a policy, and to pay any sum that may become payable under the terms of the contract.
The various steps in the negotiations leading up to a contract of insurance are usually recorded in certain formal documents, i e the proposal, the cover note, and, finally, the policy. The absence, however, of any such document does not necessarily lead to the interference that there is no contract of insurance between the parties.
As far as Lloyd’s polices are concerned, a ‘slip’ is sometimes used instead of a proposal form, and the contract is concluded as soon as the ‘slip’ has been initialed the insurer.
The position of the parties during the preliminary negotiations leading up to the completion of a contract of insurance is much the same as in the case of any other contract, except that, the contract being a contract uberrimae fide, the utmost good faith is required on both sides.
The proposer is under a duty to disclose to the insurer all material facts relating to the proposed insurance and not to make any misrepresentations. In due course the assured will become liable to pay the premium to the insurer.