REFORMING INSURANCE LAW: - Law Commission

Temporary cover 206
4.72 English law says very little about temporary cover obtained by an assured pending the issue
of full. Three main problems have arisen. The first is, what are the terms of temporary cover?
The basic view is that in the absence of any express provision the insurers’ standard terms are
deemed to apply, although the cases are far from consistent on the point and there is an issue as
to whether the terms can be binding on the assured if they have not been notified to him. 207 The
second is, can there be a binding contract for temporary cover if the assured does not intend to
make an application for full cover to the insurers issuing the temporary cover. English authority
indicates that an offer of temporary cover may not be binding in the circumstances, although
there seems to be little in law or sense to justify this result. 208 Thirdly, what is the extent of the
assured’s duty to make a fair presentation of the risk at the interim stage? There is no authority
in England on this point, although commentators generally cite the pre-1984 Act decision,
Mayne Nickless Ltd v Pegler, 209 for the proposition that the duties apply in full effect even to an
informal application for temporary cover.
4.73 The ALRC considered interim cover in some detail. 210 It concluded on these points that: (1)
the terms on which a cover note was issued should be made available to the assured, although
legislation was not desirable in that it might inhibit the offer of temporary cover; (2) it should not
be open to insurers to stipulate that temporary cover was conditional on them receiving a
satisfactory proposal form, given that this might not be possible if an accident occurs during the
period of temporary cover or that the proposal form might be completed by a third party whose
authority is in doubt, and given also that determining whether a proposal was “satisfactory” was
a matter for insurers and was capable of arbitrary decision (particularly where a loss had been
suffered); and (3) it was necessary to retain the duty of disclosure at the cover note stage.
Limited reform on issue (2) is contained in s 38(1) of the Insurance Contracts Act 1984. The
section negatives any provision in a temporary insurance cover which renders the liability of the
insurers dependent on the submission or acceptance of a proposal for a contract of insurance
intended to replace the temporary cover 211 The section also provides, in s 38(2), that the insurers
remain liable under the temporary contract until that contract is replaced by a full policy, is
cancelled (plainly not with retroactive effect so that the loss remains covered) or the assured
withdraws any proposal for a full policy. That period may be beyond the period specified by the
insurers for the grant of temporary cover: 212 in that event it is open to the insurers to cancel the
temporary cover under s 60 by giving notice in accordance with s 59. This section works well for
both general and life insurance as far as it goes, but it might be thought appropriate to address the
other matters raised by temporary cover.
206 Sutton, chapter 4.
207 The most difficult case is Re Coleman’s Depositories Ltd and Life and Health Assurance Association [1907] 2
KB 798.
208 Taylor v Allon [1966] 1 QB 304.
209 [1974] 1 NSWLR 228. See also Marene Knitting Mills Pty Ltd v Greater Pacific General Insurance Ltd (1976)
11 ALR 167.
210 ALRC 20, paras 200-214.
211 It is arguable that this provision would impliedly overrule Taylor v Allon [1966] 1 QB 304.
212 Treasury Review II, 2004, para 11.7, rejected the suggestion that temporary cover should lapse on the date
specified by the insurers.
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