Friday binding and the missing survey

Offer and acceptance. The client's request for cover, or the signed proposal, can be analysed as an offer. The underwriter's email is not a plain acceptance. It is either a counter-offer or an acceptance subject to a condition precedent. The words 'cover does not incept until the survey is completed and noted' are clear: the parties intend no cover to arise until the survey is satisfactory and recorded. On ordinary contractual principles, a condition precedent to formation prevents a binding contract from arising before it is satisfied. The £2,000 payment is consistent with a deposit or premium on account, not proof of immediate cover.

Was there a separate temporary contract? The broker's oral statement could create a separate contract only if the broker had authority to bind the insurer, or if the broker was contracting personally. The agency agreement limits authority to standard risks without outstanding conditions. This risk had an outstanding survey condition, so the broker had no actual authority. A broker's usual authority to arrange cover does not normally extend to overriding an express condition of which he has been told.

Conclusion. The insurer has the stronger argument that no contract of insurance was formed. The broker's assurance does not bind the insurer unless apparent authority or estoppel can be established.

Actual authority. The broker's actual authority is defined by the agency agreement. It expressly excludes risks with outstanding conditions. The underwriter's email put the broker on notice of the condition. The broker's failure to read it does not enlarge his authority. There is no actual authority to bind.

Apparent authority. Apparent authority requires a representation by the principal, the insurer, that the broker has authority. It is not enough that the broker says he can bind. The client may argue that insurers commonly use brokers to bind cover, but that is a general practice, not a specific holding out by this insurer. The insurer did nothing to clothe the broker with authority to override the survey condition. Apparent authority is therefore weak, especially because the broker had the underwriter's written limitation.

Broker liability. The broker told the client 'You're covered' without checking the email. That is likely a breach of the duty to exercise reasonable skill and care, and possibly breach of warranty of authority if he purported to contract for the insurer without authority. The client relied on the statement and suffered an uninsured loss. The broker's professional indemnity insurer should be notified. The client's recovery may be reduced for contributory negligence if the client failed to read documents, but reliance on a broker is usually reasonable in a commercial renewal.

A written cover note issued by the insurer would be strong evidence that a contract had been formed, even if the survey remained outstanding. The note would operate as an offer or acceptance, or as a temporary contract of insurance. The 'subject to survey' wording would then need to be reconciled with the note. The insurer could argue that the note was issued by mistake or outside authority, but a document on the insurer's paper and issued by its underwriter is likely to bind it. The insured's reliance would be reasonable.

If the cover note was issued by the broker, not the insurer, the authority question returns. A broker cannot create cover by writing a note unless the insurer has authorised that step. The label 'cover note' is not conclusive; the substance is whether the insurer communicated a binding acceptance. The insurer would also need to consider whether the survey condition was a condition precedent to liability rather than to formation. If it was only a condition of cover, the insurer might have a right to cancel prospectively, but not to deny a loss that occurred before the condition was breached. The practical lesson is to distinguish formation conditions, conditions precedent to liability, and warranties.