An insurance policy is a contract, formed by ordinary contract-law principles plus the Insurance Act's overlay.
- Offer: typically the application completed by the client. In some lines, the insurer's quote can be the offer instead.
- Acceptance: communicated when the insurer or its authorized representative agrees to bind the risk. A broker exercising binding authority under a formal written agreement with an insurer can effect acceptance immediately.
- Consideration: the premium (or the promise of premium) from the insured and the promise of indemnity from the insurer.
- Capacity and legal object: both parties must have capacity, and the purpose must be lawful (a fire policy on the insured's own premises for arson is void for illegality and public-policy reasons).
A binder (or interim contract / cover note) provides immediate coverage from the moment the broker agrees to bind, pending issuance of the formal policy. The terms of the binder are normally those of the insurer's standard wording for that risk. A binder typically lasts a limited period (often 60 to 90 days, insurer-specific) and converts to the issued policy automatically when policy documents are produced.
Common mistake: assuming a binder must be in writing to be valid. Oral binders are generally effective in Ontario for property and automobile risks, but a prudent broker confirms them in writing the same day to document the contract and protect against E&O exposure.
⚠️ Trap: A broker who binds beyond the authority granted by the insurer still binds the insured on the client's side and the insurer on the consumer-facing side (the doctrine of apparent authority), but exposes the broker personally to indemnify the insurer for any loss outside the granted authority. Stay within written binding limits.
Recall: What are the four elements of contract formation as applied to an insurance policy? What does a binder do that a quote does not?