Binder (temporary cover note)
A brief, provisional commitment, oral or written, that puts a risk on cover before the final policy is issued.
Article L. 112-2 of the French Insurance Code says it in one sentence: the proposal binds neither the insured nor the insurer, and only the policy or the cover note records their mutual commitment. A cover note, or binder in US usage, is therefore a provisional commitment by which the insurer or its delegated underwriter confirms that a risk is on cover from a given date, pending a policy whose full drafting can take days or weeks. That is the case for complex risks, where several underwriters have to sign and clauses are still being finalized. The document carries the terms already agreed, limit, premium, deductible, major exclusions, and binds the parties to the conditions that will appear in the policy. It is a contract in its own right, even when it runs to a single page or is confirmed orally under the pressure of a deal. The mechanism is common wherever underwriting moves fast, in marine or in M&A, when the insured has to show cover to close a ship financing or sign a deal before the lawyers have finished the wording. In the London market the word binder first means something else, a binding authority granted to a coverholder, and mixing the two up is costly in a negotiation.
Example: an M&A deal must close within the week, but the warranty and indemnity insurance policy is not yet drafted in full detail. The insurer issues a binder confirming cover on the negotiated terms, pending the final policy.
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