Written by Andy Gurczak

August 1, 2021

Insurance Adhesion Contract: Understanding Adhesion

What is an Insurance Adhesion Contract?

An adhesion contract is an agreement between two parties. With this in mind, the particularity of an adhesion contract is that the party with superior bargaining power drafts the terms and conditions. Meanwhile, the other parties have little or no ability to negotiate more favorable terms. This dynamic usually develops between business and individuals. As a result, the consumer finds themselves in a “take-it-or-leave it” position. For this reason, courts carefully scrutinize adhesion contracts and will sometimes void certain provisions. However, this is generally on the basis that the provisions are unconscionable or the product of unequal bargaining power.

Furthermore, for a contract of adhesion to exist, the offeror must supply a customer with standard terms and conditions that are identical to those offered to other customers. And those terms and conditions must be non-negotiable. Thus meaning the weaker party in the contract must agree to the contract as it is rather than requesting to add, remove, or change clauses. Moreover, adhesion contracts are also referred to as boilerplate contracts or standard contracts.

Insurance Adhesion Contract

Understanding Insurance Adhesion Contracts

Another quality adhesion contracts is that they are most usually used for transactions where there will be a high volume of customers. Who will all also fall under some standard form of agreement. For example, insurances, leases, vehicle purchases, mortgages, etc. In case of an insurance adhesion contract, the company has the power to draft the contract. Meanwhile, the potential policyholder only has the right of refusal. Furthermore, the insured cannot counter the offer or create a new contract to which the insurer can agree. However, in order to create a contract of adhesion, the insurer must provide the homeowner with standard terms and conditions. In short, they must be the same terms offered to other customers.

With this in mind, it is important to read over an adhesion contract carefully, since other parties write up all the information and rules. Moreover, remember that insurance companies are profit-seeking businesses and not charities. Also, adhesion contracts are usually enforceable in the United States thanks to the Uniform Commercial Code (UCC). In fact, the UCC helps to ensure that commercial transactions are taking place under a similar set of laws across the country.

History of Insurance Adhesion Contracts

First, adhesion contracts originated as a concept in French civil law. However, the United States did not adopt it until 1919 when Harvard Law Review published an influential article on the subject written by Edwin W. Patterson. Subsequently, most American courts adopted the concept.

Furthermore, the legality and enforceability of adhesion contracts has transformed over time. The case law and interpretation may vary from state to state, but it is generally agreed that adhesion contracts are an efficient way to handle standardized transactions. In fact, when done properly, adhesion contracts save companies and customers a great deal of time and money in terms of legal counsel. Nevertheless, the law around adhesion contracts is always evolving. For instance, the digital age has brought up a fair share of challenges. To illustrate, digital adhesion contracts signed online have had problems in court for burying clauses or making it difficult to read certain clauses. For this reason, a digital adhesion contract must now be as close to a paper contract as possible.

Enforceability of insurance Adhesion Contracts

As mentioned before, a contract must be a “take it or leave it” situation for it to be an adhesion contract. Although, adhesion contracts are subject to court scrutiny, and that scrutiny usually comes in one of two forms.

First, doctrine of reasonable expectations

In short, this doctrine is meant to test whether an adhesion contract is enforceable. For example, if the contract terms go beyond what the weaker party would reasonably expect, specific parts of an adhesion contract or the whole contract is unenforceable. However, whether a contract is reasonable in its expectations depends on the prominence of the terms. As well as the purpose of the terms, and the circumstances surrounding acceptance of the contract.

Second, the doctrine of unconscionability

On the other hand, unconscionability is a fact-specific doctrine arising from the same equitable principles, specifically the idea of bargaining in good faith. Moreover, unconscionability in adhesion contracts usually comes up if there is an absence of meaningful choice on the part of one party. For instance, one-sided contract provisions combined with unreasonably oppressive terms that no one would or should accept. In other words, if the contract is extremely unfair to the consumer, it will be likely declared as unenforceable in court.

Furthermore, the doctrine of unconscionability shifts the focus from what the customer might reasonably expect to the motive of the supplier. However, unconscionability is easier to argue if the supplier is making a significant profit from the agreement. This is especially important if the amount of profit is in some way tied to the weaker party’s lack of bargaining power. In fact, some legal experts have pushed back on this approach as it has implications in terms of the freedom of contract. In conclusion, this would be the legal concept that people can freely determine the provisions of a contract without government interference.

Are You Bound To A Contract Of Adhesion In The Eyes Of The Law?

Even if you’re not obligated to sign an adhesion contract, you are in obligation to commit to it once you do sign it. American law treats adhesion contracts just like any other contract. When you sign that contract, you’re legally bound to it even if you have not fully read the provisions.

However, you can dispute contracts of adhesion in certain cases. For example, Texas forbids insurance companies from using overly-complex language or ambiguous language on their insurance contracts and policies. Texas law requires insurance companies to write policies in a way that a person of average intelligence could understand. In cases like this, the policyholder can take the insurer to court and they’ll most likely win.

This law is common in most states, and it typically applies across all parties. The court will interpret any ambiguity or unclear provisions in the contracts in favor of the party who did not prepare the contract. Aside from that, contracts of adhesion are generally binding to all parties involved, just like any other contract with your signature.
Insurance Adhesion Contract Going to Court

Where are Insurance Adhesion Contracts Legally Acknowledged?

Adhesion insurance contracts are usually acknowledged in both common law and civil courts. Although, the effects they have in those jurisdictions may vary. Moreover, the lack of equal distribution of bargaining power can also set adhesion contracts apart from other types of traditional agreements.

How do Courts Rule in Lawsuits Involving Insurance Adhesion Contracts?

As discussed before, courts tend to rule in favor of the policyholder in many cases involving adhesion contracts. This usually happens because there is a misinterpretation of the terms and no negotiations occurred between the parties before a lawsuit.

Can a Policyholder Ever Alter an Insurance Adhesion Contract?

A rider can change or amend certain policies. This is a provision under the terms of a contract that allows a policyholder to make specified changes, usually at an additional charge. However, it is very rare for an insurance company to allow this.

But Yes, You Can Challenge An Insurance Adhesion Contract

People across America challenge their insurance adhesion contracts all the time. There are a number of different ways to do that. Like we said, some people challenge adhesion contracts because they’re labeled as an “unconscionable contract”. In order to prove this, the other party will typically point out specific clauses rather than try to prove the entire contract is unconscionable. Certain clauses face challenges more frequently than others. If the contract of adhesion has a clause requiring arbitration instead of litigation, for example, then that’s often a basis for an unconscionable contract.

free claim review

Best way to beat the insurance company is to hire AllCity Adjusting

At AllCity Adjusting we help residential and commercial clients alike get the claims support they need. Moreover, we have over 50 years of combined experience helping get our clients the max settlement time and time again. If your claim has been low balled or denied entirely we can help increase your maximum settlement. Call us today for a FREE consultation. Experience the AllCity difference.

public adjusting call support

Real Support When You Need It!

Should You Make Your Own Insurance Claim Repairs?

Let’s say you had a small fire in your home. Faulty electrical wiring caused the fire. Of course, someone will have to tear down parts of the wall where the fire started. Then someone will have to hang new sheetrock and paint it. You’re pretty handy around the house. You’re thinking, should you make your own insurance claim repairs? Is there any way to get your insurance claim check faster?

What Are Some Common Business Insurance Claims?

Certainly, almost all businesses, from large corporations to mom-and-pop stores, will probably face some type of accident or incident that will become an insurance claim. Below we will discuss some common business insurance claims that businesses across the country must confront.Is there any way to get your insurance claim check faster?

How Does Home Repair Insurance Work?

How Does Home Repair Insurance Work?

Homeowners’ insurance will cover damage from unexpected and sudden perils, like hurricanes, fires, and hail. However, it excludes insurance coverages if the damage stems from everyday use and wear and tear to appliances, HVAC systems, etc. Therefore, if you feel you need insurance coverage for those items, you need to know the answer to the question: how does home repair insurance work?

How to File a Roofing Insurance Claim

How to File a Roofing Insurance Claim

Your roof is the primary protection for your home from the elements. Of course, the wind is probably the most dangerous element to your roof. However, roofs also get damaged by falling trees, electrical poles and wires, hail, and heavy snow. If a storm or some other unexpected event damages your roof, you will have to know how to file a roofing insurance claim.

How to Get Flood Insurance

How to Get Flood Insurance

Homeowners’ insurance protects homes from damages caused by fire, hurricanes, windstorms, and other natural disasters. However, standard homeowners’ insurance does not cover damages caused by floods. Consequently, homeowners and renters who live in a high-risk zone for flooding need to know how to get flood insurance.

commercial mold cleanup and restoration

commercial mold cleanup and restoration

If you have found mold in your business, you should be concerned. For instance, properly removing mold can be expensive and difficult to do correctly. Mold in your business can be dangerous for your health, and that of your employees, customers and visitors. However, commercial mold cleanup and restoration is necessary if you want to keep operating your business.

Stay Up to Date With The Latest News & Updates

Don't Wait - Get More

Get a free 1 hour consultation on your next call. So call today and challenge the insurance company narrative on your policy claim. We can help you with all your public adjuster claims support. Let us help you get more.

public adjuster service areas background

Join Our Newsletter

Do you want to learn more about public adjusting. In this newsletter we create helpful tips and hints and you will receive notifications when we post new articles.

Follow Us

Follow us on the following social networks.

Call Us Now

All City Adjusting

All City Adjusting