4 Things You Need To Know About A Contract Of Adhesion And Insurance
“Contract of adhesion” is one of those terms you don’t hear very often until it becomes really important.
In the insurance world, a contract of adhesion – also known as an adhesion contract – is a contract where one party has significantly more power than the other when creating the contract.
In order to create a contract of adhesion for home insurance, for example, the insurer provides the homeowner with standard terms and conditions which are the same ones offered to other customers. Those terms and conditions are not negotiable.
In other words, you can either accept the terms given to you by your insurance company, or reject those terms and take your business elsewhere. You can’t look over your insurance policy and then counter the offer with more favorable terms.
The most important thing you need to know about adhesion contracts is that you need to read them very carefully. All of the information and rules have been written by the other party, and they’re obviously creating a contract that’s in their favor. Remember: insurance companies are profit-seeking businesses and not charities.
Contracts of adhesion are particularly common in the insurance world. Few – if any – insurance companies allow you to negotiate your contract or change the terms. You either take it or leave it. Adhesion contracts are also known as standard form contracts, leonine contracts, or “take it or leave it” contracts.
What’s An Example Of An Adhesion Contract?
Before you buy a house, you’ll first need to borrow money from a bank. When you borrow money from a bank, you need to sign documents that outline your responsibilities and the bank’s responsibilities about letting you borrow their money. This document is a standard form, adhesion contract: you can either accept or reject it.
Where Are Adhesion Contracts Used?
Adhesion contracts can be found in all sorts of different industries. They’re particularly common in any banking or insurance industries, for example, where negotiations aren’t typically an option.
Popular industries with adhesion contracts include:
-Property Leases, Deeds, and Mortgages
-Insurance Policies
-Car Purchases and Car Rentals
In general, adhesion contracts can be found in almost any industry where one party needs to borrow money or property to complete a transaction. That party is defining the terms because it’s their money or property that’s involved.
Are You Bound To A Contract Of Adhesion In The Eyes Of The Law?
American law treats adhesion contracts just like any other contract: when you sign that contract, you’re legally bound to it – whether or not you’ve fully read the provisions.
However, you can dispute contracts of adhesion.
In states like Texas, for example, insurance companies are forbidden from using overly-complex language or ambiguous language when referring to parts of your insurance contract. In situations like this, the policyholder can take the insurer to court, where they’ll most likely win. That’s because Texas law requires insurance companies to write policies in a way that a person of average intelligence could understand.
This law isn’t just in Texas: it’s common in most states. And, it typically applies across all parties. Any ambiguity in the contract or unclear provisions are interpreted in favor of the party who did not prepare the contract.
Aside from that, however, contracts of adhesion are generally binding to all parties involved – just like any other contract with your signature.
Yes, You Can Challenge An Adhesion Contract
Every day, people across America challenge their contracts – both adhesion contracts and other types of contracts. There are a number of different ways to do that.
Some people challenge adhesion contracts because they’re labeled as an “unconscionable contract”. In situations like this, the terms are so clearly biased, unfair, and one-sided in favor of the party that wrote the contract that the courts will refuse to honor the 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 are challenged 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.
Stephanie is a property insurance claim expert with over 20 years of experience working as an insurance adjuster, expert witness, appraiser and umpire. She is passionate about sharing her expertise, knowledge, tips and training to help both property owners and Public Adjusters in their pursuit of effectively managing claims and recovering the claim settlement they deserve after a loss.
