What is adhesion insurance?
Although you may have yet to hear of an adhesion contract, you have likely participated in one or more in the past. Adhesion contracts are written agreements between two parties where one has significantly more power than the other. One common example might be a credit card agreement, where the company that issues the card has almost all of the power to negotiate terms, while the cardholder cannot make changes or negotiate the contract in any way.
What is an adhesion insurance contract?
Insurance contracts are typically good examples of classic adhesion contracts. Virtually every insurance policy agreement is prepared solely by the insurance company. These agreements are lengthy, and the insured party, particularly an individual, has little ability to change any of the terms.
When purchasing insurance, the insured party will have options to set limits and certain other terms of coverage, such as deductibles. However, the insurance company is in the driver’s seat when issuing the policy. Almost all of the terms of a typical insurance policy are boilerplate, with no variance between policyholders.
Adhesion insurance contracts are used for efficiency. At least from the insurance industry’s perspective, it would be very costly and unmanageable to negotiate the specific terms of a policy with every new insurance applicant.
Characteristics of an adhesion contract
Several characteristics are almost universal when looking at what is common to adhesion in insurance. Knowing something about these characteristics may help you understand when you are participating in one so that you can protect your interests as much as possible. Consider the following qualities:
- Identical language throughout: A contract of adhesion insurance will likely feature the same language wherever it is used. In other words, the policy contract you sign is likely the same as the one thousands of others have signed. Although used commonly by insurers, you are also likely to find these contacts in cases such as automobile lease agreements, rental or mortgage contracts and with consumer products like cell phones.
- Unequal bargaining power: In an adhesion contract, one party — normally the business or corporate party — has a great deal of power, while the other party — the consumer in most cases — has little ability to add, subtract or change any elements of the contract.
- Benefits are one-sided: These contracts will generally favor the corporate party at the expense of the weaker party. Yes, the consumer is likely to receive something, such as a cell phone or insurance policy, as part of the contract. Still, the more powerful partner — in these cases, the cell phone company or insurer — dictates the rules and stipulations that the contract enforces. An example might be a contract with specific language regarding dispute regulation. Generally, this language will favor the rights of the more powerful corporate party and make it more likely that the dispute will be decided in its favor.
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Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed. Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.
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Powered by Coverage.com (NPN: 19966249)
Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed. Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.
Is car insurance an adhesion contract?
Car insurance policies are certainly adhesion contracts. The insurance company drafts the policy terms, nearly all of which will not be subject to negotiation. This is a classic “take it or leave it” situation.
There may be certain cases where a more powerful consumer or business customer can ask for and get certain modifications to the terms. However, these situations are rare. The insurance company has ultimate control because the driver needs coverage and has little choice other than to accept the policy terms dictated by the company.
Are adhesion contracts enforceable?
The Uniform Commercial Code (UCC), adopted in all states with only minor variance, provides that courts may enforce adhesion contracts. However, due to the unequal nature of adhesion contracts, the UCC provides that these contracts should be carefully scrutinized for fairness.
For example, courts often apply the “reasonable expectations doctrine” to even out some aspects of adhesion contracts’ one-sided nature. The doctrine allows a court to interpret the language of an insurance policy, for example, to provide certain protections that an insured would reasonably have expected. The doctrine could apply even where the interpretation differs from the actual policy language.
The UCC specifically addresses unconscionable contracts. Applying this doctrine, courts can invalidate an adhesion contract or a portion if they determine the contract was “unconscionable at the time it was made.” Courts may also consider whether the terms are so unfair or burdensome to the weaker party that they appear to have been abusive when the contract was formed.
Do consumers benefit from adhesion contracts?
Adhesion contracts could benefit consumers in some ways. They are efficient and generally spell out the consumer’s rights and responsibilities in black and white. They set consistent terms and conditions for all those who sign on to the contract, allowing for a level playing field where all signers receive the same benefits.
In general, however, the corporate party accrues more benefits in an adhesion contract. Adhesion contracts often do not allow consumers to bargain or negotiate. For example, they generally can’t advocate for better payment arrangements than those stipulated in the contract.
In some cases, the more powerful party may hide important elements buried in the document’s body in small print or spread information among several documents, leaving those without legal experience unlikely to understand what they are signing.
Since adhesion contracts are generally presented on a “take it or leave it” basis, failure to sign one can prevent a consumer from accessing goods or services.
Can you change the terms of an adhesion contract?
It’s not easy to change the terms of an adhesion contract. In some cases, however, you may be able to modify one to suit your purposes better. In the insurance industry, this is often done through endorsements or riders. These elements are added to a new or existing policy to add functionality. It allows policyholders to customize their policies in certain well-defined ways, which the insurer determines. A few common car insurance endorsements are as follows:
- Accident forgiveness: This additional coverage may allow you to have one covered accident without changing your insurance rate.
- New car replacement coverage: This add-on may allow you to replace your newer car with the latest model if your car is totaled in an accident.
- Roadside assistance coverage: Roadside assistance may be added to a car insurance policy to cover breakdowns, towing, flat tires, battery repair, or replacement.
Auto insurance isn’t the only type of coverage that allows for endorsements. If you are a homeowner, you may have considered endorsements such as these when you purchased your coverage:
- Water backup coverage: Also known as sewage backup coverage, this endorsement provides coverage for sewer line backups not typically covered by a standard homeowners insurance policy.
- Identity theft coverage: This add-on may financially protect policyholders from the costs associated with recovering from an identity theft incident.
Life insurance, too, may come with riders. Like all endorsements, these give consumers slightly more control over the particulars of their policy. However, not every insurer offers endorsements, and each carrier will likely have a slightly different assortment of endorsement options. It can be worth reviewing the endorsement options available from several companies when shopping for coverage to find those that offer the best fit for your circumstances.
- Long-term care rider: This rider is designed to allow policyholders to use life insurance benefits early to cover qualifying costs associated with long-term health care.
- Child and spouse riders: This rider may provide a small payout upon the death of an insured person’s child or spouse if it occurs during the policy term.
Frequently asked questions
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Adhesion contracts generally feature identical language with benefits accruing primarily to the more powerful party, and that does describe most insurance contracts. The policy you sign is likely to be exactly the same as the one signed by the insurance company’s other policyholders, with identical terms of agreement. You probably have limited ability to make any changes to the stipulations of that contract, which will generally favor the insurer over the policyholder. This places insurance policies squarely in the category of adhesion contracts.
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You may be able to make some modifications, but your ability to do so will likely be limited. You may, for example, be able to add an endorsement to an insurance policy that you already own or add a discount if your circumstances change to make you eligible after the fact. More significant changes, like changing the scope of your coverage, may be possible but could require the writing of a new policy.
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Adhesion contracts are generally made between a more powerful party that earns the maximum benefit from the contract and a weaker party that may benefit from the contract but will not have much, if any, say in the contract’s terms. Generally, an adhesion contract will be between a business or corporate entity and a consumer.
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You always have the right to have a lawyer review your agreement. This probably makes little sense for a consumer product purchase, like a cell phone. However, it may make sense with a property or automobile lease. An attorney may be able to negotiate changes, and if not, you may be able to understand what to watch for or be aware of in the agreement.
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