An adhesion contract, often referred to as a contract of adhesion, is an agreement between two parties where one party has a significant power advantage in setting the terms of the agreement. Think of a consumer and a cell phone provider. In these instances, the consumer has little — if any — real negotiating power.

Although it may be difficult to effect any real changes to the terms of adhesion contracts, it may be important to recognize the characteristics of these contracts because the average person enters into them regularly. There are certain steps that the “little guy” may be able to take to provide some protection in these situations.

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 if any 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, when it comes to issuing the policy, the insurance company is in the driver’s seat. 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 sit down and negotiate specific terms of a policy with every new insurance applicant.

Characteristics of an adhesion contract

There are common characteristics that most adhesion contracts share. These factors typically make it easy to identify when a party is entering into a contract of adhesion. Understanding these common elements may help you better understand adhesion contracts and advocate for yourself where possible. An adhesion contract is usually:

  • A form contract or “boilerplate” – Nearly identical language is used among a broad group of consumers. Automobile lease agreements, property leases and consumer product sales are good examples of where adhesion contracts are usually employed.
  • Between two parties with unequal bargaining power – The weaker party in these situations has very little, if any, ability to negotiate terms. The party with superior power can afford to use a ”take it or leave it” approach because of the volume of business involved.
  • One-sided – Because the more powerful party writes the language, an adhesion contract is typically very one-sided. For example, the contract will often include specific ways for disputes to be resolved that favor the more powerful party. Resolutions may call for the state law that applies or an agreement that the weaker party must consent to arbitration and can not file a lawsuit.

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), which has been adopted in all states with only minor variance, does provide 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 of the aspects of the one-sided nature of adhesion contracts. 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 is different from the actual policy language.

The UCC specifically calls attention to unconscionable contracts. Applying this doctrine, courts can invalidate an adhesion contract or a portion of it if the court determines that contract was “unconscionable at the time it was made.” Courts may look to see if the terms are so unfair or burdensome to the weaker party that it appears to have been abusive when it was formed.

Can you change the terms of an adhesion contract?

Though it may be difficult, there are certain limited ways that you might be able to modify adhesion contracts. With automobile insurance policies, certain riders and add-on provisions have been developed to allow some valuable modifications. Examples of these include:

  • Accident forgiveness – This additional coverage may allow for you to have one covered accident without any change to 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 such things as breakdowns, towing, flat tires or battery repair or replacement.

As with auto insurance, other types of insurance policies commonly offer riders and add-on provisions that expand a policyholder’s coverage beyond the reach of the adhesion contract. These usually come at an additional cost. Common forms of homeowners insurance endorsements include:

  • Water backup coverage – Also known as sewage backup coverage, is an endorsement that 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 companies offer riders that modify or extend coverage as well. Some of the common add-ons for life insurance policies include:

  • 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 healthcare.
  • 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.

Keep in mind that while many companies offer similar add-on options, coverage can vary widely from one insurer to the next. Careful analyzing coverage options and endorsements from a carrier may help you choose the policy with the coverage flexibility you need.

Frequently asked questions

    • Adhesion contracts are typically used in situations where there is a very high volume of customers that will be treated the same in a transaction. Insurance policies fall into this category. Insurance companies must use largely identical language and terms of agreement to apply similar coverage to a broad range of customers.
    • Yes, though the modifications you can make are likely limited. Depending on what kind of contract you’ve signed, add-on provisions and riders may be available that modify the terms of your signed contract.
    • There are a few characteristics that all contracts of adhesion have. The most significant feature is the unequal balance of negotiating power between the parties. Adhesion contracts are usually signed between a business and a consumer.
    • You always have the right to have a lawyer review your agreement. This probably makes little sense for a consumer product purchase, like a cellphone. 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.