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.

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Although it is difficult to effect any real changes to the terms of adhesion contracts, it is important to recognize the characteristics of these contracts because the average person enters into them regularly. There are certain steps that the “little guy” can 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 to adhesion contracts. These factors make it relatively easy to identify when a party is entering into a contract of adhesion. Understanding these common elements can help you protect yourself, at least to some extent. An adhesion contract is:

  • 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 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 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 can be difficult, there are certain limited ways that you can 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 allows for you to have one covered accident without any change to your insurance rate.
  • New car replacement coverage – This add-on allows 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 that prevent you from driving or battery repair or replacement.

Frequently asked questions

Are insurance policies adhesion contracts?

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.

What is the primary distinguishing characteristic of a contract of adhesion?

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.

How can I protect myself in a contract of adhesion?

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.