What Is Adhesion in Insurance: Everything You Need

Adhesion in insurance refers to a type of contract where the insured party has little to no bargaining power and must accept the terms offered by the insurer. This is because insurance companies need to be able to standardize their contracts to manage risk effectively. However, adhesion contracts can also be unfair to policyholders, as they may not be able to negotiate for terms that are in their best interests.

So in this article, we will discuss what adhesion is in insurance, why it is common, and the implications for policyholders. We will also provide tips on protecting yourself from unfair adhesion contracts.

What Exactly Is a Contract for Adhesion Insurance?

Insurance contracts are common examples of traditional adhesion contracts. Almost every insurance policy agreement is written entirely by the insurance company. These contracts are lengthy, and the insured party, especially an individual, has little to no ability to change any of the terms.

When purchasing insurance, the insured party will have the option of setting limits and other coverage terms, such as deductibles. However, when it comes to policy issuance, the insurance company has the upper hand. Almost all of the terms of a standard insurance policy are boilerplate, with no variation among policyholders.

Contracts for adhesion insurance are used for efficiency. From the insurance industry’s perspective, it would be prohibitively expensive and inefficient to sit down and negotiate specific policy terms with each new insurance applicant.

The Evolution of Adhesion Contracts

Adhesion contracts entered the legal system of the United States only after Edwin W. Patterson’s article on life insurance contracts was published in the Harvard Law Review in 1919. Following that, most courts accepted the concept of contract adhesion, thanks in large part to a 1962 California Supreme Court case that supported adhesion analysis.

The legality and enforceability of adhesion contracts have evolved over time. Case law and interpretation may differ from state to state, but adhesion contracts are generally accepted as an efficient way to handle standardised transactions.

When used properly, adhesion contracts save businesses and customers time and money on contract advice from attorneys. Some aspects of adhesion contracts, however, are problematic.

Electronic adhesion contracts signed online, for example, have been challenged in court in some cases because contract details were difficult to access and review. As a result, electronic adhesion contracts must provide the same accessibility as contracts received and read offline.

Adhesion Contract Characteristics

Most adhesion contracts have certain characteristics in common. These factors usually make it clear when a party is entering into an adhesion contract. Understanding these common elements may assist you in better understanding adhesion contracts and advocating for yourself where appropriate. A typical adhesion contract is:

A standard contract, also known as “boilerplate” – A wide range of consumers use nearly identical language. Adhesion contracts are commonly used in automobile lease agreements, property leases, and consumer product sales.

When two parties have unequal bargaining power, the weaker party has very little, if any, ability to negotiate terms. Because of the volume of business involved, the party with superior power can afford to take a “take it or leave it” approach.

An adhesion contract is typically very one-sided because the more powerful party writes the language. For example, the contract will frequently include specific dispute resolution procedures that favour the more powerful party. Resolutions may specify the applicable state law or require the weaker party to consent to arbitration and waive the right to sue.

Adhesion Contract Enforceability

To be considered an adhesion contract, a contract must be presented as a “take it or leave it” proposition. This means that one party cannot bargain with the party offering the contract.

Adhesion contracts are scrutinised, which usually takes one of two forms:

#1. Reasonable Expectations

Traditionally, courts have used the doctrine of reasonable expectations to determine whether an adhesion contract is enforceable. Specific parts of an adhesion contract or the entire contract may be deemed unenforceable under this doctrine if the contract terms exceed or do not match what the weaker party would have reasonably expected.

The prominence of its terms determines the reasonableness of a contract, the purpose of the terms, and the circumstances surrounding contract acceptance.

#2. Unconscionability

In contract law, the doctrine of unconscionability has also been used to challenge certain adhesion contracts. It is a fact-specific doctrine based on equitable principles, specifically the concept of bargaining in good faith. Unconscionability shifts the focus away from what the customer might reasonably expect and towards the supplier’s motive.

Unconscionability in adhesion contracts usually happens when one party does not have a real choice because the contract terms are unfairly one-sided and include terms that no one would or should agree to.

Simply put, if a contract is manifestly unfair to the signing party, it can be declared unenforceable in court.

Unconscionability is easier to argue if the supplier profits significantly from the agreement, especially if the amount of profit is related to the weaker party’s lack of bargaining power.

Some legal experts have criticised this approach because it has implications for contract freedom. That is the legal concept that people can freely determine the terms of a contract without interference from the government.

Where Can You Find Adhesion Contracts?

They are typically encountered when booking airline tickets, insurance policies, mortgage loans, health care, or the purchase of a car.

Do Adhesion Contracts Benefit Consumers?

Yes, generally because it standardises contracts and makes transactions quicker and easier to complete. It’s possible that if consumers had to read every contract for every purchase they make or hire a lawyer to review them on their behalf, far fewer transactions would take place. Regardless, it is critical that you understand the terms of any adhesion contract that is provided to you.

What Happens If I Refuse to Sign an Adhesion Contract?

While you cannot change an adhesion contract, if you do not agree with what it states, you can refuse it and go elsewhere to make your purchase.

Is Car Insurance a Binding Contract?

Car insurance policies are unquestionably binding contracts. The insurance company draughts the policy terms, nearly all of which are non-negotiable. This is an example of a “take it or leave it” situation.

In some cases, a more powerful consumer or business customer may be able to request and receive changes to the terms. These are, however, unusual circumstances. The insurance company has complete control because the driver requires coverage and has no choice but to accept the company’s policy terms.

Are Adhesion Contracts Legally Binding?

The Uniform Commercial Code (UCC), adopted with minor variations in all states, provides that courts may enforce adhesion contracts. Due to the unequal nature of adhesion contracts, the UCC requires that they be carefully scrutinised for fairness.

Courts, for example, frequently apply the “reasonable expectations doctrine” to balance out some of the one-sided nature of adhesion contracts. The doctrine allows a court to interpret the language of an insurance policy to provide certain protections that an insured would reasonably expect. Even if the interpretation differs from the actual policy language, the doctrine may apply.

Unconscionable contracts are specifically mentioned in the UCC. Using this doctrine, a court can declare an adhesion contract or a portion of it unconstitutional if the court finds that the contract was “unconscionable at the time it was made.” Courts may consider whether the terms are so unfair or burdensome to the weaker party that they appear to have been abusive when drafted.

Are Insurance Policies Binding Agreements?

Adhesion contracts are typically used when there are a large number of customers who will be treated the same in a transaction. This category includes insurance policies. To provide similar coverage to a wide range of customers, insurance companies must use largely identical language and terms of agreement.

Can I Change My Mind After Signing an Adhesion Contract?

Yes, but your options for customization are likely limited. Depending on the type of contract you signed, add-on provisions and riders that modify the terms of your signed contract may be available.

What Is the Primary Distinguishing Feature of an Adhesion Contract?

There are a few characteristics that all adhesion contracts share. The most notable feature is the parties’ unequal balance of negotiating power. Adhesion contracts are typically signed between a company and a customer.

How Can I Protect Myself in an Adhesion Contract?

You have the right to have your agreement reviewed by a lawyer at any time. This makes little sense for a consumer product purchase such as a mobile. It may, however, make sense in the case of a property or automobile lease. If an attorney cannot negotiate changes, you may be able to understand what to look for or be aware of in the agreement.


Adherence, or standardised, contracts require that one party to a transaction, such as a consumer who wishes to purchase a product or service, agree to all terms and conditions prepared by the other party to the transaction, such as the product or service’s supplier.

They are common in a wide range of consumer transactions. Nonetheless, before signing the adhesion contract, make sure to carefully read it.

What Is Adhesion in Insurance: References

Originally posted 2023-10-23 12:14:37.