What is a Contract of Adhesion?

If you have a dispute with your insurance company, you may have heard your lawyer or public adjuster mention that your insurance policy is a “contract of adhesion.” Why is this important?

A contract of adhesion is a contract that was prepared solely by one party, and the other party did not have any chance to negotiate the terms. In the insurance context, all insurance policies are contracts of adhesion because the insurance company writes the policy and you – the policyholder – never have any chance to negotiate.

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When your insurance company has all the bargaining power over your insurance policy terms and you get no say, the scale is tipped heavily in their favor. This “take it or leave it” type of contract is called a contract of adhesion. Photo credit Wikipedia.

When there is a misunderstanding between the parties who signed a contract of adhesion (here, you and your insurance company) and the dispute ends up in court, most courts* will rule in favor of the party who had no chance to negotiate the terms of the contract. This tendency is also called “contra proferentem,” or in layman’s terms, “interpretation against the draftsman” – the draftsman being your insurance company. It can also be called “contra-insurer.”

In other words, when you sue your insurance company over a misinterpretation of your insurance policy, the court is more likely to side with what you interpreted the contract to mean – as long the court thinks your interpretation is reasonable.

* California courts follow this principle. If you’d like to know if the courts in your state follow this principle, ask your attorney or public adjuster, or send me an email at info@defeverlaw.com.

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