What is Adhesion Insurance?
Adhesion insurance is an agreement between two parties drafted by the group with superior bargaining power. In insurance, adhesion contracts are prepared solely by the insurer. Adhesion contracts give one party power over the other. Insurance policies are classic adhesion contracts where the insured agrees to insurer’s terms or gets no coverage. Consumers can void adhesion contracts if provisions are unconscionable.
Where are Adhesion Contracts Used?
Adhesion contracts are commonly used in banking, insurance, leases, deeds, mortgages, car purchases, and rentals. The money/property owner defines terms. Insurers protect themselves with restrictions on lawsuits, so it is essential to read contracts carefully before signing.
Key Characteristics of Adhesion Contracts in Insurance
- Heavily favor one party, usually the insurer
- Presented on a "take it or leave it" basis
- Used when one party has more knowledge or power
- Insured can’t negotiate better terms
In the insurance world, a contract of adhesion is where one party has significantly more power than the other when creating the contract. Consumers must read carefully, as rules typically favor the insurer. Courts construe ambiguities against the insurer in most cases. The power imbalance leaves policyholders disadvantaged regarding rights.