The adhesion insurance definition is an example of a type of adhesion contract. This type of contract is drawn up between two parties, and all terms and conditions are provided by the party with the greater bargaining power or capabilities. The other party involved only has the right to refuse any terms listed in the contract and has no ability to change or draft any terms of an adhesion contract.

An insurance contract is an adhesion contract.

The biggest pro in this type of contract is that the predictability of situations is determined by the insurer.

How do Courts Rule in Lawsuits Involving Adhesion Insurance?

Courts tend to rule in favor of the policyholder in many cases involving adhesion contracts. This usually happens because there is a misinterpretation of the terms and there are no negotiations between the parties before a lawsuit.

Can a Policyholder Ever Alter an Insurance Contract?

Some policies can be changed or amended via a rider. This is a provision under the terms of a contract that allows a policyholder to make specified changes, usually at an additional charge.

An example of this is when the policyholder of an automobile insurance policy can add a provision at a later date, such as adding additional risks to be covered or adding more names to the policy.

Where are They Legally Acknowledged?

Adhesion insurance contracts are acknowledged in both common law and civil courts, but the effects they have in those jurisdictions may vary.

It can also be noted that the lack of equal distribution of bargaining power can also set adhesion contracts apart from other types of traditional agreements.

Where are the Origins of Adhesion Contracts?

The time when the concept and term "adhesion contract" was used in American legal jargon was around 1919. Since that time, the term has been used definitively by courts and legal professionals.

However, instances of adhesion contracts can be seen in 18th and 19th century France in causa civilis cases where the teachings of the Roman Catholic church taught that in certain cases a contract must gratuitously benefit one of the parties involved.

Types of adhesion contracts can also be seen in Hindu law throughout the caste system.

The theory of equivalents provided for the enforceability of adhesion contracts and encouraged them on an international scale. This characteristic made adhesion contracts a natural fit for the insurance industry, which had been the first to realize "judicial risk."

Rates and premiums are then determined by several factors:

  • Uniform provisions.
  • Actuarial tabulations.
  • Consistent court interpretations.
  • Laws of large numbers.

These factors help insurance companies determine the legal liabilities and actual predicted risks of the policies they propose.

The Doctrine of Adhesion is the legal theory allows for interpretation of ambiguities by the courts and prevents the complications that standardization can cause.

Perhaps the first example of this is Bekken vs. Equitable Life Assurance Society of US. In this case, 25 days after the application for a policy was taken, but the company had neither accepted nor denied coverage.

The court established that the insured can only "adhere" to the terms of a life insurance policy that the insurer has established during this instance of an adhesion contract.

What are the Effects of Adhesion Theory in California?

As far back as 1910, adhesion contracts are cited as being difficult to decipher and full of provisions that the policyholders may or not be aware of. Courts must hold to the spirit of the contract while trying to understand that such contracts may be confusing to the insured.

The main goal of the courts was decided that they should determine ambiguity in these contracts. It was also determined that ambiguity, in most instances, applied to areas that were not covered, rather than to specific terms. Some have concluded that the purpose of the term adhesion contract is to define a set of rules by which types of insurance contracts are created.

In order to provide more precise rules, it may be perceived that a more specific system of contract law and a more definitive interpretation of specific rulings are needed and that tort "rules" which have been used previously only muddy the legal waters when it comes to cementing the terms of adhesion contracts.

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