In accordance with my promise in my latest blog post, When Words Collide: Doctrines of Political Interpretation and the Ten Commandments. Understand your insurance better – RTFP! I will continue to write new installments on the rest of Bill Wilson's ten bids for policy interpretation. This discussion is about another important insurance doctrine that everyone working in the insurance industry should be aware of: adhesion contracts.
In his book, When Words Collide: Resolving Insurance Coverage and Claims Disputes author Bill Wilson describes the "10 Commandments for the Interpretation of Politics." These ten teachings are important for everyone ̵
To repeat what the 10 teachings are, they are described as:
- 1. Insurance is NOT a commodity
- 2. RTFP! (Read the ENTIRE policy)
- Do not accept denial of claims as gospel
- The purpose of the insurance is to insure
- All parties have an obligation to achieve good faith
- Most insurances are adhesion agreements, so insurance contracts are interpreted broadly, exceptions narrow and ambiguities in favor of the insured
- The burden of proof to determine the coverage lies with both parties in the insurance contract
- Exceptions must be clear and conspicuous
- broader than the obligation to make amends
- Folklore is not a fact 1
Today I wanted to take the time to write a bit about # 6, which is the idea that an insurance policy is an "adhesion contract".
If you asked most policyholders what an "adhesion contract" was, they would probably look at you funny. Black & # 39 ;s Law Dictionary defines an agreement on adhesion as "standardized form of agreement offered to consumers of goods and services essentially [a]" take it or leave it "without giving [the] consumer [a] realistic possibility to bargain and in such circumstances that [the] the consumer can not get [the] desired product or services except by acquiring in the form agreement. ” 2
The concept of an agreement on adhesion is important because depending on the strength of the terms of the contract in favor of the stronger party, a court may avoid enforcement of the agreement.In legal terms, this would be avoidance of contracts based on awareness.While an adhesion agreement has been defined as the use of a unilateral form without bargaining power , does not invalidate the use of a standard form and the existence of relatively uneven negotiating positions only another valid contract. 3
According to Black definition of an agreement on adhesion, it is quite simple to understand how this can apply to an insurance. The insurance company provides standardized agreements (insurances) to consumers (the policyholders) and thereby the policyholder has a limited opportunity to negotiate and substantially change the terms of the agreement. Other examples of contracts that can often be considered as adhesion contracts are leases and mortgages.
In his book When Words Collide and an article on InsuranceJournal.com, Bill Wilson explains how the concept of adhesion contract fits entirely within the framework of insurance and insurance disputes. He says that the idea of the agreement on adhesion is important for policyholders when disputes arise about the interpretation of ambiguous or exaggerated language within the policy. Specifically, in his article on InsuranceJournal.com, Wilson states:
In court proceedings, if the court can be convinced that an insurance provision is ambiguous and the policyholder's interpretation of coverage is as valid as the insurer's interpretation of coverage, the court will find for the policyholder most of the time.
One of the reasons for this is that most insurances are adhesion agreements. The language has been prepared by the insurer and the insured has no way of clarifying the language other than broad coverage changes via statements that have also been prepared by the insurer. 4
While the term "adhesion contract" sounds rather intimidating and in fact means that an insurance company has a higher bargaining power, courts often recognize this idea and the difference between the parties. The recognition of such an idea has in turn helped to develop one of the most common principles for interpreting insurance contracts: ambiguous terms in an insurance policy are interpreted in favor of the policyholder.
1 Bill Wilson, When Words Collide: Resolving Insurance Coverage and Claims Disputes 75 (2018).
2 Black & # 39; s Law Dictionary, 6th Edition (1990).
3 § 6: 4. Adhesion contract; impeccable clauses, 8 Fla. Prac., Constr. Law Manual § 6: 4 (2020-2021 ed.).
4 Bill Wilson, Resolving Claims Disputes: Step 2 … Other Policy Interpretation Doctrines Insurance Journal, https: // www .insurancejournal.com / tidskrifter / mag-features / 2019/08/05 / 534727.htm