Insurance is a Contract of ADHESION (2)

Introduction

A contract is a legally enforceable agreement. We stated in our earlier write-up the elements that make a contract to be legally enforceable. These we said include agreement (offer and acceptance), capacity (the competence of all parties), mutual assent, consideration, legal purpose, and the form required by law.

Insurance contracts must contain all the necessary elements of a legally enforceable contract, so they are similar to other contracts in many ways. However, insurance contracts have distinctive features and their own body of law. In addition to having the essential elements of all contracts, valid insurance contracts have certain special characteristics. Today we discuss insurance as a contract of adhesion.

Adhesion

Any contract in which one party is put in a take-it-or-leave-it position and must either accept the contract as written by the other party or reject the contract entirely is a contract of adhesion.

There are few instances in few policies where policyholders present their insurance policy wording to insurers. There are also few cases where insurers do tailor-made policies for prospective clients and even with that, the insurers draft the policy terms, conditions and exclusions. The wordings in insurance contracts are mostly drafted by the insurer (or an insurance advisory organization), enabling the insurer to use preprinted forms for many different insureds. Most insurance companies operating in Ghana use the same policy wording for a policy for many insureds.

Because the insurer draft the exact wording of the policy, the insured has little option but to take it or leave it. This means the insured must adhere to the contract prepared by the insurer. Hence, insurance policies are considered to be contracts of adhesion, which means that one party (the insured) must adhere to the contract as written by the other party (the insurer). This characteristic expressively influences the application of insurance policies.

If a disagreement arises between the insurer and the insured about the meaning of certain words or phrases in the policy, the insured and the insurer are not treated the same or equal. The insurer either drafted the policy or used a standard policy form at its own choice; in contrast, the insured did not have anything to do with policy drafting. For that reason, if the policy wording is unclear or ambiguous, a court will generally apply the interpretation that favours the insured.

Another similar term regarding this ambiguity in contracts is the principle of contra proferentem which is sometimes paraphrased as “interpretation against the drafter.” This principle is applied to the interpretation of contractual language. When an insurance policy phrase or term can be interpreted in different forms, a court will generally apply the interpretation that favors the insured, not the drafter (the insurer). If there is precedence, then the court might follow the same.

What this means is that policyholders need to know what is in the insurance contract before they accept the offer. If possible, they need a bit of advice from insurance practitioners before they go ahead with any insurance contract. They need to fully understand policy terms, conditions and exclusions in the insurance policy document very well. Kindly follow and learn more about insurance as a contract!

+233 (0) 549705031                     justice@jusbelriskconsult.com

 

Reference

Navigating the Legal Landscape of Insurance, American Institute for Chartered Property and Casualty Underwriters. Edited by Martin J. Frappolli

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