PSI Ohio Insurance Practice Exam

What occurs when an insurance policy is deemed a contract of adhesion?

1. The insured has more negotiating power.

2. The insurer drafts the policy language.

3. The insured may amend contracts easily.

4. Policies must be in writing.

The correct answer is: The insurer drafts the policy language.

When an insurance policy is classified as a contract of adhesion, it signifies that the insurer is the one who drafts the policy language. In such contracts, the terms and conditions are created solely by the insurance company, leaving the insured party with little to no room for negotiation or alteration. This scenario often arises from the fact that insurers have greater resources and expertise in formulating the contract, while the insured typically relies on the insurer's terms without the ability to negotiate for more favorable conditions. As a result, the insured must accept the policy as it is presented, which is a characteristic feature of contracts of adhesion. The nature of these contracts is such that any ambiguity in the policy will typically be interpreted in favor of the insured, as they are not the party that crafted the terms. This principle also underscores the importance of clear and unequivocal language in insurance contracts to avoid misinterpretation.