Georgia Property & Casualty Practice Exam

What type of contract is indicated when Randy cannot negotiate the terms of his homeowners policy?

1. Conditional contract

2. Aleatory contract

3. Contract of adhesion

4. Unilateral contract

The correct answer is: Contract of adhesion

The correct answer is a contract of adhesion. This type of contract is characterized by its take-it-or-leave-it nature, meaning that one party, typically the insurer, dictates the terms of the agreement. The other party, in this case, Randy, has little to no ability to negotiate the terms and must accept the policy as it is presented. This scenario fits perfectly within the definition of a contract of adhesion because Randy does not have the opportunity to modify any of the clauses or stipulations laid out in the homeowners policy. Such contracts are common in insurance industries where standard forms are used, and they are designed for efficiency, which limits the negotiating power of the individual policyholder. Conditional contracts and unilateral contracts involve elements of conditions or obligations that may not be applicable here. An aleatory contract involves an unequal exchange of value, such as paying a premium in exchange for coverage that may or may not be used; however, this does not directly address the lack of negotiating ability. The key aspect here is the absence of negotiation, which clearly defines this situation as a contract of adhesion.