Arizona Adjuster Practice Exam

What type of contract is defined by a homeowners policy that cannot be negotiated and is presented on a take-it-or-leave-it basis?

1. Contract of adhesion

2. Exclusive contract

3. Mutual contract

4. Conditional contract

The correct answer is: Contract of adhesion

A homeowners policy that is presented on a take-it-or-leave-it basis is classified as a contract of adhesion. This type of contract is characterized by the fact that it is drafted by one party (typically the insurer) and the other party (the homeowner) has little to no ability to negotiate the terms. This creates an imbalance of power in favor of the party that drafted the contract, hence the term "adhesion." Because the terms are often non-negotiable, the adhering party must either accept the contract as is or reject it entirely. This is common in insurance policies, where standard forms are used to ensure consistency and manage risk. Furthermore, in the event of a dispute, courts generally interpret contracts of adhesion in favor of the party that did not draft the agreement, which underscores the protective nature of this classification. Other types of contracts listed involve different characteristics. Exclusive contracts might imply a certain level of negotiation or agreement about exclusivity, mutual contracts involve an agreement between parties with obligations on both sides, and conditional contracts are based on the fulfillment of certain conditions. In contrast, the key defining feature of a contract of adhesion is its non-negotiable nature and the power dynamic it creates between the parties.