Tennessee Insurance Practice Exam

A contract where one party either accepts or rejects the terms of a contract written by another party is called a contract of?

1. Offer

2. Adhesion

3. Negotiation

4. Consent

The correct answer is: Adhesion

A contract of adhesion is characterized by one party presenting a set of terms and conditions that the other party must accept or reject as a whole, without the opportunity for negotiation. This is common in insurance contracts, where the insurer typically drafts the contract, and the insured does not have the power to modify the terms. The nature of these contracts means that they are often referred to as “take it or leave it” agreements, where the party accepting the contract has limited bargaining power. This type of contract is designed to provide standard terms to streamline transactions and make them efficient, but they can also lead to imbalances in power between the parties involved. In contrast, the other terms do not accurately represent the concept of a one-sided acceptance situation. An offer refers to the initial proposal made by one party but does not encapsulate the idea of a bargain being accepted without negotiation. Negotiation implies a discussion where terms are altered or discussed, which is not the case in a standard adhesion contract. Consent, while an important legal concept, broadly applies to agreeing to terms and does not specifically denote the lack of negotiation that is intrinsic to contracts of adhesion.