Florida law has long recognized that insurance contracts are contracts of adhesion. They are drafted by the powerful insurance company and presented to consumers—who lack equal bargaining power—as “take it or leave it.” There is no real choice in the market, because almost all insurance policies are essentially the same, especially on key exclusions such as “longterm wear and tear,” “preexisting conditions,” and “inadequate maintenance.” Consumers with a mortgage are forced to buy insurance, and the only real choice they have is choosing the size of their deductible (larger deductible means smaller premium).

There are three elements of the formation of a contract: offer, acceptance, and consideration. Consideration means that each part must be giving something of value. The concept of an “illusory promise” is related; a promise is “illusory” if the promisor really promises nothing. The classic—very simple—explanation that I remember from “Contracts” class in law school is a person selling his car saying: “If you pay me $10,000 today, I will accept that as the price and sell you my car, and I will deliver the car tomorrow, unless I decide not to.” The would-be seller in that fact pattern has offered nothing. The promise is illusory. The would-be seller has offered no consideration. There is, therefore, no contract formation. That overly simplistic illustration would probably never happen in the real world. But the trick for lawyers is understanding the concept and deciding if the “illusory promise”/lack of consideration argument applies to the complex fact patterns we encounter in the real world.

In the context of an insurance contract, a lawyer might make the following sophisticated argument:

The insurance contract—which the insurer admits was formed and the language of which the insurer wants to enforce—provides that damages that predated the formation of the contract or were caused by “longterm wear and tear” are excluded from coverage. Ditto damages that were caused by “inadequate, faulty, or defective maintenance” or “improper installation” or “age or obsolescence.” Every insurance contract excludes these damages from coverage. But I’ve never seen a policy with a schedule that identifies what the insurer considers to be longterm wear and tear at the time of the formation of the contract (except for the policies that include a “roof depreciation schedule,” discussed below). Such a thing could easily be done.

Think about a rental contract—both for vehicles and apartments. The renter is expected to do a “walk through” and the parties identify the preexisting damages, such as dents that are already in the vehicle or a cracked tile in an apartment. That is common practice even for a simple short term rental of a car. Insurance companies insuring real property—with tens of thousands of dollars or even millions of dollars at stake—use written contracts that exclude “wear and tear” but do not place the insured on notice—until after a claim is filed, at which time the insurer will engage in post-loss underwriting—as to what the insurance company considers to be wear and tear. At the risk of sounding like one of my layperson clients, the insurance company was happy to accept the premium until a claim is made.

Take the common example of a windstorm roof claim. When a claim is made, the insurance company will often find that the roof is too old and that all damages at issue are wear and tear, and thus excluded. While it is difficult to prove, the real-world reality in many cases is that there was no set of facts under which the insurance company was going to find coverage for that roof. That roof was never going to be covered, but the policyholder was not told that on day one. It was an illusory promise. Perhaps the roof is a shingle roof that is 20 years old on the date of loss and, indeed, it looks like it is worn out. Why did the insurance company insure it and accept the payment of premiums in the first place then?

Some policies—a very small minority—are now including a “roof depreciation schedule” that does spell out to the policyholder the insurance company’s view on the age of the roof. These schedules expressly show the percentage of depreciation that will be applied based on the age of the roof. A roof that is 19 years old might be depreciated 90%. But the vast majority of insurance policies simply provide—vaguely—that the insurance company does not have to pay for damages that are caused by “longterm wear and tear.” In the case of a 20-year-old shingle roof, the insurer is essentially saying, “We will pay if your roof gets damaged, unless we decide not to,” while accepting premiums with the predetermined notion that no benefits are ever going to be paid for that roof that is considered by the insurance company to be too old and worn out on day one of the policy’s term.

If I were writing the above analysis on a law school contracts exam, I would get a good grade for recognizing that the “longterm wear and tear” exclusion in typical insurance contracts might implicate the concepts of illusory promises and lack of consideration.

So why can’t an insured in a dispute with her insurance company win by arguing the adhesion contract at issue should be declared to be void because it contains “illusory promises” or there was a lack of consideration? The answer is they can use this argument to help them win, but not in an automatic “the policy is void” way. Florida courts recognize that because insurance contracts are adhesion contracts, ambiguities in the language concerning whether there is coverage are supposed to be construed in favor of the insured. Courts have said that this principle applies because insurance contracts are contracts of adhesion. But a Florida court will not find the entire contract—or even exclusionary provisions—unenforceable.

Several cases illustrate the concepts of adhesion contracts, illusory promises, and the “consideration” element. The Third District Court of Appeal gave us a new opinion addressing this issue just a few weeks ago. In Open MRI Guys of Palm Beach, LLC v. Progressive Am. Ins. Co., 3D23-2008, 2024 WL 4280802, at *1 (Fla. 3d DCA Sept. 25, 2024), the Open MRI Guys of Palm Beach, LLC (a/a/o Elizabeth Galli) appealed from a non-final order granting Appellee Progressive American Insurance Company’s Motion to Transfer Venue. The trial court ordered Open MRI to transfer the underlying PIP case to Palm Beach County based on a venue selection clause in Progressive’s Policy. The appellate court affirmed.

The facts of the case were these:

In May 2021, Elizabeth Galli was involved in an automobile accident. Galli was covered under a Progressive Auto Policy. In June 2021, Galli received medical treatment from and assigned her insurance benefits to Open MRI. Open MRI submitted a medical bill to Progressive for $3,700, and Progressive paid $1,947.70.

In September 2022, Open MRI filed the underlying Complaint in Miami-Dade County seeking a declaratory judgment as to whether Progressive used the correct Medicare reimbursement formula when calculating its payment. In response, Progressive filed a motion to transfer venue to Palm Beach County based on a venue selection clause in the Policy that requires any action against Progressive to be brought in the county where the insured lived at the time of the accident. Specifically, the venue clause provides as follows:

Unless we agree otherwise, any legal action against us must be brought in a court of competent jurisdiction for the county and state where the person seeking coverage from this policy lived at the time of the accident.

Open MRI filed a memorandum in opposition against the transfer of venue. Following a hearing, the trial court determined that Progressive had not sufficiently demonstrated that Galli lived in Palm Beach County at the time of the accident. Progressive submitted additional evidence of Galli’s residency and filed a renewed motion to transfer venue. Following a second hearing, the court determined that the venue clause was enforceable, and it entered a detailed order granting Progressive’s motion to transfer venue to Palm Beach County.

Open MRI appealed.

Open MRI argued that the venue selection clause was unenforceable because the Policy was an adhesion contract, and the PIP Statute does not authorize a venue selection clause. In so doing, Open MRI primarily relied on two county court cases: Hallandale Beach Orthopedics, Inc. v. United Automobile Insurance Co., 28 Fla. L. Weekly Supp. 353a (Fla. Broward Cnty. Ct. June 15, 2020) and S. Vrioja. Both cases, said the Third District, depended on two seemingly distinct premises: (1) venue selection clauses are unenforceable because insurance policies are adhesion contracts, and (2) nothing in the PIP Statute authorizes a venue selection clause. The Third District disagreed that these are grounds for not enforcing an otherwise valid venue selection clause.

The Third District addressed the issue of “adhesion contracts”:

Both Hallandale Beach and S. Vrioja conclude that a venue selection clause is unenforceable if the insurance policy is an adhesion contract. This is incorrect. Both cases rely on Bombardier Capital Inc. v. Progressive Marketing Group, Inc., 801 So. 2d 131 (Fla. 4th DCA 2001). In Bombardier, appellee argued that a forum selection clause was not enforceable “where the forum selection clause is the product of overwhelming bargaining power on the part of one party ….” Id. at 134.

Importantly, the Bombardier court explained that the concern is not with unequal bargaining power but whether enforcement would be unreasonable or unjust. Id. at 135 (“[I]n using the term ‘unequal bargaining power’ the supreme court intended it to be subsumed within the court’s express holding, i.e., that forum selection clauses should be enforced in the absence of a showing that enforcement would be ‘unreasonable or unjust.’ … Our attention has not been called to any Florida case which the court has inquired into whether the parties were ‘equals’ before enforcing a forum selection clause.”).

Though both Hallandale Beach and S. Viroja cite Bombardier, said the Third District, they are mistaken that Bombardier stands for the proposition that unequal bargaining power is alone sufficient to invalidate a venue selection clause. The trial court, therefore, correctly determined that an adhesion contract does not automatically render a venue selection clause invalid:

Plaintiff seems to argue that the contract is a contract of adhesion and, therefore, the clause is automatically rendered invalid or unenforceable. A contract of adhesion is “a standardized contract, which, imposed and drafted by the party of superior bargaining strength [insurer], relegates to the subscribing party [insured] only the opportunity to adhere to the contract or reject it.” Seaboard Fin. Co. v. Mutual Bankers Corp., 223 So. 2d 778, 782 (Fla. 2d DCA 1969). Finding that a contract is one of adhesion does not render the contract void, but instead only means that any ambiguities would be resolved or construed against the drafter. There are no ambiguities in the mandatory forum selection clause at issue here.

Older cases explain the same principle. Here is an explanation from 53 years ago:

Adhesive clauses, exacted by the overreaching of a contracting party who is in an unfairly superior bargaining position, are always subject to the defense of unconscionableness. Public policy invalidates such clauses, whether in a Bisso context or otherwise. Thus, if evidence were to be developed in this case showing the waiver of subrogation clauses involved here to have been exacted by such overreaching, then it would be irrelevant whether or not Bisso applies here. Similarly, if the evidence were to show that in the present conditions of the industry no disparate relationship exists as to the respective bargaining positions of contracting parties in these matters, then the waiver of subrogation clauses would constitute a valid defense, regardless of whether or not a Bisso type transaction was involved. In this latter situation, the evidence would cause Bisso to no longer be the law, even if it otherwise would have invalidated the clause, and if it was not a Bisso transaction, no change in the law would be necessary— there would simply be no reason to apply the invalidating public policy consideration.

Fluor W., Inc. v. G & H Offshore Towing Co., 447 F.2d 35, 39 (5th Cir. 1971).

Discussing the fact that insurance policies are adhesion contracts, the Third District said this 29 years ago:

This contract also bears the hallmark of a contract of adhesion. Pasteur was in a strong bargaining position and Mrs. Salazar was only in a position to “take-it-or-leave-it.” Harvard Indus., Inc. v. Aetna Casualty & Sur. Co., 273 N.J.Super. 467, 642 A.2d 438, 441 (Law Div.1993). “Such insurance policies are known in law as ‘contracts of adhesion,’ meaning ‘a standardized contract, which, imposed and drafted by the party of superior bargaining strength [insurer], relegates to the subscribing party [insured] only the opportunity to adhere to the contract or reject it.’ ” Seaboard Fin. Co. v. Mutual Bankers Corp., 223 So.2d 778, 782 (Fla. 2d DCA 1969) (emphasis in original) (citations omitted). No Florida court has specifically found that a health maintenance organization contract is a contract of adhesion; however, HMO contracts are sufficiently analogous to health insurance contracts to make that finding. “Although we realize that HMOs are not (traditionally defined) insurance companies, we believe that the same contract construction rules apply.” United States Fidelity & Guar. Co. v. Group Health Plan of Southeast Michigan, 131 Mich.App. 268, 345 N.W.2d 683, 685 n. 1 (1983) (determining that “[a]mbiguities in an insurance contract are liberally construed in the insured’s favor”); see also *545 Jones v. Crown Life Ins. Co., 86 Cal.App.3d 630, 150 Cal.Rptr. 375 (1978) (group health insurance plan was a contract of adhesion because there was no parity of bargaining strength); Madden v. Kaiser Found. Hosps., 17 Cal.3d 699, 131 Cal.Rptr. 882, 552 P.2d 1178 (1976) (establishing three-part test for determining when health insurance contract is a contract of adhesion).

Pasteur Health Plan, Inc. v. Salazar, 658 So. 2d 543, 544–46 (Fla. 3d DCA 1995) (emphasis added). Florida courts have long held:

… that all ambiguities in insurance contracts, as contracts of adhesion, should be construed in the light most favorable to the insured. Firemans Fund Ins. Co. of San Francisco, Cal. v. Boyd, 45 So.2d 499, 501 (Fla.1950) (“[a] contract of insurance prepared and phrased by the insurer is to be construed liberally in favor of the insured and strictly against the insurer, where the meaning of the language used is doubtful, uncertain or ambiguous.”), Mitchel v. Cigna Property & Casualty Ins. Co., 625 So.2d 862, 864 (Fla. 3d DCA 1993) (“insurance policies in general, and exclusions in particular, are interpreted strictly against the carrier”). See also Stuyvesant Ins. Co. v. Butler, 314 So.2d 567 (Fla.1975). Thus, any ambiguities and omissions should be construed in favor of Mrs. Salazar. If Pasteur had intended to exclude injuries that occurred as the result of an ATC accident, they had every opportunity to say so explicitly. They have no cause now to complain because of their own oversight.

Id. (emphasis added). As the federal Eleventh Circuit Court of Appeals affirmed 14 years ago:

“The phrase ‘illusory promise’ means ‘words in promissory form that promise nothing.’ An illusory promise is not a promise at all and cannot act as consideration; therefore no contract is formed.” Magruder Quarry & Co. v. Briscoe, 83 S.W.3d 647, 650 (Mo.Ct.App.2002) (quoting Corbin on Contracts § 5.28). However, it is well-settled that “an implied obligation to use good faith is enough to avoid finding a contract null and void due to an illusory promise.” Id. at 650-51. For example, Magruder Quarry held that a quarry lease was not void as illusory, even though the lessees had the discretion not to mine any rock at all, because the lessees were under an implied covenant of good faith and fair dealing to use reasonable efforts to mine rock. Id. at 650-52. Similarly, in the instant case [the lender] was bound by the implied covenant of good faith and fair dealing to use reasonable efforts to finance used homes for [the plaintiff], as the covenant is implied in all contracts in Missouri. Id. at 651. Therefore, the discretion granted by [the financing agreement] does not render the agreement illusory.

Pearson’s Pharmacy, Inc. v. Express Scripts, Inc., 3:06-CV-73-WKW, 2009 WL 3623395, at *12 (M.D. Ala. Oct. 29, 2009), aff’d, 378 Fed. Appx. 934 (11th Cir. 2010).

As a federal district court judge in the Middle District of Florida wrote:

Upon consideration of the bid documents, Plaintiff is correct that any promises made by the Defendants were illusory and unenforceable. When fully considered, Defendants actually promised only to do what they wanted, when they wanted, if they wanted. Such a promise imposes no obligation and is illusory. See Office Pavilion S. Fla., Inc. v. ASAL Products, Inc., 849 So.2d 367, 370 (Fla.Dist.Ct.App.2003); Allington Towers N., Inc. v. Rubin,400 So.2d 86, 87–88 (Fla.Dist.Ct.App.1981); Johnson Enters. of Jacksonville, 162 F.3d at 1311; see also Restatement (Second) of Contracts § 77 cmt. Further, an illusory promise cannot constitute consideration. See Johnson Enters. of Jacksonville, 162 F.3d at 1311. Because Defendant’s “promise(s)” in this case promised nothing, any contract intended to be formed is void of consideration and is not enforceable.

Petroleum Traders Corp. v. Hillsborough Cnty., 8:06-CV-2289-T-TBM, 2008 WL 4570318, at *5 (M.D. Fla. Oct. 14, 2008) (emphasis added).

WHAT IS THE LESSON?

Although it is well settled in Florida that insurance policies are contracts of adhesion, courts use this principle only to hold that ambiguities are to be construed against the drafter—the insurance company. Courts will not declare an entire insurance contract—or even one if its exclusions, such “pre-existing damages”—void as against public policy or unconscionable. After all, it is reasonable—hardly unconscionable—that a catastrophic insurance policy is not agreeing to pay for damages that already exist by reason of longterm wear and tear, lack of maintenance, or improper construction. The problem is that insurers do not identify—or make the insured aware that the insurer is identifying—large portions of the property (e.g., the roof) they already consider excluded on day one of the policy’s term.

An imaginative lawyer can use the concepts of “illusory promise” and “lack of consideration” to the advantage of his client in a mediation. I recently obtained a very favorable settlement—the client was very pleased—in a difficult case using this argument. The case was difficult because the insurance company had paid my client some money presuit, and my client could not prove that he had spent the money he had already received, or that any further repairs were necessary. While my expert was ready to testify that more repairs were needed—using a very complex argument—my own client essentially conceded otherwise. Certain damages to my client’s property had been denied by the insurance company. It was a “partial denial” case, not a perfect price-and-scope case.

Although if the issue were to be brought to the judge, the judge would not have ruled that the entire contract or the defenses the insurance company was asserting were void, my argument about illusory promises persuaded the mediator, opposing lawyer, and carrier’s corporate representative to offer a substantial sum of additional money that my client could not refuse in light of the unpredictability of trials. If I do say so myself, I believe I achieved this tremendous result for my client purely because of combining my negotiation skills with a sophisticated and nuanced discussion of the law. Essentially, my client was rewarded for my performance.

Do you feel mistreated by your insurance company? Call 305-502-5062 to speak to an experienced Florida insurance lawyer today.

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