Unconscionability in law and in force-placed insurance: Part 2

December 5, 2014

Insurance LawTaking a leaf from the Preliminary Draft No. 1 Comments to the ALI’s draft on unconscionability, I would propose this succinct language to express the doctrine for use by and in Courts:

Presenting the terms of a contract in standard-form, nonnegotiable format in and of itself renders that term prima facie unconscionable.

The doctrine of unconscionability does not exist for the protection of predatory contracting parties.  Unconscionability is not a device for the protection of retailers and other sellers, at all.  Unconscionability is instead only for the protection of consumers.

The unconscionability doctrine is invoked sparingly.  The simple standard applied by most Courts is hard enough to meet in litigation:  “Unconscionability” must be shown by an absence of meaningful choice on the part of one of the parties together with contract terms that are unreasonably favorable to the other party.

The standard by which the Courts measure whether invocation of the doctrine is successful or unsuccessful is met by showing the contract language to the Court and putting on evidence to prove the absence of meaningful choice on the part of one of the parties.

For example, it has been held in the context of lender force-placed insurance practices, that the unconscionability prong of “procedural unconscionability,” i.e., proof of the absence of meaningful choice in the residential mortgage context is satisfied “because of the disparity in bargaining power between Plaintiffs and Defendant.”  Abels v. JPMorgan Chase Bank, N.A., 678 F. Supp. 2d 1273, 1279 (S.D. Fla. 2009).  When the contract term authorizing lender force-placed insurance was put before the Court in that case, the Court held that the test for “substantive unconscionability” was also met because “Plaintiffs have alleged sufficient facts showing that, had they known the full extent of Defendant’s permissible conduct under the contract, no reasonable person would have agreed to it.”    Abels v. JPMorgan Chase Bank, N.A., 678 F. Supp. 2d 1273, 1279-80 (S.D. Fla. 2009)(Plaintiffs claimed that the Defendant unconscionably profited from the forced placement of insurance with one of its own subsidiaries).

The Court in the Abels v. JPMorgan Chase Bank case stated the standard of unconscionability which most Courts follow in litigation where the doctrine is raised.  In other words, the Abels decision represents the majority view stated by the Courts on the doctrine of unconscionability.

To reiterate what seems to me to be the central purpose for allowing a weaker contracting party to raise the doctrine of unconscionability as a defense to the enforcement of a contract term by a stronger contracting party, presenting the terms of a contract in standard-form, nonnegotiable format in and of itself renders that term prima facie unconscionable.  The presumption, in other words, is rebuttable, as it is presently applied by the Courts once the presumption appears.  The decided cases reveal that the party seeking to enforce the allegedly unconscionable term bears the burden of persuasion if not the burden of proof, that the term should be enforced.