Unconscionability in law and in force-placed insurance: Part 1

December 3, 2014

Insurance LawThe doctrine of unconscionability has a familiar place in insurance cases, particularly in cases involving lender force-placed insurance.  The American Law Institute is considering a Restatement of the Law of Consumer Contracts at this time.  One of the doctrines under consideration by the ALI is unconscionability.

As one of the Members Consultative Group concerning the developing Restatement, I weighed in with my comments on the draft provisions in Preliminary Draft No.  1.  The following article is drawn from my comments on the ALI’s draft “unconscionability” provisions in particular.  The draft seemed to me to be unwieldy in the hands of Judges and lawyers in actual cases.  As a consequence, I feared that Judges and lawyers might never use it, defeating the whole purpose of a Restatement of the Law of Consumer Contracts.  My comments proposed a simpler restatement of the doctrine of unconscionability based on my own experience in actual cases involving the doctrine as a defense and as an alleged cause of action.

The doctrine of unconscionability depends on the way in which the Courts permit its use.  At present, the party resisting enforcement of a contract term may be permitted to defend against the enforcement of that term by pleading and proving what the Courts often divide into two parts:  “substantive unconscionability” and “procedural unconscionability.” In basic terms, “substantive unconscionability” exists when the contract terms are so outrageously unfair as to shock the judicial conscience in Florida or in fact anywhere else in the United States since this is a universal test.  “Procedural unconscionability” concerns instead the way in which the contract is reached, requiring assessment of the parties’ relative bargaining power and their ability to know, understand, and appreciate the contract terms — even if they have no recourse when they do appreciate the terms, a circumstance which leads to the field of substantive unconscionability rather than procedural unconscionability.

I would respectfully reduce the doctrine to a much simpler proposition than appears either in the case law or in the American Law Institute’s Restatement of Consumer Contracts Preliminary Draft No.1.

My conception of simplicity in this regard is born of some experience in dealing with the doctrine of unconscionability in litigated cases and in analyzing the treatment of the doctrine in reported cases.  My notion is to fashion a workable doctrine, one useable both by Judges in reaching decisions and by lawyers representing clients.

I would propose a restatement of the doctrine of unconscionability by starting with the point that once a party against which a contract term is sought to be enforced pleads and proves that the contract term is the result of a standard-form, nonnegotiable contract presented to the resisting party by another party to the contract, then as a result a rebuttable presumption arises that the contract term in question is unconscionable and will not be enforced.  This approach is consistent with the rebuttable presumption which arises in the sale-of-goods context featured in Uniform Commercial Code § 2-719(3) which addresses unconscionability in the sale of goods.