Unenforceable Contract

Updated: 09 June 2023

What Does Unenforceable Contract Mean?

An unenforceable contract, in the context of insurance, is an insurance contract that cannot be enforced by law because it violates a statute, goes against public policy, or plays a role in a prohibited activity. Because it is not legally binding, the policyholder cannot legally force the insurance company to pay out benefits, but nor is the latter legally entitled to premium payments.

Insuranceopedia Explains Unenforceable Contract

For example, an insurance policy that offers coverage for damages a policyholder might incur during an illegal activity would not be enforceable as it is violates the law.

For a contract to be enforceable, certain legal protocols must be followed. For instance, a contract requires valid signatures. If the interested party does not sign it, then it is not enforceable. In addition, contracts often expire after a certain amount of time. Thus, a policyholder who tries to sue the insurance company for benefits after the policy has expired is not entitled to any payments. Lastly, handshake deals are also not enforceable contracts.

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