A family in Maryland recently learned the hard way a lesson about contracts that businesses can never afford to forget. If you sign a contract with terms you don’t understand, that’s no defense if the outcome isn’t what you expected.
In this family’s case, it was their auto insurance policy (though we don’t often refer to an insurance policy as a contract, make no mistake: it is one). Specifically, the family purchased $300,000 in Underinsured Motorist Coverage (UIM). UIM is relatively inexpensive, and it is very important because it protects you if you are injured by a person with little or no insurance coverage. You should have it at as high a level as your insurance advisor suggests and your budget permits.
When this family’s car was involved in an accident they were surprised that their $300,000 UIM policy paid them just $100,000. As it turned out, the at-fault driver’s policy paid a total of $200,000. The terms of the UIM coverage said that the insurer would only pay the difference between that $200K and the $300K coverage cap. That was not the policyholder’s understanding of how the coverage worked. In 2014, their case went before the Maryland Court of Appeals, which found that the policy’s language was plain and unambiguous on this point. Though the insurer sold the family $300,000 in coverage, it was within its contractual right to pay only $100,000 in this case.
This is an extremely valuable lesson for every business (and not just because you should review your auto insurance policy). Commercial contracts are exponentially more difficult to understand. Your signature binds you to the terms, whether you fully understand them or not. My best advice is to always ask an attorney at McMillan Metro to review any commercial contract, large or small, before you sign on the dotted line. We can help you be certain that the terms serve your best business interests and help you avoid unintended consequences.
If you have already negotiated or plan to enter into a contractual agreement, contact me at firstname.lastname@example.org or 301-251-1180, ext. 314. One of my colleagues or I will be glad to write, review or advise on your commercial contracts.