What term describes a policy agreement that the insurer must follow strictly and is not open to interpretation?

The correct term that describes a policy agreement that the insurer must follow strictly and is not open to interpretation is a Contract of Adhesion. This type of contract is created when one party, usually the insurer, drafts the terms and conditions in a standard form, and the other party, the insured, accepts it without any ability to negotiate the terms.

The significance of a Contract of Adhesion lies in its non-negotiable nature, meaning the insurer is bound to the specific terms defined within the contract. This principle ensures that the insurer cannot later adjust terms in a way that would disadvantage the insured, fostering a fair expectation of coverage based on the written agreement. Courts often interpret ambiguities in such contracts in favor of the insured to uphold this principle.

When considering other terms, an Insurance Binder is a temporary agreement that provides coverage until the final policy is issued, but it is not necessarily about strict adherence. An Indemnity Agreement typically refers to a commitment where one party compensates another for loss or damage, which does not convey the idea of a no-interpretation policy agreement. An Endorsement modifies or adds to the terms of an existing insurance policy but does not represent the fundamental structure of the original policy agreement itself.