Boilerplate Symposium VIII: Daniel Schwarcz on a Tort-Based Approach to Standard Form Contracts

This is the eighth in a series of posts reviewing Margaret Jane Radin’s Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.

Daniel Schwarcz is an Associate Professor of Law at the University of Minnesota School of Law.

One of the most provocative arguments in Margaret JaneRadin’s bold and compelling book, Boilerplate, is that legal evaluation ofcontracts of adhesion should employ tort principles rather than contractprinciples.   As Radin acknowledges, thisis an idea that I have exploredin the specific context of insurance policies.  In this guest post, I hope to discuss some ofthe similarities and differences between Radin’s proposed approach and my own.

In some important ways, Radin and I make similar argumentsfor moving to a tort-based approach to standard form contracts.   Forinstance, we both argue that the lack of meaningful assent to boilerplate meansthat standard contract law doctrines are often an awkward fit for evaluatingboilerplate.  Thus, people who “consent”to contracts of adhesion do not generally have any expectations at all regardingthe specific terms to which they adhere. Many rules designed to police unreasonable terms in standard form contracts,such as the reasonable expectations doctrine, consequently become analytically confusing.  Similarly, the familiar (andinsurance-super-charged) doctrine that ambiguities are interpreted against thedrafter is an odd fit for contracts of adhesion, given that (i) the rule isprincipally meant to encourage clearer drafting, and (ii) less ambiguousdrafting does not actually promote better understanding among most consumers, whodo not read or understand boilerplate in the first place.  

From this starting point, though, Radin and I develop quite differentideas for how tort law could help police standard form contracts.  Radin ultimately endorses a new tort of“intentional deprivation of legal rights” that would focus on the extent towhich boilerplate deprived individuals of “market-inalienable” rights. Radin saysthat she prefers this approach to one employing products liability law becausethe nature of the consumer harm caused by boilerplate is not physical.   But an intentional torts approach alsoallows Radin to directly target her primary complaint with boilerplate: that itoften undermines various democratically-granted political and individual rights.  Because these “market inalienable” rights arerelatively specific and limited – encompassing, for instance, the right to ajury trial or legal redress for an injury – they can easily be protected bydeclaring their deprivation through boilerplate to constitute an intentionaltort.  By contrast, Radin tellinglyadmits that her approach would have little to say about insurance policies, forinstance, presumably because they tend not to contain arbitration provisions,forum selection clauses, or other terms that implicate political or individualrights.

By contrast, I embrace a products liability approach toboilerplate because I am much less concerned than Radin about “the deprivationof legal rights,” and much more concerned about the potential inefficiencies ofboilerplate.  To be sure, Radin fairlylays out the standard law-and-economics analysis of boilerplate, which emphasizesthat it is really just a product feature that is subject to market forces.  Whether these forces are sufficient to deterexploitive terms depends on market-specific factors, such as the informationknown to consumers, the heuristics and biases consumers face, and the abilityof firms to segment sophisticated and unsophisticated consumers.  As such, the strength of efficiency-baseddefenses of boilerplate “will vary from market to market.”

Although Radin lays out all of these points eloquently, sheuses them sparingly to inform her proposed tort-based approach to boilerplate. Bycontrast, I embrace a products liability approach to boilerplate because productsliability law is focused on the very same issues that determine the efficiencyof boilerplate: that consumers are ignorant of product safety problems, systematicallymisperceive the likelihood of these problems, and can be substantially injuredby them.  A products liability frame forevaluating boilerplate thus focuses courts (and regulators) on the rightquestions, in my view: whether particular terms are likely to (i) be subject toinadequate market pressures and (ii) cause substantial consumer harm.  From this perspective, insurance policies areactually prime candidates for judicial (and regulatory) scrutiny: insurance policy terms are activelyhidden from consumers, consumers generally must purchase coverage as apre-requisite for some other transaction, consumers as a group are likely to beover-optimistic about their risk of suffering a loss, and the terms ofinsurance policies are particularly important because they are the only productthat a consumer actually purchases.

On the other hand, the deprivation of legal rights caused byboilerplate is much less troubling for me than it is for Radin.  As Radin acknowledges, legislatures areperfectly free to limit the capacity of parties to contract around particularrights, as they do, for instance, in the case of the implied warranty ofhabitability. When legislatures do allow for the contractual modification ofrights, the democratic process seems to me to be perfectly respected.  This, for instance, seems to me to be a fairdescription of the right to a jury trial and the Federal Arbitration Act. Ofcourse, it may be that courts misinterpret certain laws to allow for greatercontractual modification of rights than the legislature intended. But this typeof risk is less about boilerplate generally than specific contract terms, and thereforeseems to be of limited use in crafting a generalizable tort-based approach tostandard form contracts.

[Posted, on Daniel Schwarcz’s behalf, by JT]