Alabama Property and Casualty Practice Exam

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What defines a unilateral contract?

Contains the legally enforceable promise of only one party
Contains the legally enforceable promise of only two parties
Binding contract
Insurance best option

The correct answer is: Contains the legally enforceable promise of only one party

A unilateral contract is characterized by the presence of a legally enforceable promise made by only one party. In this type of contract, one party (the offeror) makes a promise that is contingent upon the performance of an act by the other party, who is not legally bound to perform that act. The moment the other party performs the requested act, the offeror is obligated to fulfill the promise. In the context of insurance, a policy is often considered a unilateral contract because the insurer promises to pay for covered losses in exchange for the premiums paid by the policyholder; however, the policyholder is not obligated to claim or pursue those benefits until a loss occurs. This one-sided obligation is what distinguishes unilateral contracts from bilateral contracts, where both parties have mutual obligations.