Renewal insurance 1

The conference panel is composed of

three or more members, at least one of whom is a member or past member of the Board of Governors and none of whom may have served on the investigating committee

The following are some of the reasons to establish a code of ethics for an insurance company, agency, brokerage, or adjusting firm.

Assure that well-thought-out standards for putting the customer first are delineated for employees to follow. Provide employees with guidance on activities that are not permitted because they create conflicts of interest. Provide guidelines designed to protect the organization from theft and dishonest acts by employees. Facilitate invoking disciplinary action when employees participate in unethical behavior. Establish a competitive advantage in the marketplace using a strong commitment to professionalism, integrity, and ethics as a selling point.

Ursula Underwriter has taken a job with Mega Insurance. The company has a code of ethics which Ursula studies during new employee orientation. The code of ethics is written with a positive actions approach. This means that the code:

broadly prescribes the types of actions and/or results that Mega Insurance expects from its employees.

. Pablo, an excellent gardener, is Ashley's full-time residence employee. State law does not require her to provide Pablo with workers compensation benefits. Under which of the following circumstances would the medical payments coverage of Ashley's homeowners policy fail to protect Pablo?

d. Pablo is injured in a bar fight while he is out with some drinking buddies.

Wolf purchases a golf cart to use on the course at his country club. In which of the following circumstances does Wolf's homeowners policy exclude liability coverage for the use of this golf cart?

d. Wolf uses the cart to go hunting.

. Frank burns leaves in his back yard, and his neighbor Molly complains that embers are landing on her roof and deck and could start a fire. Frank informs his homeowners insurer of this complaint. The insurer has no duty to respond because

d. no property damage has occurred.

Insurance professionals who pass a series of exams administered by the AICPCU,

agree to abide by a specific code of professional ethics are entitled to use and display the CPCU professional designation.

1. While attending a party at Jonathan's house, Laura is seriously injured because Jonathan's deck collapses. Laura sues Jonathan to recover damages and is ultimately awarded $200,000 in damages plus prejudgment interest. In this case, prejudgment interest reflects

interest accruing between the date of Laura's injury and the date of the judgment.

Which one of the following is not an example of "bodily injury" as defined in homeowners policies?

Betsy is stressed out by the costs of maintaining her older home.

. The fire that started in Wendy's home spread to her neighbor's home at 11 p.m. on July 31 and was not extinguished until 3 a.m. the next morning. The fire started because Wendy had fallen asleep while smoking in bed. Wendy's insurance policy with Insurer A expired at midnight when her replacement policy with Insurer B went into effect. Both policies include liability coverage with a $500,000 limit. Who pays the neighbor's claim?

Insurer A will pay the entire loss.

Harry works for a large corporation. Who will set the ethical tone for the corporation?

The corporation's executives

James is required to furnish a supersedeas bond in connection with a $50,000 liability claim that is being handled by his homeowners insurer. According to the homeowners policy, what, if anything, is the insurer's responsibility with respect to James' bond?

The insurer is required to pay the premium on the bond. The insurer is required to pay the premium on the bond." Although an insurer often voluntarily furnishes the bond, it is not required to do so. However, the insurer is obligated to pay the premium for this bond in any amount up to the policy limit.

Artie Agent, an employee of Primo Insurance Agency, has just placed a large account. Artie is acquainted with the insured because they both play golf at the same country club. The insured offers to take Artie and his wife on a long weekend to a world-renowned golf resort. The insured will pay for everything as his way of saying "thanks" to Artie. Primo Insurance's ethics codes states that employees may accept "normal business amenities." What is the problem with this statement in the ethics code?

The term is not defined so each employee must decide for himself or herself what is appropriate.

There may be any number of goals for a code of ethics. Two common goals are these.

To protect and enhance the organization's (or its members') reputation by detailing expectations for behavior of its members when dealing with others. To protect the organization's assets by setting clear expectations for behaviors that avoid conflicts of interest, questionable conduct, and illegal acts.

The initial step in establishing ethical standards in and drafting a code of ethics for a business is a thorough

examination of its operating standards.

Your company encourages the hiring of minorities, and you have interviewed a candidate who has all the requisite skills for the position. However, the position requires a considerable amount of communication with customers by phone, and she has such a heavy accent that you are concerned that they will have trouble understanding her. What is the ethical way to handle this? If you also feel that she will not fit into your company culture, should that be a reason not to hire her?

An inability to effectively communicate is an acceptable reason not to hire an otherwise qualified job candidate. In this case, you might consider whether it would be possible to place the person in a position where she is not required to deal with the public, with the understanding that, as her language skills improve, she may be moved to a different position. The company culture consideration is a more difficult one. The Equal Employment Opportunity Act makes it illegal to discriminate with respect to five "protected classes" (i.e., age, race, sex, religion, and national origin), and other state and federal laws come into play in making personnel decisions. While it is unethical, and in many cases illegal, to refuse to hire a person merely because he or she is "different," consideration as to how a candidate would perform within the company culture is warranted. For example, hiring a very timid and sensitive person to work on a team with highly aggressive and competitive people is unlikely to work out for the person or the company. When making hiring decisions, it is wise to set a goal of finding at least two, preferably three, qualified candidates to choose between. Then carefully compare the candidates' job skills, education, experience, performance in the interview, and what their references say about them, choosing the candidate who you feel is the best fit for the job and the company. This approach will maximize the probability of selecting a superior performer while mitigating the possibility of using improper criteria.

You have a contingency agreement with your insurer that will pay a 3 percent override if you have more than 15 percent growth, with less than a 55 percent loss ratio. You also have authority to settle automobile physical damage claims up to $20,000. It is December 20, and your loss ratio is right at 54 percent. You have achieved the growth plan. An insured reports a vehicle that was stolen. He also says he is traveling during the holidays and wants to have the check when he gets back. Are you justified in delaying payment until the next year? Your insured is in no hurry for the check, so you are not hurting him. Would it make a difference in your decision if the claim occurred December 29 and it would have taken extra effort on your part to get it processed by December 31?

If normal business practice would delay reporting the claim until the next month, it is acceptable to do so. However, manipulating the process to benefit yourself would be unethical. Most insurers want to book premium and claims in the period in which they occur. By waiting to process the claim, you would circumvent the company's business objective to benefit yourself.

The conference panel holds a formal meeting that the accused member may attend.

If the conference panel unanimously concludes that an ethics violation did indeed occur, the Society Board of Governors determines what punishment to invoke. Punishment may include an admonishment, suspension of membership, or revocation of membership.

Which of the following is a stipulation of the medical payments to others provision?

Medical expenses are covered only if they are necessary.

1. Evelyn's teenaged son Peter drowns while attending a church youth group party hosted by Paul and Mary Rogers. Evelyn brings separate suits against Paul and against Mary, alleging that each of them was negligent in supervising the party. Paul and Mary Rogers are named insureds under a homeowners policy with a $300,000 limit. Ignoring defense costs, what is the maximum amount the insurer will pay under this policy for Evelyn's claim?

$300,000

The following losses all resulted in medical expenses. Which most likely would not be covered under the medical payments coverage of April's homeowners policy?

Although she has repeatedly told the children in her neighborhood not to play on her property, a child playing hide-and-seek falls on the steps to April's porch.

You are an officer in an insurance agency. You know that a larger firm is going to acquire your firm, and the acquirer intends to eliminate some jobs. The agreement is structured so that the other firm will determine who stays and who goes. The parties involved want confidentiality since they are concerned about possible business loss arising from the acquisition. What obligations do you have to your employees? What if you know an employee is about to enter into a major financial commitment (buying a home, new car, Ivy League college for a child)? What situations justify breeching confidentiality?

As an officer of the company, you should honor its contractual commitment to keep the pending transaction confidential. Your duty to employees is to honestly communicate non-confidential facts and considerations that do not violate your duty to your employer. In the case of an employee who is about to make a major financial commitment, you might seek approval from the acquiring firm to discuss the situation on a confidential basis. Depending on the situation and your relationship with the employee, another approach may be to simply suggest that he or she hold off on making the decision for a short while.

Peter President is the CEO of a major corporation. Peter tries very hard to follow his company's code of ethics, and to act ethically when making business decisions. Which of the following would not be an example of ethical behavior? a. Peter will only make promises he can keep. b. Peter will not admit to making mistakes because it might make his company "look bad." c. Peter discloses any bad news in a timely and appropriate manner. d. Peter discloses unavoidable conflicts of interest.

B

This is a brief summary of information appearing in greater detail in the Code of Professional Ethics, which is among the CPCU 1 study materials.

Canon 1—CPCUs should endeavor at all times to place the public interest above their own. Rule R1.1—A CPCU has a duty to understand and abide by all Rules of Conduct which are prescribed in the Code of Professional Ethics of the American Institute. Rule R1.2—A CPCU shall not advocate, sanction, participate in, cause to be accomplished, otherwise carry out through another, or condone any act which the CPCU is prohibited from performing by the Rules of this Code. Canon 2—CPCUs should seek continually to maintain and improve their professional knowledge, skills, and competence. Rule R2.1—A CPCU shall keep informed on those technical matters that are essential to the maintenance of the CPCU's professional competence in insurance, risk management, or related fields. Canon 3—CPCUs should obey all laws and regulations, and should avoid any conduct or activity which would cause unjust harm to others. Rule R3.1—In the conduct of business or professional activities, a CPCU shall not engage in any act or omission of a dishonest, deceitful, or fraudulent nature. Rule R3.2—A CPCU shall not allow the pursuit of financial gain or other personal benefit to interfere with the exercise of sound professional judgment and skills. Rule R3.3—A CPCU shall not violate any law or regulation relating to professional activities or commit any felony. Canon 4—CPCUs should be diligent in the performance of their occupational duties and should continually strive to improve the functioning of the insurance mechanism. Rule R4.1—A CPCU shall competently and consistently discharge his or her occupational duties. Rule R4.2—A CPCU shall support efforts to effect such improvements in claims settlement, contract design, investment, marketing, pricing, reinsurance, safety engineering, underwriting, and other insurance operations as will both inure to the benefit of the public and improve the overall efficiency with which the insurance mechanism functions. Canon 5—CPCUs should assist in maintaining and raising professional standards in the insurance business. Rule R5.1—A CPCU shall support personnel policies and practices which will attract qualified individuals to the insurance business, provide them with ample and equal opportunities for advancement, and encourage them to aspire to the highest levels of professional competence and achievement. Rule R5.2—A CPCU shall encourage and assist qualified individuals who wish to pursue CPCU or other studies which will enhance their professional competence. Rule R5.3—A CPCU shall support the development, improvement, and enforcement of such laws, regulations, and codes as will foster competence and ethical conduct on the part of all insurance practitioners and inure to the benefit of the public. Rule R5.4—A CPCU shall not withhold information or assistance officially requested by appropriate regulatory authorities who are investigating or prosecuting any alleged violation of the laws or regulations governing the qualifications or conduct of insurance practitioners. Canon 6—CPCUs should strive to establish and maintain dignified and honorable relationships with those whom they serve, with fellow insurance practitioners, and with members of other professions. Rule R6.1—A CPCU shall keep informed on the legal limitations imposed upon the scope of his or her professional activities. Rule R6.2—A CPCU shall not disclose to another person any confidential information entrusted to, or obtained by, the CPCU in the course of the CPCU's business or professional activities, unless a disclosure of such information is required by law or is made to a person who necessarily must have the information in order to discharge legitimate occupational or professional duties. Rule R6.3—In rendering or proposing to render professional services for others, a CPCU shall not knowingly misrepresent or conceal any limitations on the CPCU's ability to provide the quantity or quality of professional services required by the circumstances. Canon 7—CPCUs should assist in improving the public understanding of insurance and risk management. Rule R7.1—A CPCU shall support efforts to provide members of the public with objective information concerning their risk management and insurance needs and the products, services, and techniques which are available to meet their needs. Rule R7.2—A CPCU shall not misrepresent the benefits, costs, or limitations of any risk management technique or any product or service of an insurer. Canon 8—CPCUs should honor the integrity of the CPCU designation and respect the limitations placed on its use. Rule R8.1—A CPCU shall use the CPCU designation and the CPCU key only in accordance with the relevant Guidelines promulgated by the American Institute. Rule R8.2—A CPCU shall not attribute to the mere possession of the designation depth or scope of knowledge, skills, and professional capabilities greater than those demonstrated by successful completion of the CPCU program. Rule R8.3—A CPCU shall not make unfair comparisons between a person who holds the CPCU designation and one who does not. Rule R8.4—A CPCU shall not write, speak, or act in such a way as to lead another to reasonably believe the CPCU is officially representing the American Institute, unless the CPCU has been duly authorized to do so by the American Institute. Canon 9—CPCUs should assist in maintaining the integrity of the Code of Professional Ethics. Rule R9.1—A CPCU shall not initiate or support the CPCU candidacy of any individual known by the CPCU to engage in business practices which violate the ethical standards prescribed by this Code. Rule R9.2—A CPCU possessing unprivileged information concerning an alleged violation of this Code shall, upon request, reveal such information to the tribunal or other authority empowered by the American Institute to investigate or act upon the alleged violation. Rule R9.3—A CPCU shall report promptly to the American Institute any information concerning the use of the CPCU designation by an unauthorized person.

One of your clients calls late Friday afternoon before a 3-day holiday weekend. They need a certificate of insurance to present at a bid opening. The coverage is with a surplus lines insurer, and you do not have authority to issue a certificate. You try calling the insurer but get voice mail saying "closed until Tuesday." Do you exceed your authority and issue the certificate? What if the certificate requires coverage that is not on the policy, but you believe the insurer will agree to the extension of coverage? Is exceeding your authority justified in any instances?

Comment: If you do not have authority to issue a certificate, you should not do so. Try to develop another alternative that will satisfy your insured's customer. For example, you could write a letter explaining how the insurance program you've placed for the client will meet the insured's customer's needs and that an insurance certificate will be available the next week. It may be a good idea to also provide a copy of the policy and highlight the coverages that are requested in the contract's specifications.

All of the following are ethical issues that have been raised in recent corporate scandals, such as that involving Tyco, EXCEPT: Falsifying business records. b. Using corporate funds for personal gain. c. Distorting financial results to increase the price of the company's stock. d. False advertising with respect to the companies' products.

D

1. John Agent and his staff are developing objectives for a code of ethics they plan to draft. Which of the following is not an objective that they would include? a. Be simple and clear. b. Deal comprehensively with the types of issues that may arise. c. Avoid violating the law and insurance regulations. d. Identify which employees will need to submit to a code of ethics.

D- Among other attributes, a code of ethics should be simple, clear, and comprehensive; it should seek to avoid legal and regulatory issues; and it should apply to employees at all levels.

1. A professional society requires its members to follow its ethics code, which details specified unethical practices. Which of the following illustrates an action that is likely classified as "unethical" by this code?

Edwin, an insurance agent, intentionally conceals a material fact on a customer's application.

One of your carriers has several different companies within its group. They offer different commission levels, and those that pay the higher commissions build a portion of the higher cost back into the premium. What factors do you consider in determining what company you use for particular clients?

In selecting the company and commission level, an important factor to consider is the level of service that the account will require. This will assist you in determining the income level you need to properly service the account. Of course, you should also consider any differences in the coverages offered and their significance in light of the insured's exposures.

An insurance company you represent has strict guidelines for the acceptance of new automobile accounts. It will not write someone who has more than three incidents (i.e., a moving violation or accident), regardless of fault. You have an applicant who has two speeding tickets and two accidents. In both accidents, the other party went through a stop sign, hitting your customer. Since these are not at fault, are you justified in leaving them off the application?

Misstatements on the application are not acceptable at any time. You should explain to the underwriter that the losses are not at fault or present the account to a company that has less stringent underwriting guidelines.

Archie is the named insured in a homeowners policy. Which of the following individuals would have medical payments coverage for injuries sustained on Archie's premises?

Lionel, who is delivering Archie's cleaned suit from the dry cleaner Lionel works for.

The performance of a longtime employee has slipped lately. While he is out, you open a file cabinet in his office looking for a customer's file, and you discover a partially consumed bottle of vodka, an unopened bottle, and an assortment of pills. You are a manager in the company, but he is not one of your reports. What do you do? If you are a fellow employee and not a manager, will this affect your decision?

Most companies have policies prohibiting the use of alcohol or drugs on the company premises. In this case, confronting the employee directly is likely to lead to a denial of the problem. The best approach is to go to the person's manager and the human resources department if there is one. There is a tendency for friends to ignore this kind of situation, hoping it will "go away." However, any substance abuse problem in the workplace is serious and should be dealt with carefully. The proper response to violations of company policy does not change substantially with one's position in the company. Most policies serve the purpose of protecting, either directly or indirectly, the employees as well as the company. Thus, when an employee violates a policy, he or she is inflicting or creating the potential for inflicting some degree of harm on his or her coworkers and the company. All employees are subject to company policies and are responsible for ensuring their compliance. Looking the other way when a fellow employee violates policy makes one an accomplice to the indiscretion. Since, in most cases, a simple reminder of the policy is all the encouragement a fellow employee needs to cause a change of behavior, doing the right thing does not always necessitate violating confidences and friendships by going to managers.

Instilling ethical standards into an organization is much like any other management endeavor. It requires a process similar to this.

Top management commitment. Top management must fully support ethical standards, communicate its support of those standards, and live by those standards. Communicate and train on ethical standards. Development of a code of ethics can help with both the communication and training on the company's standards. Reinforce ethical behaviors. Avoid hiring people who have behaved unethically in the past, periodically remind all employees of the organization's commitment to ethical behavior, enforce the ethics code, and reward employees who practice ethical behavior.

3. In arriving at an ethical decision, it is often helpful to identify the key issue and ponder certain questions about the alternative decisions. Which of the following is one such question that might be asked? a. Is it legal? That's correct! Legality is an acid test. If an action violates a law or regulation, it should not be taken, even if the violation is unknown, improves profits, or helps close a sale. b. Will it improve our profits? c. Can we keep it secret? d. Will it help me make the sale?

a

2. John Agent owns a small agency that focuses on commercial lines accounts. In light of some recent negative news stories about the insurance industry, he wants to differentiate his firm in the marketplace by establishing a reputation of utmost integrity. The first thing he should probably do to start this process is:

a. Involve his staff in preparing a comprehensive code of ethics they will all agree to live by and show to their clients.

Barry is surprised to receive notice of a claim by the parents of a child who had been injured while playing in a cemetery. The injury allegedly resulted because the child's foot was crushed when he knocked down the tombstone marking the final resting place of Barry's late wife. Barry faces defense costs and possible damages for bodily injury. His homeowners policy

a. covers this claim because the cemetery plot is an insured location.

The following losses, which occurred away from August's premises, all resulted in medical expenses. Which would be covered under the medical payments coverage of August's homeowners policy?

c. August's adult son, who lives in his own house, is walking August's dog when it bites a passing jogger.

Dick, who recently retired, uses his garage as a workshop for his woodworking hobby. He plans to sell the birdhouses and other objects he makes but has no idea how much income this hobby will generate. Dick has a homeowners policy and asks his insurer if he has any liability coverage for his woodworking business under his homeowners policy. What should the insurer tell him?

c. Dick will have no coverage when his policy renews if his annual compensation during the previous year exceeded $2,000.

2. When weighing the pros and cons of an ethical decision, Bill Broker will likely ask a series of questions. Which of the following is a question that Bill will probably not ask? a. Who will be affected by my decision? b. What options will hurt fewer people? c. Am I rationalizing in arriving at the decision? d. What choice will yield the greatest benefit to my company?

d

3. Workers compensation laws in his state require Zeke to provide workers compensation benefits to the au pair who has been employed to care for his children. However, he decides to save the premium and not purchase workers compensation insurance since his homeowners policy includes medical payments coverage. If the au pair is injured while working in Zeke's house,

. Zeke's homeowners policy provides no coverage.

A typical ethics code established for a company will apply to:

All of the company's employees.

Dick accidentally leaves the gate to his swimming pool open, and a neighbor's young child wanders into the pool and drowns. Dick's insurer spends $50,000 defending the neighbor's $1,000,000 wrongful death claim against Dick, which is ultimately settled for $500,000. Dick's homeowners policy has a $300,000 limit. How much will his insurer pay for this claim and the associated defense costs?

$350,000: The correct answer is "C. $350,000." The insurer will pay no more than the $300,000 policy limit in damages, but the insurer will also pay the $50,000 in defense costs.

1. Chuck is on his friend Norm's roof helping him repair his TV antenna when Chuck slips and falls off the roof, breaking both arms and a leg. Norm's homeowners policy's medical payments coverage will pay for all of Chuck's expenses, up to its limits, except for his

. income loss.

Individual privacy and identity theft have become critical issues over the past few years. Insurance companies have long reported claims information to several central bureaus. This can help to identify fraudulent claims or individuals with multiple claims. Should this practice continue? What obligations do you have to your clients to protect their privacy? What steps do you need to take to keep information regarding your accounts secure?

An agent has a duty to keep customer data and personal information secure and should implement security systems and procedures to safeguard it. Certain types of data sharing among insurers are necessary and acceptable because it helps reduce insurance fraud. Insurance companies or their agents should disclose to insureds the fact that claims data may be shared with various bureaus.

3. Following an unfortunate string of events, Emily is glad that she has a homeowners policy that provided liability coverage for all but one of the following incidents. Which one wasn't covered?

Emily posted disparaging comments about Margaret on her Facebook page and was sued for libel and slander.

While he still has a lot to learn about insurance, John Agent always makes certain he can perform his promises, is very punctual, is open and honest with clients about his compensation arrangements with insurers, and takes pride in being honest. As a result, clients and underwriters probably perceive him as:

Ethical.

A neighbor's child breaks her arm while playing with Lisa's son in Lisa's back yard. The neighbor's parents are not at home, so Lisa immediately takes the child to the hospital emergency room and signs the form accepting responsibility for any charges. Lisa's homeowners policy covers these expenses under which provision?

First aid expenses: First aid expenses." First aid expense coverage applies to any expenses incurred by an insured for first aid to other parties for bodily injury covered under the policy.

Every year a large account you write goes out to bid with other agents. You obtain three quotes: one at 20 percent less than expiring premium, one at expiring premium, and one at a slight increase. When you go to present the quotes, the client tells you that he is happy with your service and has not gone to get other bids. Which quote do you present? Does it make a difference if the quotes are with three different insurers? What if they are with the same insurer and the underwriter has said to use the lower quotes "only if you must?" In a hard market, is it unethical to present the quote with the slight rate increase? After all, you are getting more premium for the insurer.

If you are an agent, you represent the insurance company and are obligated to get the best deal for it. If you are a broker, you represent the insured and owe the insured the duty of obtaining the best deal. If the quotes are from different insurers, present all three, point out the coverage differences, and let the insured decide. If they are with the same insurer, you should seek guidance from the underwriter as to which quote to present. If that is not possible, the quote that is closest to "current market conditions" is probably the appropriate one to use.

Possible Points to Address in a Code of Conduct or Code of Ethics

Introduction—A broad statement indicating the purpose of the code, the objectives of the code, and to whom it applies. This is an excellent place to include inspiring statements. Customers—Place the customer's interest first in all decisions and actions. Conflicts of interest—Avoid even the appearance of inappropriate behavior or conflict of interest by refusing to accept gifts, payments, fees, services, discounts, or other favors that would, or might appear to, improperly influence actions or decisions. Some companies specify an economic value that gifts should not exceed. Do not engage in outside employment or service on boards or commissions that may interfere with work responsibilities or present conflicts of interest. Contracts—Honor the contractual rights of all parties to any transaction. Consider the spirit of the contractual relationship and not just the terms. Keep with your realm of expertise—Propose only services that are within your areas of expertise, knowledge, and ability. Bring in other team members when their expertise will benefit the customer. Confidential data—Guard all confidential data, whether it is regarding the company, its customers, or another organization, such as an insurer, with whom you do business. Intellectual property—Respect the copyrights of publishers and other organizations and do not risk an infringement suit by inappropriately copying and distributing their content. Respect your colleagues—Act professionally and with respect for your associates, abiding by the corporate harassment, safety, and other policies. Waivers and clarifications—How to request an interpretation as to whether an activity may be a violation or a waiver of the code as respects a generally prohibited activity that may be taken in the best interest of the organization of an inescapable conflict of interest. Enforcement—How violations of the code are to be dealt with.

Because her push mower is in the shop for repairs, Polly borrows her neighbor's self-propelled lawn mower to cut the grass on Polly's lawn. The neighbor's mower, valued at $250, is ruined when it runs away from Polly and ends up at the bottom of her in-ground swimming pool. The mower should have shut down when Polly released her grip on the handle, but the mower's owner had disabled this feature. The "damage to property of others" coverage of Polly's homeowners policy covers the $250 cost of replacing the neighbor's mower for all the following reasons, except

Polly is legally liable for the loss. Payment under the damage to property of others coverage does not require that the insured be held legally liable for the damage.

1. Ambrose rented a box truck to haul away some furniture from his garage. While backing it up to the garage door, he misjudged the vehicle's height and damaged his home's gutter and the roof overhang in front of the garage. In light of the $2,000 or so in damage this truck had caused, Ambrose submitted a liability claim to his homeowners insurer. What exclusion will preclude liability coverage for this claim?

Property damage to property owned by an insured

2. In addition to the ethical issues, which of the following is a very significant risk of an agent's intentionally including incorrect information on an insurance application?

The insurer may void the policy and you could face an E&O claim. That's correct! The most serious consequence of intentional misrepresentation is the possibility that the insurer will void the policy. If the agent made the misrepresentation, the agent (and the agent's E&O insurer) might end up paying the claim.

Sally has a homeowners policy. When her dog bites a passing pedestrian who stopped to pet it, Sally has a duty to

notify her insurer in writing.

The owner of a large business frequently comes to his insurance agent's office. He is loud, boisterous, and often hugs several of the women in the office. Sometimes he makes suggestive comments and tells off-color jokes. Although none of the employees have complained to the agent, he can sense that this behavior has offended several of them. Nonetheless, he does not take any action, rationalizing that no one has complained about it. He also does not want to risk losing the income this account produces. Should the owner of the agency take any action? Should he wait until a complaint is lodged before doing anything? Is any law being broken?

The agent owes a duty to the employees to provide a safe and comfortable work environment. Employees should never be told to commit unlawful or unethical acts, nor should they be expected to tolerate any form of harassment from customers or fellow employees. By allowing this behavior from his customer, the agent is violating the trust his employees have placed in him and will lose their respect. Additionally, this situation may well be deemed to constitute workplace harassment that could result in employment-related suits from the employees. The agent should deal immediately with a situation like this by way of a private conversation with the customer. When handled quickly, before they become routine, these situations can usually be mitigated without alienating the offending person.

Steps and Questions

The first step is recognizing the key issue involved in the scenario. The second step is to identify those who the decision affects. If you will personally benefit from the decision, that may be cause to examine it more carefully. At times, the appearance of unethical behavior can be as damaging as actually acting unethically. In such situations, it may be especially useful to solicit the opinion of a trusted advisor or friend. Additionally, it may be useful to take extra steps to assure that the process for arriving at the decision is clear to all. Failure to act can also be unethical. Sometimes, doing nothing is the wrong thing. If you are couching your message in industry jargon or choosing your words carefully, you may be rationalizing or hiding unethical behavior. Explain any technical terms to the other parties involved. If you feel the need to consult with an attorney before acting, it may be a sign that boundaries are being crossed. Legal standards are often less limiting than ethical standards.

John Agent has received competitive quotes from two insurers on one of his commercial accounts that are very close in terms of coverage and pricing. He feels that one of the insurers will provide superior claims service than the other and wants to recommend that insurer. Coincidentally, that insurer set a sales goal for its producers that, when met, will reward them with a free trip to Italy, and John is very close to hitting the magic number. When John presents his recommendation, he also informs the insurance manager for the account of this possibility. Why did John do this?

The sales contest presents John with a conflict of interest which he is disclosing to avoid an appearance of unethical behavior. That's correct! John's disclosure avoids the suspicion that would arise if the client independently discovered the conflict.

Clementine, who lives in a rented apartment, is insured by a tenant homeowners policy form HO 4. This policy will cover Clementine's liability if she is held responsible for any damage to the building caused by

a. fire.

Section II, Coverage F of the homeowners policy provides coverage for

c. medical expenses to others.

The concealment or fraud provision in Bernie's homeowners policy enables his insurer to deny coverage if he

fails to mention in his application that he manufactures methamphetamines in the basement.

Code of ethics

honesty, integrity, responsibility, respect, courage to do right

Chartered Life Underwriter, CPCU

is considered a "professional" designation rather than simply an "insurance designation" or "associate designation" because those who receive and use the designation must agree to live by the ethics code. Abiding by a particular code of ethics is not required to receive and continue to hold most insurance designations, such as the Construction Risk and Insurance Specialist, Certified Insurance Counselor, and Accredited Advisor in Insurance designations.

In most states, insurers are required to file rates and forms with the state insurance regulator. Obtaining this information may often involve a costly trip to the state capital. If the person seeking the information is not experienced in this kind of search, they may spend many hours. An insurance company employee has a good friend at an agency. May he or she call the friend to get a copy of the competitors' rates and forms? The insurance company employee seeking the information rationalizes the request by saying, "It's public information. By getting it from an agent, I'm saving my company money by not having to travel." Does it hurt anyone if the employee receives the information from an agent rather than from the insurance department?

Agents may generally share information that is a matter of public record and filed with the insurance department (rates, filed underwriting guides and forms) as long as the insurer has not specifically prohibited this practice. Of course, proprietary information may not be shared. Improper sharing of information can damage the company whose information is being disseminated. It may also cause incomplete information to be distributed if the agent does not have all the facts. It is always best to obtain information from the source—in the case of filings, the state insurance department.

Your state has a law forbidding agents from delivering a surplus lines quote on an account for which an admitted insurer is willing to write the business with equivalent coverage. (The law doesn't mention premium amount as a factor, only coverage.) One requirement of the law is that you must provide the quoting E&S broker with an "evidence of diligent effort" form listing three of your admitted insurers who have refused to write the risk. You want to put the coverage with the non-admitted carrier. Is it ethical to call three of your insurers and ask if they would decline this account without taking the time to actually submit the account to them? Your thought process is that none of them writes this class of business, and they will decline the account if you do submit it. The problem is that they will not get to it for 10 days or more, and you need a response now. Is this ethical? Does this approach comply with the spirit of the law as well as the letter of the law?

Agents will often call underwriters before submitting an account to see if it meets their guidelines, and this is no different. Underwriters at admitted insurers are given the opportunity to receive a submission should they desire to, and they have the responsibility of determining whether the account is one that they will consider. Thus, unless the law requires a written submission to admitted insurers, this approach is acceptable.

An agent has a duty to keep customer data and personal information secure and should implement security systems and procedures to safeguard it. Certain types of data sharing among insurers are necessary and acceptable because it helps reduce insurance fraud. Insurance companies or their agents should disclose to insureds the fact that claims data may be shared with various bureaus.

Assuming the hospital has no conflict of interest policy to the contrary, it would not be unethical to bid on the account. However, you will appear to have a conflict of interest and will be vulnerable to criticism. If you elect to participate as a bidder, make certain that all bidding agents have access to the same information and an equal opportunity to win the account. You would also be wise to avoid becoming involved in managing the bidding process or selecting the winning bid. It would certainly not be appropriate to design insurance specifications that include requirements that only the insurers you represent can meet.

A decision process such as the following is helpful when considering the ethics of an action.

Define the issue. Is it one of morality, law, company standards, generally accepted behavior, or personal values? This step will also consider why a decision is needed and what is the ideal expected outcome? This is the point where the cause of the problem will also be analyzed. Identify the alternatives. There is a tendency to look at decisions as "either/or," when often there are multiple choices. This is the time to ask advice from others who are either involved in the decision or who have faced similar decisions in the past. Evaluate the alternatives to see which one is the best choice. This may be a decision that provides the greatest good for the most people, or it may not be popular at all, but it is the ethically correct decision to make. Some decisions need to be made alone or with input from a small group. Others may involve a group decision made by all those who it affects. Implement the decision and monitor its effects. After implementation, many important decisions deserve a review process to evaluate the decision and change it if needed.

Ethical Questions

Do you have all the facts in the case? Is the information reliable, or has someone who the decision affects slanted it? Have you identified everyone who the decision will affect? If the choice made will affect several people, it is necessary to get opinions from as many of them as possible. Have you considered options that may not hurt as many people? If so, which option does the most good or the least harm for the greatest number of people? Are you rationalizing in arriving at the decision? Will the decision benefit you to the disadvantage of others? Do you have all the facts in the case? Is the information reliable, or has someone who the decision affects slanted it? Have you identified everyone who the decision will affect? If the choice made will affect several people, it is necessary to get opinions from as many of them as possible. Have you considered options that may not hurt as many people? If so, which option does the most good or the least harm for the greatest number of people? Are you rationalizing in arriving at the decision? Will the decision benefit you to the disadvantage of others? "How will this look if it becomes public? Is the decision consistent with previous similar decisions, or does it favor one party unfairly or discriminate against another party unjustly? If the decision does not need to be made immediately, have you considered all options and discussed it fully with others who can provide guidance? After the decision is made, are you willing to go back in a few days, weeks, or months to review it? If it is not working out as planned, are you willing to change? Are you prepared to pay the price for the decision?

An agent knows that an insurer has guidelines specifying it will write workers compensation coverage for an account only if less than 10 percent of its operations are over water. The agent has an opportunity to write a new account where the applicant states that 15 percent of the operations are over water. The underwriter who the agent normally uses has granted several exceptions on this percentage in the past. Unfortunately, that underwriter is on vacation this week, and the account's current program expires in 3 days. The alternate underwriter who is filling in is known to "go by the book" and not give exceptions. A voice mail message to the underwriting manager has gone unanswered. The agent submits the application showing 10 percent of the operations are over water. The rationalization is, "If my regular underwriter was here, it would be approved." As a result of this action, the agent is successful in obtaining coverage for the client. Does this action put anyone at a disadvantage? If companies regularly make exceptions to underwriting guides, can the agent assume they will make the exception in this case?

Knowingly providing incorrect information on an application is never acceptable. The agent's option in this case is to move up the chain of command at the insurer until he or she reaches an appropriate decision-maker. Just because exceptions have been made in the past, it cannot be assumed they will be made in the future. If there are cases where exceptions are "always" made, the agent may want to ask that the guidelines be broadened. Insurers may use a material misrepresentation on an application to void coverage if the insurer relies on the information in making an underwriting decision. If the agent made the misrepresentation, it is quite likely the agent will face an errors and omissions (E&O) claim and be held legally liable for it.

In most states, an agent can receive either a commission or a fee for placing business, but not both. Agent John Doe, an employee of Acme Agency, has just placed a large account in a difficult business class. The insured was expecting a large rate increase, but the coverage was placed at a premium less than expiring. John Doe and the insured are not close friends, but they live in a small town and see each other at church, school, and civic functions. The insured offers to take both John Doe and a guest on a long weekend to a resort and offers to pay hotel, meals, and any fees for recreational activities. The agency has an ethics policy prohibiting the acceptance of other than "normal business amenities." John Doe rationalizes that this trip is based on his friendship with the customer. He also concludes that this kind of reward is a normal business occurrence since he has seen his CEO accept similar offers from presidents of large companies they place. Was John Doe's acceptance of this trip proper? If a business has a policy regarding accepting gifts from customers or others, does a person's position in the company change what they can accept? Can the CEO accept gifts that employees would not be allowed to accept?

Many corporate ethics codes allow employees to accept "normal business amenities." The problem is that this term is not defined. People must decide for themselves what is appropriate for their position, based on the relationship they have with the person providing the gift. When in doubt, it is always wise to consult with management concerning the proper response to an offer of this type. Depending on the situation, it may be acceptable for a CEO to accept a gift (trip to a major sporting event) that an employee could not accept. The questions are (1) "Will participating with the gift-giver in this endeavor be in the best interest of the business?" and "Will accepting this gift inappropriately influence my decisions affecting the gift giver in the future?" Of course, however, CEOs must tread carefully, for they are setting an example for everyone, and merely taking advantage of rank sends the wrong message.

New Jersey Department of Banking and Insurance Ethics Code

No State official should have any interest, financial or otherwise, direct or indirect, or engage in any business or transaction or professional activity, which is in substantial conflict with the proper discharge of his or her duties in the public interest. Please refer to Sections V and VI for further applicable restrictions. No State official should engage in any particular business, profession, trade or occupation which is subject to licensing or regulation by a specific agency of State Government without promptly filing notice of such activity with the Executive Commission on Ethical Standards. Please refer to Sections V and VI for further applicable restrictions. No State official should use or attempt to use his or her official position to secure unwarranted privileges or advantages for himself, herself or others. No State official should act in his or her official capacity in any matter wherein he or she has a direct or indirect personal financial interest that might reasonably be expected to impair his or her objectivity or independence of judgment. No State official should undertake any employment or service, whether compensated or not, which might reasonably be expected to impair his or her objectivity and independence of judgment in the exercise of his or her official duties. No State official should accept any gift, favor, service or other thing of value under circumstances from which it might be reasonably inferred that such gift, service or other thing of value was given or offered for the purpose of influencing him or her in the discharge of his or her official duties. No State official should knowingly act in any way that might reasonably be Expected to create an impression or suspicion among the public having knowledge of his or her acts that he or she may be engaged in conduct violative of his or her trust as a State officer or employee or special State officer or employee. Confidential information (information not available to the general public) may not be:Willfully disclosed to unauthorized persons either during State service or after separation from State service;Used by the State official to further his or her private interests; orUsed by the State official, directly or indirectly, for pecuniary gain or to make any investments or other financial transactions.

By comparing their decisions and actions to the guidelines before implementing them, decision-makers have a reasonable assurance that their actions and decisions will be above reproach from those within or outside the organization. Two general approaches are commonly used when drafting codes of ethics.

One is the positive actions or results-based approach, which generally prescribes in broad terms the types of actions and/or results that are expected or encouraged. The "Golden Rule" is probably the best known ethics code using this approach: "Do unto others as you would have them do unto you." The other approach instead lists prohibited types of actions; this is often called a "rule-based approach." The advantage of the results-based approach is that its broad terms will apply to most situations. In attempting to overcome the weaknesses of both approaches, many drafters of ethics codes combine the two approaches by attempting to outline in broad terms the positive results that are expected and in more specific terms those actions that are forbidden.

The insurance business inevitably presents conflicts of interest and the possibility of unethical behavior. The following are some examples of ethical behavior in situations where conflicts may exist.

Obtaining competitive proposals from insurers only in those situations when the customer would be willing to change insurers Advising customers when an error causes the premium quoted or charged to be higher than it should have been and quickly processing a refund Upon request from the customer, fully disclosing all compensation received from any source in placing a customer's insurance Abstaining from the practice of locking up markets in competitive bidding situations by contacting insurers from which you have no intention of requesting bids Disclosing to the insured any "subjectivities" or "contingencies" that are contained in a quote such as loss control recommendations or loss runs that may need to be provided Not "shopping quotes" (i.e., avoiding telling one underwriter the premium his or her competition has proposed) Assuring all exposure bases (valuation, payroll, sales) are stated correctly so that the insurer receives the appropriate premium at inception and the insured avoids a large audit additional premium or coinsurance payment Only requesting an Agent or Broker of Record Letter when it is needed and making certain the insured understands the implications of signing it Placing a client's business with the insurer that provides the broadest coverage terms at the lowest price even though another market would pay a higher commission Never restricting a customer's coverage to reduce the premium without being certain that the customer understands the implications of the change

Assume the laws in your state prohibit rebating. In order to be competitive on a large account, you agree to finance the premium with no interest. You know that many insurers offer finance plans with only nominal monthly fees, although your insurer does not. You further rationalize your decision by saying that it is no different than taking a reduced commission from your insurer and passing on the savings to the insured through lower rates. Now that you have sold it, you need to determine how to set it up. One option is to use a finance company with the insured paying the principal and you paying the finance charge each month. Another option is for you to pay the insurer at policy inception and then collect from the insured each month. Is this rebating? If you offer this for one account and not to other similar accounts, is this unfair discrimination?

Offering financial inducements, such as interest-free loans, to one account that are not generally available to other similar accounts is a form of rebating. This is different from taking a reduced commission, since that is a direct expense reduction that most rating plans allow to be passed on to the insured.

A customer needs coverage but cannot afford the price that you present. You know that a competitor has a product that is more affordable. Do you try to make the sale or refer the customer to your competitor?

Once it becomes apparent that you will not make the sale because of price, it is appropriate to refer the customer to the competitor. Putting the interests of others above your own will pay dividends in the long run.

Various types of organizations draft codes of ethics

One is membership organizations such as professional societies, civic organizations, and trade associations. The members of these groups generally must agree to subscribe to their codes of ethics to become and remain members of the organizations.

Some examples of ethical behavior include the following.

Only making promises that you can keep Fulfilling all promises you make or explaining why they cannot be fulfilled Being honest in all communications Accepting only assignments that are within your realm of expertise Never overselling your knowledge or abilities Disclosing bad news in a timely manner Disclosing unavoidable conflicts of interest Admitting when you do not know the answer to a question Working through the proper channels to get something done rather than going around them Maintaining confidences Quickly admitting and rectifying mistakes Associating with others who are known for their ethics and integrity Joining organizations that support ethics and integrity in business

When reviewing a prospective account's current insurance policies, you notice a discrepancy between the property insurance and a summary prepared by the current agent. The coverage summary prepared by the agent says they have open perils coverage and an 80 percent coinsurance clause, when the coverage is only named perils and there is a 90 percent coinsurance clause. You recall that you've seen this before; you look back in your files and realize that this has been the case on five of this agent's other accounts that you have reviewed. What action do you take? Do you address this with the customer, the other agent, or the insurance department? If you also represent some of the same carriers as the other agent, do you disclose this to them?

The frequency of this error implies that this agent is intentionally misleading his clients, a practice that reflects poorly on his firm and the insurance industry in general. It is appropriate to address this with the agent directly, the customer, and the insurance department. While criticizing a competitor is not usually good form, it is acceptable if people are being misled or hurt by the actions being taken.

Acme Insurance Brokerage subscribes to several monthly insurance industry newsletters. When each newsletter arrives, the receptionist makes 100 photocopies. Each Acme account executive is provided with a copy to read; a copy is sent to Acme's top commercial accounts, and the remainder is kept in the mail room to be provided to clients or underwriters on request. Acme's president feels that this is an excellent and low-cost service for their clients. Is it ethical? Is it legal?

Unless Acme has obtained specific permission from the publishers of the newsletters, Acme's reproduction program is both unethical and illegal. Whether the newsletters are distributed internally or mailed outside the firm, this practice is the equivalent of stealing the publishers' products without paying for them. Under U.S. copyright law, copyright holders only need to prove that an infringement occurred. Publishers can collect statutory damages of $10,000 per infringement without proving that the violation damaged them. The copyright law includes a "fair use provision" that permits small portions of a document (e.g., a paragraph) to be quoted and distributed to a small number of people (such as in a letter) as long as the source is properly referenced. Acme would be wise to require its staff to follow this guideline. If Acme wishes to continue providing copies to its entire staff and/or providing the reproduction service for its clients, it should seek permission from the publishers.

You have recently purchased a book of commercial business from another agent in town who is retiring due to poor health. It becomes apparent that the previous agent has not always been returning audit return premiums to the insureds. Your agreement says the prior agent is responsible for any premium transactions that occurred prior to the sale. What action should you take? Do you notify the insureds who the former agent's actions may have harmed?

When you discover a situation in which an error or misdeed causes financial harm to a customer, insurer, or business partner, you should attempt to rectify the mistake. Since your agreement to purchase the agency makes the former agent responsible for premium returns before the date of the sale, you should first try to get the return premiums that are due from the former agent. If this fails, it is appropriate to notify customers of the situation, so they may take action against the agent if necessary. The insurance company may also be liable for the actions of the former agent.

3. Walter is a vice president of Mega Insurance. He learns in a meeting that Primo Insurance is going to buy Mega Insurance and the new corporate structure will require the elimination of some jobs. Primo Insurance will determine the new structure and will be responsible for informing employees of their employment status. The buy out will be confidential until officially announced. Under this arrangement, what can Walter ethically tell his employees about the impending merger and possible downsizing?

b. Because the buy out is to remain confidential until officially announced, Walter cannot tell his employees anything.

Julia takes her friend Robert out for a sail in her 24-foot sailboat. Julia negligently causes an accident with another sailboat owned by Leonard. Julia has a homeowners policy; she does not have a watercraft or boat policy. Leonard's sailboat, however, is insured with a boat policy. Leonard suffers minor injuries during the accident. Although Julia's homeowners policy has a watercraft exclusion, it provides coverage for this loss because

b. Julia's sailboat is less than 26 feet long.

3. Larry's homeowners policy has a liability limit of $100,000. As the defendant in a lawsuit, Larry is required to pay $100,000 in damages plus an additional $5,000 in prejudgment interest. Who will pay the $5,000 charge, and why?

b. Larry will pay it; prejudgment interest is included within policy limits, but his policy limits have been exhausted. Prejudgment interest is included within the limits of liability and would therefore be paid by the insurer except for the fact that the $100,000 amount of damages consumes Larry's entire limit.

4. The vent from Mark's gas clothes dryer discharges hot air directly onto a close neighbor's expensive landscaping. Over time, the neighbor's shrubbery turns brown and dies. The neighbor expects Mark to pay to have it replaced. While this was going on Mark renewed his homeowners insurance policy with a different insurer. In order to decide which insurer is responsible for this claim, Mark needs to determine: When did the damage or injury occur?

b. When the damage was detected.

3. Abner Adjuster's claims firm has a very comprehensive rule-based ethics code that does not allow its employees to accept gifts of any value from any person or organization with which the firm does business. Since it is his firm, however, Abner feels justified in accepting extravagant Christmas gifts and occasional recreational outings from some of the law firms that defend his claimants. What is the likely result of his actions?

b. Without complete top management support, the code of ethics is not supported or taken seriously by the employees.

Ralph, a retired mortician, keeps an old hearse in his garage. The vehicle's registration has expired. On Halloween Ralph reinflates the tires and pushes the hearse into his driveway as part of his annual holiday decorations. It was all in fun until a trick or treater climbed onto the hearse's roof and then fell off, breaking his collar bone. The liability and medical payments coverages of Ralph's homeowners policy

b. covers this claim because the hearse is in dead storage.

1. In arriving at ethical conclusions, Betsy Broker must examine her own behavior. All of the following are areas that she should consider EXCEPT: a. The language which she uses to present information to her clients. b. The times when she finds herself doing nothing or fails to act. c. Her personal financial status. That's correct! The client's financial wellbeing is what's relevant. If Betsy needs to word her recommendations very carefully, needs to seek legal advice, or chooses to ignore a sticky problem, these might signal that an ethical boundary is being crossed. d. The consultations she feels she must have with an attorney because of certain business situations.

c

examination of its operating standards. In the case of an insurance organization, it can include,

regulations and laws related to licensing, use of the surplus lines marketplace, claims administration, and fee or commission income. Additionally, contractual commitments come into play.

Nancy, a visitor in Drew's home, fell down the circular staircase sleep-walking. Wakened by the crash, Drew called an ambulance that took her to the hospital. At the hospital she received X-rays that showed a broken neck and was admitted as a patient. Unfortunately, she did not survive. Her sole survivor was a young child. The medical payments to others coverage of Drew's homeowners policy will pay all the following, except

survivors benefits.