At first glance, it appears certain that ethics violations made by plaintiff's attorneys against agencies have been alleged. These allegations usually include unfair trade practices, misrepresentation, fraud, bad faith, or willfully wanton or malicious activities.
Most of these are violations of the Insurance Code in most states-there's no question that they're all ethics violations. But are the attorneys actually charging that the agencies are unethical? It's important to realize that most attorneys make these allegations in normal practice and do so for a number of reasons:
- Many states allow triple damages for some of these violations.
- Triple damages add gravity to a situation that's already serious.
- Often these charges are made to force the defendant to mediate damages rather than go to court, because if the defendant loses in court, he or she might not have any coverage under their E&O. Normally, E&O policies exclude unlawful acts, and violations of the Insurance Code can be considered an unlawful act.
- Insurance issues generally are technical and very hard to present to a jury.
To look objectively at ethics and E&O, a good starting place might be to define 'ethics.'
According to the New Webster's Dictionary of the English Language, ethics 'pertain[s] to morals or the principles of morality; pertaining to right or wrong in conduct; in accordance with the rules for right conduct or practice; a system or philosophy of conduct and principles practiced by a person or group.' The Harper's Bible Dictionary calls ethics 'human and moral conduct according to principles of what is good or right to do.' Many religions and disciplines throughout the world have similar codes of ethics or proper behavior.
The canons of the CPCU code address matters of ethics in these ways:
Canon 1: CPCUs should endeavor at all times to place the public interest above their own.
Canon 3: CPCUs should obey all laws and regulations, and should avoid any conduct or activity which would cause unjust harm to others.
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.
James Harrison Jr. is a noted authority on E&O. In his booklet Reducing Professional Liability Exposure in Your Agency, published by the PIA, he says 'The legal liability of the insurance agency to the client is based upon negligence theory as applied to professionals. It requires a 'relationship' to exist between the insurance agency and client. As part of this relationship, the insurance agency owes a duty to the client to perform the services that were agreed to be provided in a manner reflecting the skill, knowledge, and ability commonly possessed by those engaged in the profession. If there is a breach of this duty and if the breach is the 'proximate cause' of injury to the client, the insurance agency can be held liable to the client for damages. It is further held that because of the complex nature of insurance and the importance of this protection to the client, the agent is in a position of a fiduciary. This raises the standard of care and duty owed to the client to include even the most casual or infrequent client.'
Insurance agents have specific responsibilities to the insured, the insurer, and to the state. Failure to carry out those responsibilities can lead to action against the agent. When such an action becomes a lawsuit, the question of ethics almost always arises because the agent's credibility is a central issue. The jury's perception of the agent's truthfulness has a large bearing on the success of the agent's defense.
It has been said that the foundations for ethical behavior are honesty, integrity, loyalty, caring, compassion, fairness, keeping promises, respecting others, taking personal responsibility, and being accountable. When E&O allegations question one or more of these characteristics in an agent, ethical behavior becomes a factor. The agent has to examine the facts and circumstances surrounding the charges and act accordingly. If there may have been questionable performance, the best thing for the agent to do is accept the responsibility and try to resolve the situation. On the other hand, if the agent feels that the agency did nothing wrong and has no responsibility, he or she might find, after obtaining professional advice, that the agency can be solidly defended.
Evaluating the actions leading up to an accusation of unethical behavior requires objectivity and ethical behavior on the part of the agent. Being ethical is like being pregnant. There's no 'sort of,' no gray area-either you are or aren't. You need to ask yourself:
- Was my or the agency's action legal?
- Did I or the agency practice the golden rule of treating others as you would want them to treat you?
- How would I feel when discussing my or my agency's actions to a judge or jury? Would it make me feel bad about myself?
- Am I in any way rationalizing my behavior so that I can justify a conclusion that I'm ethical?
Can an agent or agency be labeled unethical even when there's been no unethical behavior? Yes-if a court case is presented in such a way that the jury finds against the agent or agency. Such cases bear our the adage that 'perception is reality'-the agent can be incorrectly perceived as being unethical.
Ethical behavior then takes on a new meaning. Ethics becomes an intangible part of the person's attitude, persona, thoughts, and actions. Everything he or she does springs from this foundation.
With that in mind, let's look at the liabilities agents have in their daily business activities. These are the areas in which E&O claims can be brought against the agent.
The agent's liability to the insured:
- Failure to maintain and renew coverage for the insured
- Failure to obtain coverage or proper coverage after agreeing to
- Failure to notify and advise the insured about modified coverage
- Failure to advise of cancellation or nonrenewal of coverage, if the agency is involved in cancellation or nonrenewal
- Failure to place coverage on the best terms available to the client
- Actions that might mislead the client
- Placing coverage with a carrier that becomes insolvent or with a carrier that isn't authorized to do business in the agent's state
- Modifying established service to the client or failing to service the client properly
The agent's liability to the insurance company:
- Exceeding binding or underwriting authority or failing to follow the company's instructions
- Giving the company false, misleading, or incorrect information, incorrectly completing an application, misrepresenting the risk, or concealing hazards inherent to the risk
- Failing to notify the company of a material change in the nature of the risk
- Failing to cancel or replace the risk when the agency has been requested to do so
- Providing coverage interpretations to the insured when not authorized to do so
- Interfering negatively in the company's processing of a claim, or, when the agency is processing the claim, not acting as authorized by the carrier
The agent's liability to the state:
- Failing to comply with licensing requirements
- Violating the state insurance code
- Misusing trust accounts
In an E&O matter, it's very important for the agent or agency to be honest and forthright with the E&O carrier and with the attorney it provides to the agency. There's nothing wrong with putting the file in order-the agency will have to do that for the attorney anyway. However, don't add, delete, or amend anything in the paper or computer file. That's definitely unethical!
If the file isn't documented properly or if it isn't clear what happened, the situation becomes a contrast between the agency's version of what happened and the client's or company's version. The outcome will probably depend on whomever the jury or judge believes.
Being accused of perpetrating an error or omission is a traumatic experience, but it's not the end of the world for the agency, so don't treat it as if it is. Do everything possible to prevent such a claim from arising in the first place. Agency management needs to set the example and insist that the agency, staff, and producers operate ethically. Make ethical behavior part of the performance criteria for agency employees. Ethical behavior reflects positively on the agency and its people. By the same token, unethical behavior makes a negative impact on the agency's reputation of the agency and anyone guilty of such activity.
Acting within ethical guidelines is far more productive than the alternative. Unethical behavior brings you more work, bad publicity, and loss of credibility. If you're ethical not because you care about doing the right thing but just to avoid problems, that's still better being unethical. In other words, take the easy road and always be ethical in your dealings, whatever your motivation. Truly ethical behavior needs no explanation!
As stated earlier, ethical behavior is an altruistic approach to conducting life activities and always doing what is 'right.' By adhering to this state of mind, you will avoid a lot of E&O claims and the impact they have on the agency as well as the client, insurance company, and state.
In the final analysis, ethics and E&O are two sides of the same coin. Doing what's right will reduce the number of E&O claims. It will also reduce the severity and impact of the claims that do occur.