Readers Split Over Response When Witnessing Illegal Acts

Say you have noticed some clearly illegal and therefore unethical behavior on the part of one of your competitors. If this act were made known to the insurance regulator, the competitor would probably lose their license to sell insurance. What is your ethical obligation?

No one responding would have treated this situation as a "speeding incident." That is, no one suggested they would ignore the act. Everyone suggested they would take some action relative to the person committing the act. Responses generally fell into three categories:

o Immediately report the incident.

o Be cautious, but report it if you are sure it is illegal.

o Confront the alleged wrongdoer, and give them a chance to explain their conduct and to correct their behavior.

A number of respondents were unequivocal. One Texas agent was direct and blunt: "I would report them not only to the regulator but also to their professional society."

A New York broker noted that New York law requires an individual witnessing an illegal act by another agent or broker to report the incident to the regulator, or the license of the witness would also be in jeopardy. He added: "The law notwithstanding, such behavior should not be tolerated."

A property-liability insurance company executive wrote: "Your responsibility is the same as witnessing a murder or a con job–report it. The first line of defense we have in the insurance business is self-policing."

A life insurance executive agreed: "It is a global insurance problem, and we cannot turn our backs on such activity and expect to have the trust and confidence of the public."

Another company employee also indicated the obligation of the witness was to report the event: "We may not want to draw attention to ourselves by reporting, but we must. Otherwise we are not serving the needs of our insureds or the public."

An agent association executive commented: "I have few absolutes in my life, but this is one of them. If the act was egregious enough to have the agent lose his or her license, they need to be turned in. Further, members of a professional society have an ethical duty to police the members of their profession."

A significant number of respondents were cautious. They suggested that what they believed they witnessed might not have been illegal.

An Oregon agent said: "If the act was clearly harmful, the observer of the conduct has the ethical duty to report it. To ignore a clearly wrongful act is to sanction it. Illegal acts have no place in the insurance business."

Similarly, an Atlanta agent noted: "If I was sure the act was illegal, I would report them. I would do the same even if the person committing the act was an employee!"

A Kentucky agent replied: "There is no absolute answer, because if it is untrue you could ruin a reputation. If 'clearly illegal' and if the act would cause harm, report it to the department of insurance. However, my understanding is that a witness who is also a CPCU has a higher ethical duty to report the incident."

An Illinois broker was also guarded. He cited several similar situations from his experience and concluded: "You better be very sure of the allegation before notifying the authorities. Unfortunately, fear of being sued if the allegation is false is a powerful motivator to remain silent."

A Florida agent cautioned: "Be sure there is a violation. You would be committing an unethical act if there were no violation and you soiled a competitor's reputation. A first step would be to discuss the problem with the agent association."

This producer also was not convinced that reporting to the regulator would accomplish much (an ethical matter for the regulator): "In the past I have reported incidents and was told by the regulators that it was too difficult to enforce, so they do not enforce it. The act goes unpunished."

A third group of respondents suggested taking the problem to the actor involved and then, if the perpetrator cannot or will not correct the illegal activity, report them.

A Kentucky producer would notify the individual of his knowledge of the illegal act and allow them to rectify it. He would also say that if the same thing happened again, he would report the incident to the regulator without first making personal contact.

A company claims executive indicated his first reaction was to report the incident and individual. However, he added: "On reflection I began to wonder if the person knew what he or she was doing. Is he aware of the illegality? I think I would approach the individual and give an opportunity to correct it before I would report it."

Similarly, a California agent said the easy thing to do was to "blow the whistle," but life was not that easy: "Does the employer of the individual know of the illegal act? If not, perhaps they should be allowed to conduct an internal investigation and act on what they discover. I would confront the individual with my evidence if he or she were my employee or were self-employed. But something has to be done!"

He suggested anyone witnessing an illegal act should proceed cautiously to be sure, and once sure, "scare the hell out them" by confrontation. Then, if the act is not corrected, report them.

A California excess and surplus lines executive noted that many organizations historically have prohibited any employee from reporting anything potentially detrimental about a competitor. His proactive approach, however, is to talk to the competitor and tell him to stop the activity or it would be reported to the department of insurance.

He also sends a bulletin to his brokers in which, without naming names, he details the nature of the illegal act and the evidence the act is illegal. He warns his brokers that similar activity is not acceptable.

In summary, all agree some action to stop or reverse the illegal act is ethically necessary. Those who accepted the premise that the act was "clearly illegal" would report the perpetrator.

Others–perhaps with life experiences that indicate that what might be "clear" is not always "clear"–would proceed cautiously, verifying facts before reporting the individual. The third group would try to work with the offender to correct the situation before reporting them to the authorities.

All recognized that the insurance business would not have the respect it deserves if something is not done.

Peter R. Kensicki is a professor of insurance at Eastern Kentucky University in Richmond, Ky., as well as a member of the Ethics Committee of the CPCU Society in Malvern, Pa.

Quotebox, with mug:

"All agree some action to stop or reverse the illegal act is ethically necessary…All recognized that the insurance business would not have the respect it deserves if something is not done."

Peter R. Kensicki

Side Bar (See 8/1/05, page 25 for format

Flag: Coming Feb. 6, 2006

Head:

What Is The Next

Question Of Ethics?

Your organization has placed you in charge of investigating allegations of unethical behavior of individuals within your organization. Your organization has a formal "Ethics Code" and includes a provision that requires notification of any unethical activity to you.

The code is silent as to whether the individual reporting the ethics violation must identify themselves. In the U.S. justice system, the accused generally has the right to challenge the accuser.

Given that some individuals will have rational or irrational fears of retribution, explain your ethical approach to having the complaining party identify themselves before an ethics investigation begins.

Please forward your responses to Peter R. Kensicki at ethics@eku.edu or Eastern Kentucky University, 107 Miller Hall, Richmond, Ky. 40475-3101. All responses will be kept confidential.