2014 CLM NORTHERN CALIFORNIA CHAPTER SEPTEMBER 30TH EVENT HANDOUT

Transcription

1 2014 CLM NORTHERN CALIFORNIA CHAPTER SEPTEMBER 30TH EVENT HANDOUT I. INTRODUCTION Ethics matters for too many reasons to comprehensively address in any one paper. There are many sources of ethical obligations. Aside from the moral standards against which we all judge ourselves, as insurance professionals you will be judged against various standards. There are many reasons for you, as claims professionals, to be fully aware of these ethical standards. This is your chosen profession and it is a regulated profession which means that a finding that an insurance professional has violated a particular ethical provision may lead to reprimand, suspension, or even revocation of your adjuster s license. In addition, it is common for policyholder counsel to assert that an insurance professional s violation of her code of ethics is evidence that should be imputed to the insurer as evidence of its bad faith claims handling. Not knowing or at least being familiar with these codes of ethics can result in awkward and embarrassing moments for that person at deposition and trial, which, in turn, may lead to negative consequences for both the insurance professional and the insurer. Here are some of the many standards that are or may be applicable to your conduct. II. STANDARDS OF CONDUCT A. FLORIDA ADMINISTRATIVE CODE: ADJUSTER CODE OF ETHICS Florida Statute states as follows: Rules; code of ethics. An adjuster shall subscribe to the code of ethics specified in the rules of the department. The rules shall implement the provisions of this part and specify the terms and conditions of contracts, including a right to cancel, and require practices necessary to ensure fair dealing, prohibit conflicts of interest, and ensure preservation of the rights of the claimant to participate in the adjustment of claims. The Code of Ethics referenced in this statute is found in Rule 69B of the Florida Administrative Code, which provides a set of standards for adjusters generally, and an additional set of standards specific to public adjusters. Certain relevant sections of that statute are as follows:

2 (3) Code of Ethics. The work of adjusting insurance claims engages the public trust. An adjuster shall put the duty for fair and honest treatment of the claimant above the adjuster s own interests in every instance. The following are standards of conduct that define ethical behavior, and shall constitute a code of ethics that shall be binding on all adjusters:... (b) An adjuster shall treat all claimants equally. 1. An adjuster shall not provide favored treatment to any claimant. 2. An adjuster shall adjust all claims strictly in accordance with the insurance contract. (c) An adjuster shall not approach investigations, adjustments, and settlements in a manner prejudicial to the insured. (d) An adjuster shall make truthful and unbiased reports of the facts after making a complete investigation. (e) An adjuster shall handle every adjustment and settlement with honesty and integrity, and allow a fair adjustment or settlement to all parties without any remuneration to himself except that to which he is legally entitled. (f) An adjuster, upon undertaking the handling of a claim, shall act with dispatch and due diligence in achieving a proper disposition of the claim.... (i) An adjuster shall not negotiate or effect settlement directly or indirectly with any third-party claimant represented by an attorney, if the adjuster has knowledge of such representation, except with the consent of the attorney. For purposes of this subsection, the term third-party claimant does not include the insured or the insured s resident relatives. (j) An adjuster is permitted to interview any witness, or prospective witness, without the consent of opposing counsel or party. In doing so, however, the adjuster shall scrupulously avoid any suggestion calculated to induce a witness to suppress or deviate from the truth, or in any degree affect the witness s appearance or testimony during deposition or at the trial. If any witness making or giving a signed or recorded statement so requests, the witness shall be given a copy of the statement. (k) An adjuster shall not advise a claimant to refrain from seeking legal advice, nor advise against the retention of counsel to protect the claimant s interest. (l) An adjuster shall not attempt to negotiate with or obtain any statement from a claimant or witness at a time that the claimant or witness is, or would

3 reasonably be expected to be, in shock or serious mental or emotional distress as a result of physical, mental, or emotional trauma associated with a loss. The adjuster shall not conclude a settlement when the settlement would be disadvantageous to, or to the detriment of, a claimant who is in the traumatic or distressed state described above. (m) An adjuster shall not knowingly fail to advise a claimant of the claimant s claim rights in accordance with the terms and conditions of the contract and of the applicable laws of this state. An adjuster shall exercise care not to engage in the unlicensed practice of law as prescribed by the Florida Bar. (n) A company or independent adjuster shall not draft special releases called for by the unusual circumstances of any settlement or otherwise draft any form of release, unless advance written approval by the insurer can be demonstrated to the Department. Except as provided above, a company or independent adjuster is permitted only to fill in the blanks in a release form approved by the insurer they represent. (o) An adjuster shall not undertake the adjustment of any claim concerning which the adjuster is not currently competent and knowledgeable as to the terms and conditions of the insurance coverage, or which otherwise exceeds the adjuster s current expertise. Florida Statute states that the Department shall suspend or revoke the eligibility to hold a license or appointment... if it finds that... any one or more of the following applicable grounds exist:... (5) Willful misrepresentation of any insurance policy or annuity contract or willful deception with regard to any such policy or contract, done either in person or by any form of dissemination of information or advertising. (6) If, as an adjuster, or agent licensed and appointed to adjust claims under this code, he or she has materially misrepresented to an insured or other interested party the terms and coverage of an insurance contract with intent and for the purpose of effecting settlement of claim for loss or damage or benefit under such contract on less favorable terms than those provided in and contemplated by the contract. (7) Demonstrated lack of fitness or trustworthiness to engage in the business of insurance. (8) Demonstrated lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by the license or appointment. (9) Fraudulent or dishonest practices in the conduct of business under the license or appointment.

4 (10) Misappropriation, conversion, or unlawful withholding of moneys belonging to insurers or insureds or beneficiaries or to others and received in conduct of business under the license or appointment... (13) Willful failure to comply with, or willful violation of, any proper order or rule of the department or willful violation of any provision of this code.... Florida Statute provides discretionary grounds for suspending, revoking or refusing to renew an adjuster's license based upon, inter alia, the following: (1) Any cause for which issuance of the license or appointment could have been refused had it then existed and been known to the department. (2) Violation of any provision of this code or of any other law applicable to the business of insurance in the course of dealing under the license or appointment. (3) Violation of any lawful order or rule of the department, commission, or office... (6) In the conduct of business under the license or appointment, engaging in unfair methods of competition or in unfair or deceptive acts or practices, as prohibited under part IX of this chapter, or having otherwise shown himself or herself to be a source of injury or loss to the public.... (12) Knowingly aiding, assisting, procuring, advising, or abetting any person in the violation of or to violate a provision of the insurance code or any order or rule of the department, commission, or office. B. TEXAS DEPARTMENT OF INSURANCE The Texas Department of Insurance has not promulgated, per se, a set of rules or standards applicable specifically to insurance professionals. The Texas Insurance Code does, however, contain certain provisions which address the conduct of insurance professionals, as follows: MISREPRESENTATION REGARDING POLICY OR INSURER. It is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to:... (5) make a misrepresentation to a policyholder insured by any insurer for the purpose of inducing or that tends to induce the policyholder to allow an existing policy to lapse or to forfeit or surrender the policy MISREPRESENTATION OF INSURANCE POLICY. It is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to misrepresent an insurance policy by:

5 (1) making an untrue statement of material fact; (2) failing to state a material fact necessary to make other statements made not misleading, considering the circumstances under which the statements were made; (3) making a statement in a manner that would mislead a reasonably prudent person to a false conclusion of a material fact; (4) making a material misstatement of law; or (5) failing to disclose a matter required by law to be disclosed, including failing to make a disclosure in accordance with another provision of this code UNFAIR CLAIM SETTLEMENT PRACTICES PROHIBITED. (a) An insurer engaging in business in this state may not engage in an unfair claim settlement practice. (b) Any of the following acts by an insurer constitutes unfair claim settlement practices: (1) knowingly misrepresenting to a claimant pertinent facts or policy provisions relating to coverage at issue; (2) failing to acknowledge with reasonable promptness pertinent communications relating to a claim arising under the insurer's policy; (3) failing to adopt and implement reasonable standards for the prompt investigation of claims arising under the insurer's policies; (4) not attempting in good faith to effect a prompt, fair, and equitable settlement of a claim submitted in which liability has become reasonably clear; (5) compelling a policyholder to institute a suit to recover an amount due under a policy by offering substantially less than the amount ultimately recovered in a suit brought by the policyholder;... C. CPCU CODE OF PROFESSIONAL ETHICS The Chartered Property Casualty Underwriters ( CPCU ) Society is an organization that, according to its mission statement, is dedicated to meeting the career development needs of a diverse membership of professionals who have earned the CPCU designation, so that they may

6 serve others in a competent and ethical manner. The CPCU Society conditions membership upon the members agreement to abide by the CPCU Code of Professional Ethics (the Code ). The Code is comprised of Cannons and Disciplinary Rules regarding ethical standards of conduct. The Canons establish standards of professional conduct and express the general concepts and principles from which the more specific Disciplinary Rules are derived. The Disciplinary Rules are mandatory and enforceable and sanctions may be imposed upon CPCU members found guilty of a Disciplinary Rule violation. Even if you are not a member of the CPCU Society, you may be judged against the standards contained in the Code. The Society considers the Code the minimum standards of responsibility. The following are certain of the Canons and Rules found within the Code. Canon 1: Insurance professionals should endeavor to place the public interest above their own. R1.1: A CPCU should avoid even the appearance of impropriety when performing his or her professional duties and should act in a manner that ultimately will best serve his or her own professional interests. However, potential conflicts of interest may arise, or may appear to arise, because many CPCUs simultaneously must balance multiple professional interests with their personal interests and the best interests of the general public. The ethical obligation to place the public interest above personal interests or financial gain extends to every CPCU, regardless of whether the CPCU s occupational position requires direct contact with actual or prospective insurance consumers. This does not imply that insurance purchasers should be given preferential treatment over insurance claimants because the needs and best interests of insurance purchasers are in fact served only when all insurance claimants, including third-party liability claimants, are accorded prompt, equitable, and otherwise fair treatment. Canon 2: Insurance professionals should seek continually to maintain and improve their professional knowledge, skills, and competence. R2.1: Ongoing professional education is a minimum obligation for every CPCU. A CPCU must maintain a high level of expertise in the insurance and risk management fields they serve. Canon 3: Insurance professionals should obey all laws and regulations, and should avoid any conduct or activity that would cause unjust harm to others. R3.1: A CPCU shall exercise the utmost good faith in the conduct of business or professional activities. A CPCU shall not engage in any business practice or activity designed to restrict fair competition with the

7 exception of a CPCU s participation in a legally enforceable covenant not to compete or similar activity allowed by law. A CPCU shall not willfully misrepresent or conceal any fact or information, or fail to furnish any fact or information that is material to the business or professional activity. 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. R3.3: A CPCU shall remain informed of, uphold and not violate any policy, rule, law, or regulation relating to professional activities within the country in which business is being conducted, nor commit any felony, as defined by the country in which committed. Canon 4: Insurance professionals should be diligent in the performance of their occupational duties and should continually strive to improve the functioning of the insurance mechanism. R4.1: A CPCU shall competently and consistently discharge his or her occupational duties. R4.2: A CPCU shall support efforts to effect improvements in all aspects of insurance operations that will both benefit the public and improve the overall efficiency with which the insurance mechanism functions. Canon 5: Insurance professionals should aspire to raise the professional and ethical standards of the insurance and risk management profession. R5.1: A CPCU shall encourage and assist others to enhance their professional competence. R5.2: A CPCU shall support the development, improvement, and enforcement of laws, regulations, and codes that will foster competence and ethical conduct on the part of all insurance practitioners and benefit the public. R5.3: A CPCU shall not withhold information or assistance officially requested by appropriate regulatory authorities who are investigating or prosecuting any alleged violation of laws or regulations. Canon 6: Insurance professionals should strive to establish and maintain dignified and honorable relationships with those whom they serve, with fellow insurance professionals, and with members of other professions. R6.1: CPCUs must treat as confidential all information obtained by or entrusted to them in the course of their professional duties, unless

8 otherwise required by law or as necessary to complete their professional work. R6.2: A CPCU must know the legal limitations of their profession and act within them. Unless admitted to the bar or otherwise legally qualified, CPCUs must not engage or give the appearance of engaging in the unauthorized practice of law. R6.3: In any given circumstance, a CPCU must accurately represent his or her ability to provide the amount or quality of professional services required. When a client requests or when issues lie outside the expertise of a CPCU, he or she must seek counsel of other professionals to ensure the necessary quality of professional service. Canon 7: Insurance professionals should assist in improving the public understanding of insurance and risk management. 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. A CPCU should also keep abreast of legislation, changing conditions, and/or other developments that may affect the insuring public. D. ILLINOIS RULES OF PROFESSIONAL CONDUCT (FOR LAWYERS) Preamble: a Lawyer s Responsibilities (1) A lawyer, as a member of the legal profession, is a representative of clients, an officer of the legal system and a public citizen having special responsibility for the quality of justice. (2) As a representative of clients, a lawyer performs various functions. As advisor, a lawyer provides a client with an informed understanding of the client s legal rights and obligations and explains their practical implications. As advocate, a lawyer zealously asserts the client s position under the rules of the adversary system. As negotiator, a lawyer seeks a result advantageous to the client but consistent with requirements of honest dealings with others. As an evaluator, a lawyer acts by examining a client s legal affairs and reporting about them to the client or to others. (3)... In addition, there are Rules that apply to lawyers who are not active in the practice of law or to practicing lawyers even when they are acting in a nonprofessional capacity. For example, a lawyer who commits fraud in the conduct of a business is subject to discipline for engaging in conduct involving dishonesty, fraud, deceit or misrepresentation. See Rule 8.4.

9 (4) In all professional functions a lawyer should be competent, prompt and diligent. A lawyer should maintain communication with a client concerning the representation. A lawyer should keep in confidence information relating to representation of a client except so far as disclosure is required or permitted by the Rules of Professional Conduct or other law. (5) A lawyer s conduct should conform to the requirements of the law, both in professional service to clients and in the lawyer s business and personal affairs. A lawyer should use the law s procedures only for legitimate purposes and not to harass or intimidate others. A lawyer should demonstrate respect for the legal system and for those who serve it, including judges, other lawyers and public officials. While it is a lawyer s duty, when necessary, to challenge the rectitude of official action, it is also a lawyer s duty to uphold legal process.... RULE 1.3: DILIGENCE A lawyer shall act with reasonable diligence and promptness in representing 1 a client. RULE 1.13: ORGANIZATION AS CLIENT (a) A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents. (b) If a lawyer for an organization knows that an officer, employee or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a crime, fraud or other violation of law that reasonably might be imputed to the organization, and that is likely to result in substantial injury to the organization, then the lawyer shall proceed as is reasonably necessary in the best interest of the organization. Unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so, the lawyer shall refer the matter to higher authority in the organization, including, if warranted by the circumstances, to the highest authority that can act on behalf of the organization as determined by applicable law. (c) Except as provided in paragraph (d), if (1) despite the lawyer s efforts in accordance with paragraph (b) the highest authority that can act on behalf of the organization insists upon or fails to address in a timely and appropriate manner an action or a refusal to act, that is clearly a crime or fraud, and 1 Although there are no cases addressing whether a lawyer working in-house in any capacity represents his employer, in F.D.I.C. v. O'Malley, 249 Ill.App.3d 340 (1 st Dist. 1993), the Court recognized that a lawyer s conduct which is merely supervisory does not rise to the level of acting as counsel in the context of addressing the disqualification of a judge.

10 (2) the lawyer reasonably believes that the crime or fraud is reasonably certain to result in substantial injury to the organization, then the lawyer may reveal information relating to the representation whether or not Rule 1.6 permits such disclosure, but only if and to the extent the lawyer reasonably believes necessary to prevent substantial injury to the organization. RULE 3.2: EXPEDITING LITIGATION A lawyer shall make reasonable efforts to expedite litigation consistent with the interests of the client. RULE 4.1: TRUTHFULNESS IN STATEMENTS TO OTHERS In the course of representing a client a lawyer shall not knowingly: (a) make a false statement of material fact or law to a third person; or (b) fail to disclose a material fact when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6. RULE 4.2: COMMUNICATION WITH PERSON REPRESENTED BY COUNSEL In representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so by law or a court order. RULE 4.3: DEALING WITH UNREPRESENTED PERSON In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding. The lawyer shall not give legal advice to an unrepresented person, other than the advice to secure counsel, if the lawyer knows or reasonably should know that the interests of such a person are or have a reasonable possibility of being in conflict with the interests of the client. RULE 8.3: REPORTING PROFESSIONAL MISCONDUCT (a) A lawyer who knows that another lawyer has committed a violation of Rule 8.4(b) or Rule 8.4(c) shall inform the appropriate professional authority.

11 (b) A lawyer who knows that a judge has committed a violation of applicable rules of judicial conduct that raises a substantial question as to the judge s fitness for office shall inform the appropriate authority. (c) This Rule does not require disclosure of information otherwise protected by the attorney-client privilege or by law or information gained by a lawyer or judge while participating in an approved lawyers assistance program or an intermediary program approved by a circuit court in which nondisciplinary complaints against judges or lawyers can be referred. (d) A lawyer who has been disciplined as a result of a lawyer disciplinary action brought before any body other than the Illinois Attorney Registration and Disciplinary Commission shall report that fact to the Commission. RULE 8.4: MISCONDUCT It is professional misconduct for a lawyer to: (a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another. (b) commit a criminal act that reflects adversely on the lawyer s honesty, trustworthiness, or fitness as a lawyer in other respects. (c) engage in conduct involving dishonesty, fraud, deceit, or misrepresentation. (d) engage in conduct that is prejudicial to the administration of justice. (e) state or imply an ability to influence improperly a government agency or official or to achieve results by means that violate the Rules of Professional Conduct or other law.... (g) present, participate in presenting, or threaten to present criminal or professional disciplinary charges to obtain an advantage in a civil matter. (h) enter into an agreement with a client or former client limiting or purporting to limit the right of the client or former client to file or pursue any complaint before the Illinois Attorney Registration and Disciplinary Commission.... (j) violate a federal, state or local statute or ordinance that prohibits discrimination based on race, sex, religion, national origin, disability, age, sexual orientation or socioeconomic status by conduct that reflects adversely on the lawyer s fitness as a lawyer. Whether a discriminatory act reflects adversely on a lawyer s fitness as a lawyer shall be determined after consideration of all the circumstances, including: the seriousness of the act; whether the lawyer knew that the act was prohibited by statute or ordinance; whether the act was part of a pattern of prohibited conduct; and whether the act was committed in connection with the lawyer s professional activities. No charge of professional misconduct may be brought pursuant to this paragraph until a court or administrative agency of competent jurisdiction has found that the lawyer has

12 engaged in an unlawful discriminatory act, and the finding of the court or administrative agency has become final and enforceable and any right of judicial review has been exhausted.... E. CALIFORNIA RULES OF PROFESSIONAL CONDUCT (FOR LAWYERS) Rule Communication With a Represented Party (A) While representing 2 a client, a member 3 shall not communicate directly or indirectly about the subject of the representation with a party the member knows to be represented by another lawyer in the matter, unless the member has the consent of the other lawyer. Rule Failing to Act Competently (A) A member shall not intentionally, recklessly, or repeatedly fail to perform legal services with competence. (B) For purposes of this rule, competence in any legal service shall mean to apply the 1) diligence, 2) learning and skill, and 3) mental, emotional, and physical ability reasonably necessary for the performance of such service. (C) If a member does not have sufficient learning and skill when the legal service is undertaken, the member may nonetheless perform such services competently by 1) associating with or, where appropriate, professionally consulting another lawyer reasonably believed to be competent, or 2) by acquiring sufficient learning and skill before performance is required. Rule Communication A member shall keep a client reasonably informed about significant developments relating to the employment or representation, including promptly complying with reasonable requests for information and copies of significant documents when necessary to keep the client so informed. Rule Organization as Client (A) In representing an organization, a member shall conform his or her representation to the concept that the client is the organization itself, acting through its highest authorized officer, employee, body, or constituent overseeing the particular engagement. (B) If a member acting on behalf of an organization knows that an actual or apparent agent of the organization acts or intends or refuses to act in a manner that is or may be a violation of law reasonably imputable to the organization, or in a manner which is likely to result in 2 Under California law, an attorney represents a client, for purposes of a conflict of interest analysis, when the attorney knowingly obtains material confidential information from the client and renders legal advice or services as a result. In re Tevis, 347 B.R. 679 (9th Cir. 2006) (California law). 3 Member means a member of the State Bar of California.

13 substantial injury to the organization, the member shall not violate his or her duty of protecting all confidential information as provided in Business and Professions Code section 6068, subdivision (e). Subject to Business and Professions Code section 6068, subdivision (e), the member may take such actions as appear to the member to be in the best lawful interest of the organization. Such actions may include among others: (1) Urging reconsideration of the matter while explaining its likely consequences to the organization; or (2) Referring the matter to the next higher authority in the organization, including, if warranted by the seriousness of the matter, referral to the highest internal authority that can act on behalf of the organization. (C) If, despite the member s actions in accordance with paragraph (B), the highest authority that can act on behalf of the organization insists upon action or a refusal to act that is a violation of law and is likely to result in substantial injury to the organization, the member s response is limited to the member s right, and, where appropriate, duty to resign in accordance with rule Rule Prohibited Contact With Witnesses A member shall not: (A) Advise or directly or indirectly cause a person to secrete himself or herself or to leave the jurisdiction of a tribunal for the purpose of making that person unavailable as a witness therein. (B) Directly or indirectly pay, offer to pay, or acquiesce in the payment of compensation to a witness contingent upon the content of the witness s testimony or the outcome of the case. Except where prohibited by law, a member may advance, guarantee, or acquiesce in the payment of: (1) Expenses reasonably incurred by a witness in attending or testifying. (2) Reasonable compensation to a witness for loss of time in attending or testifying. (3) A reasonable fee for the professional services of an expert witness.