3/29/2014

A Question of Ethics

Are you prepared to face investigation dilemmas?

By Donna J. Popow

As insurance professionals, we encounter ethical dilemmas in all phases of our work, including fraud investigations, which can prove to be especially challenging. Because each situation is unique, it is imperative to know ahead of time how you will approach an investigation. Having a methodology to identify and resolve dilemmas is an important and useful tool. In preparation to face these challenges, see if you can identify and resolve the following dilemmas.

Sally is the special investigator assigned to work a suspicious fire with Bob, the claims adjuster. The insured, XYZ Jewelers, has offered Sally and Bob copies of the financial records and inventory that Bob has requested in return for an agreement that Bob will not do a Google search or a court record search. Bob agrees to these terms in order to get the claim moving, and the insured turns over the requested documents. Bob confides in Sally that he is under pressure from the agent to pay this claim quickly, which is why he made the agreement to get the records.

Does Sally have an obligation to inform anyone about the information that Bob has confided to her?

First, determine if this is an ethical dilemma. It is obvious that Bob made a bad decision when he agreed not to do the search in return for information he was entitled to receive under the terms of the policy. Was it a mistake in an effort to expedite the claim or an intentional act to derail a fraud investigation? Are there enough facts to make a decision? One of the preliminary questions we have to ask ourselves when faced with a situation is if we’re facing an ethical dilemma or if there are laws, regulations, or rules that tell us what should or should not be done.

Second, make sure that you have all the facts needed to make a decision. When ascertaining the facts, make sure to look to all possible stakeholders for information, then consider the reliability and accuracy of your sources. If you do not have sufficient information, how do you go about getting it?

After reviewing the financial records, Sally’s suspicion that the insured was involved in starting the fire grows stronger. She decides to call in a favor with Detective Thursday and ask him if there has been any recent suspicious activity in the vicinity of the insured’s location and whether the principal at the insured location, Milton Gusst, has an arrest record. Det. Thursday advises that Milton Gusst does not have an arrest record, but his son, Zachary Gusst, has a prior felony conviction for burglary. The detective also tells Sally that the son is currently on parole and employed at a local gas station.

Should Sally have used her contact to get this information, and now that she has it, should she use it?

Humans are masters of rationalization. This is something to be aware of when facing an ethical dilemma. There are several ways Sally can rationalize her decision to get the police records:

  • Bob made the agreement; she did not.
  • Bob made a mistake in making the agreement, so it is not really valid.
  • Bob may have some incentive to hinder this investigation, so the agreement is not valid.
  • Technically, Sally did not do the search; Detective Thursday conducted the search.
  • The decision has turned up valuable evidence, so the breach of the agreement is justified.

However, beware of self-serving rationalizations for behavior; they can be used as an excuse for unethical behavior. It is not a valid argument that the wrongdoing by Bob outweighs the wrongdoing by Sally. Additionally, the ethical or unethical nature of an act should be considered before it is committed, not based on the results of the act.

Should Sally use this information now that she has it? It certainly suggests that there is a need for further investigation, but how will she explain the way she obtained the information? Will she admit the breach of the agreement in order to conduct a proper investigation?

Further, does it seem as though Sally and Bob’s intentions with regard to this claim are not in alignment? If so, should Sally discuss the problem with Bob first? Should she go to his direct supervisor? Does she have enough information to say anything?

A few days later, Sally is back at the claims site reviewing the scene with the fire marshal. The fire marshal shows Sally two spots that appear to be the origin of the fire and indicates that he will be testing for possible accelerants. Sally mentions to the detective that the insured’s son has a felony conviction and works at a gas station, so she’s pretty sure he will find an accelerant.

Keeping It Proper

While this may have been nothing more than an offhanded comment, it leads one to question the impartiality of Sally’s investigation. It could be seen as a means of suggesting a conclusion to the fire marshal. Insurance professionals should ensure that their conclusions are based on all of the facts of a case, including exculpatory facts, before making public statements. It is possible that such a comment could be used as the basis for a bad-faith argument. Investigators must be very careful not to falsely accuse anyone of fraud or to create a perception that fraud has occurred.

The investigation of any claim, with or without the element of fraud, can create ethical dilemmas. Often a situation will occur that does not seem right. That is the time to go through your checklist, not after the action has been taken.

  • Does this situation involve a core ethical principle?
  • Is there a law, regulation, or rule that addresses the situation?
  • Do I have all the facts?
  • Is the source of the facts credible and reliable?
  • Do I understand the situation from the perspective of all stakeholders?
  • Am I rationalizing to justify what I want to do?
  • Can I publicly defend the action I am taking?

 Remember the words of Albert Einstein, “Relativity applies to physics, not to ethics.”



Donna J. Popow, JD, CPCU, AIC, is president of Donna J. Popow LLC, and has more than 25 years of experience in the property and casualty insurance industry. She has been a CLM Fellow since 2007 and can be reached at (215) 630-0829.

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