Ethics Case Study - Claims The following role play will introduce you to a real life ethical challenge found in the insurance workplace. The material will describe a business situation laced with potential ethical dilemmas. Instead of acting out obvious ethical miscues or outright fraud, this scenario will focus on a situation with subtle facts which could result in a variety of opinions on both sides of the issue. This vignette focuses on a business situation arising out of a claims issue and could be used as an ethics exercise or activity in a chapter meeting setting. Colossal Casualty Insurance Company, the fictitious company with the slogan, Our prices and service will blow you away is the backdrop for each role play. Colossal is a mid-sized regional carrier specializing in property and casualty business. Cast of Characters Claire DeNial, CPCU Claim Rep Mr. Bossman - Claire DeNial s supervisor Buck Stopshere, CEO Overview A claim involving property damage arising from an earthquake is investigated and appears not to be covered under the Colossal policy contract. However, the insured is a high profile investigative journalist known by millions of viewers who could bring extensive negative publicity to the company if the claim is denied. Narrator The two scenes in this scenario involve a hypothetical loss that hasn t happened yet. However, it could happen. Any resemblance to actual events that may have happened in the past is purely intentional. For years, seismologists have recognized the possibility of another major earthquake in the New Madrid seismic zone, which is located in a multistate area north of Memphis and south of St. Louis. However, most consumers have not purchased an earthquake endorsement to their homeowners or business policies.
Last week the area was struck by a quake of 6.0 magnitude that damaged a number of homes near the quake s epicenter. Claims Rep Claire DeNial, CPCU was assigned a number of claims from homeowners whose houses sustained varying degrees of damage. SCENE ONE: Claims Manager (CM) seated at desk (table) perpendicular to audience. Claire DeNial walks into the room and takes a seat opposite him, both angled slightly toward audience. The conversation outlined below ensues. CM: Well, Claire, how did it go? (adds comments about how much attention the insurance situation has been getting in the media, how it s a bit dicey, etc.) Claire: Pretty well, overall, Mr. Bossman. Most of the policyholders I spoke with didn t have earthquake coverage and knew they didn t have it. So they weren t surprised when I told them their claims were not covered. They just wanted to get their claims on the record and to make absolutely sure they didn t have coverage somehow. Claire: It s really sad to have to deny these claims, because some of them had fairly serious damage. Without insurance, they re facing major problems. I just wish the agents had done a better job of selling our policyholders on the importance of quake coverage. I m glad you called me in, because I think we might have a little problem with one claim. Did you know Dan Rathernot was one of our policyholders? Like most of our customers, he didn t have quake coverage. But this guy just wouldn t take No for an answer. CM: I was afraid that would happen someday. When Dan Rathernot decided to buy his insurance from Colossal Casualty, our marketing manager acted as though he had just brought home a trophy. I told him we d live to regret it if Rathernot ever had a claim. Well, it seems the cows have come home to roost [intentional twisted metaphor]. Are you absolutely sure Dan Rathernot didn t have earthquake coverage, and that all his damage was caused by the quake? Claire: His house was pretty badly damaged, but the damage was just like all the others. It was clearly earthquake-related. And you re right, he did not have the earthquake coverage endorsement. Of course he knew he lived in an earthquake zone. He said that himself. But he says our agent never even mentioned a separate earthquake endorsement, just told him he had all risks coverage, so he never gave it a second thought. I told him sorry, but his claim wasn t covered by the policy he bought. He just smiled and told me to take this message back for our CEO, and that he d collect from Colossal one way or the other. That s how he put it. He said he d get us one way or the other. It was not a very pleasant conversation. I m sorry I wasn t able to handle it any better, but this is one tough customer. CM: Did you talk to the agent at all?
CLAIRE: The agent said he was sure he had mentioned that earthquake coverage was available, but he didn t have anyway to document that conversation. CM: Don t do anything more on POL s claim until I discuss it up the line. If we want to keep our jobs, we need to cover our scapegoat [another twisted metaphor]. Thanks for bringing this to my attention. Narrator: Ever since his show s name was changed to Forty Minutes, Dan Rathernot has been a pain in the neck for the entire insurance industry. When he bought a policy from Colossal Casualty, the company figured this was a chance to stay on his good side. Colossal Casualty cooperated with some of Rathernot s investigations and even helped him when he did some reports against the company s competitors. Colossal also provided a source when Forty Minutes needed a comment on some insurance issues. After meeting with Claire DeNial, the claims manager called the company s claims vice president who ended up in a heated meeting with the CEO and Colossal s head of public relations, who considered what would happen if the claim is denied. [could expand or reduce this list][pete gets more and more wound up as he explains the outcomes] Rathernot will do a broadcast that makes it look like a personal attack. The resulting publicity will probably lead to a loss consumer confidence in our company and a loss of business. Colossal Casualty, which already sounds like a bad joke, might even become a household name, like Enron. The company s complaint ratio would certainly increase. Adverse publicity just might trigger an audit of the company s entire claims operation. You know how expensive an audit can be, even if they don t find any problems. And they always find some. Rathernot might take the company to court. He d love the publicity, and the network would give it plenty. A high-profile trial gets expensive for the insurer. There might be class-action suits. And if Colossal should somehow lose say the courts find that the earthquake exclusion is ambiguous the company would have to pay dozens of claims. That could affect the entire industry, and if that happens even other insurers will be mad at Colossal. The meeting ended with this instruction from the CEO: VOICE OVER SPEAKERS, CEO (not visible to audience) SPEAKING: All of this could easily result in a loss of earnings and lower the value of our company stock. The Board will not be happy campers if I let that happen! It will cost us more to deny this claim than to pay it! I don t care how, but you re going to find a way to pay this doggone claim without turning it into a class action suit! [Short pause while these words hang in the air.]
Narrator continues: After a long telephone conversation between the vice present and the claims manager, the claims manager calls Claire DeNial into his office for our final scene. SCENE TWO: CM begins speaking as Claire walks into his office: It seems Dan Rathernot s claim went all the way to the top. You wouldn t believe the phone call I just had! Bottom line, if we want to keep our jobs, we need to pay this claim and make sure it goes away. Here s how you re going to handle it. You re going to go right out to Dan Rathernot s place and tell him you found a way to pay his claim. Then process the payment as quickly as you can. CLAIRE: How can I do that? The file isn t going to look right, and it would never stand up under an audit. CM: Rathernot doesn t need to know the details, but here s how we ll do it. I don t care what the agent said. We re going to assume that Rathernot would have bought the earthquake endorsement if he had known about it, and we ll add the endorsement to his policy effective with his last renewal. We ll forget to charge an extra premium for the endorsement. So just code the claim as though it was always covered. CLAIRE: What about our other policyholders who didn t have earthquake coverage? They re in exactly the same situation except that a lot of them are a lot worse off. CM: They re not in the same situation. Dan Rathernot is the only one who has the influence to make a big stink about it. One more thing: This settlement has to remain absolutely confidential. He doesn t need to know how we finagled things to pay his claim. All he cares about is that he gets paid. Make sure Rathernot knows this is just between him and us. Do you think you can manage that? CLAIRE: As long as he gets paid, I think Rathernot would agree to keep his mouth shut. But there might be another problem. CM: (starting to look concerned) What s that? CLAIRE: (looking embarrassed and/or ashamed): Well I might have told some of the other claimants that they weren t the only ones who got caught without earthquake coverage. I kind of mentioned to some of them that Dan Rathernot was in that same boat and that he was fighting to get his claim paid and I promised to let them know how Rathernot s fight came out.
CM: You did what?!!! Your actions might jeopardize this whole settlement and even the reputation of this company. You re a CPCU; you re supposed to know better than that. What you did could get you fired! Don t you understand our privacy policy? We promise our policyholders that their information is confidential. That applies especially to our high-profile policyholders. CLAIRE: (sheepishly, as though she isn t quite convinced of what she s saying): Since Rathermore said he was going to fight this claim, I figured it would soon be public information anyway. (short pause) What do we do now? ETHICAL ISSUES THAT MIGHT BE RAISED INCLUDE: Special treatment for high-profile claimant. Denial of same treatment to other claimants/unequal treatment. Agent said client had all risks coverage. Agent did not document whether he presented the quake coverage option but insists he had. CM and Claire more interested in CYA than doing what s right. Executive decision to pay uncovered claim because it s cheaper than denial. Phony grounds for policy reformation. The privacy issue. Firing employee for making a mistake. This case study was developed by members of the CPCU Society s Ethics Committee and presented as part of an ethics seminar at the 2008 CPCU Annual Meeting and Seminars in Philadelphia, PA.