California Property & Casualty Broker-AgentEthics and Professional ConductMedium
An insurance broker, David, is approached by a small business owner who needs commercial general liability (CGL) insurance. David discovers that the business has a history of several minor claims. To secure a lower premium and make the policy more attractive, David advises the client to 'forget to mention' these minor claims on the application, suggesting they are too small to matter. What ethical principle is David violating?
- AFiduciary duty of loyalty and good faith
- BMaintaining confidentiality
- CAdhering to advertising regulations
- DProviding competent advice
Show answer & explanationAnswer & explanation
Correct answer: A. Fiduciary duty of loyalty and good faith
David's advice directly encourages misrepresentation on an insurance application, which is a breach of his fiduciary duty of loyalty and good faith to both the client and the insurer. He is knowingly facilitating a material misrepresentation that could lead to policy rescission or claim denial.
Why the other options are wrong
- B. This scenario involves misrepresentation, not a breach of client confidentiality.
- C. This scenario does not involve advertising; it concerns the application process itself.
- D. While it's incompetent advice, the deeper ethical violation is the betrayal of trust and good faith inherent in the fiduciary relationship.
Fiduciary Duty of Loyalty
An insurance broker, acting as a fiduciary, must always prioritize the client's best interests, act in good faith, and avoid any actions that could harm the client or the integrity of the insurance contract, including facilitating misrepresentation.
- Requires utmost good faith and honesty.
- Prohibits actions that could lead to policy invalidation for the client.
- Extends to both the client and the insurer in the application process.
Memory trick: Loyalty to truth, for client's sake; no omissions, no mistakes.