An Offer You Can't Really Acceptor Refuse

November 2005

Justin Case, like all other good insurance brokers, wanted his clients to be safety conscious.
by George L. Head, Ph.D. American Institute for CPCU So Justin at first welcomed the unexpected offer from his long-time friend, Bob, the owner of Omega Refuse (whose garbage trucks had "We Put an End to Your Trash Problems" painted on their sides). Justin understood that Bob's offer stemmed from the very serious fire that had burned Bob's garbage disposal facility to the ground last year. Bob always had been rather careless and sloppynot good traits for someone in the trash collection and disposal business. Justin hoped that Bob's offer signaled his new interest in better risk management.

Bob's Offer
Bob's offer was to pay Justin a $1,000 monthly retainerbeyond and apart from Justin's regular insurance commission income from the Omega accountjust to keep Bob posted on fire-safety innovations that might prevent or quickly extinguish any more fires in Bob's newly rebuilt facility. This sounded like Bob was finally getting serious about fire risk management. But this offer to Justin contained a crucial proviso: Justin could not share his fire safety findings with anyone particularly not with Frank, Bob's arch business rival, the owner of Alpha Garbage Services ("Alphathe First Word in Trash Management"). Bob explained that the separate retainer he was offering Justin each month made whatever new fire safety information Justin found that month Bob's exclusive proprietary information, at least relative to any of Justin's present or potential clients, most especially Frank.

Justin's Dilemma
Justin realized he would have several ethical problems accepting Bob's offer:

First, Frank was also one of Justin's clientssomeone with whom Justin had a professional duty to share the best information Justin had about fire safety in trash management. Second, Justin felt he had a duty to avoid endangering the entire town, which he believed he would be doing if he withheld from any of its residents whatever fire safety information he might find in working under the retainer Bob was offering. Third, Justin felt that the arrangement Bob was proposing would force Justin to wrongfully withhold significant information from the insurer which was covering both the Omega and the Alpha trash removal firms. Justin recognized that, if he had been an agent for this insurer rather than a broker, he definitely would have been in violation of his agency duty to act in the insurer's best interest. He would have had to tell both Bob and Frank everything new he learned about fire safety in trash management. But even as a broker, Justin felt he would be withholding key information from the insurer if he did as Bob was asking Justin to do, thus jeopardizing Justin's long-term relations with this insurer.

Still, Justin saw he could not just reject Bob's proposal outright, telling Bob to go find fire-safety innovations on his own.

First, left on his own, Bob probably would not do anything more about fire safety, so his new facility would remain as hazardous as the original one, endangering both Bob's operations and the entire town. Second, discouraging Bob from practicing better fire safety would not be in the best interest of the insurer and, more broadly, of that insurer's policyholders, among whom the financial burden of Bob's likely future fire losses would be spread. Third, spurning Bob's initial, if inept, efforts to manage Omega's fire risks better probably would discourage him from trying any broader risk management practices for combating other perils and losses.

Some Possible Answers

In short, Justin faced an ethical dilemma: he could neither accept nor reject Bob's proposed retainer arrangement as it stood. What other alternatives did Justin have? Perhaps he should: 1. Reject Bob's offer of a retainer, but still research on his own good fire safety practices in trash management and offer his findings for free to Bob, Frank, or anyone else interested. 2. Locate a consultant or other organization that is much more expert than Justin in fire safety for trash management operations, and recommend to Bob, Frank, and anyone else who is interested that they each work with that consultantin effect, getting Justin "out of the middle" while still providing access to highly competent risk management for those who seek it. 3. Choose some other option that you or other readers have found to be most effective in resolving dilemmas that involve different clients' conflicting interests in what they see as their own proprietary information.

Some Broader Questions for Many of Us

This third option for what Justin should do is not as vacuously empty as it may first seem. In fact, this option leads to what I believe is my key point here. Our example here involving Justin, Bob, Frank, an insurer, and their communityis an intentionally simplified case of a situation that insurance agents, brokers, consultants, and other risk management professions face almost daily. In serving many clients simultaneously on a daily basis, all these professionals have ready access to competing clients' truly proprietary information. These risk management professionals have a duty to each client to hold that client's proprietary information truly confidential from that client's competitors. Normally, keeping clients' confidences is not a great problem for risk management professionals. It is not often that an insurance agent or broker or a risk management consultant has two or more clients that are fierce competitorsand rarer still that these clients' respective pieces of proprietary information have risk management significance, as they do in Bob's and Frank's access to information on fire safety in trash management. Still, I ask those readers who do have procedures for dealing daily with clients' purportedly proprietary information to review how their procedures would apply to Justin's dilemma here. Would these procedures guide him in what to do here? Would those procedures benefit both Bob and Frankand would these procedures serve the broader risk management interests of the insurer and of the town in which Bob, Frank, and Justin all live, hopefully free from the flames and fumes of trash once again burning out of control? Perhaps most fundamentally, is access to risk management expertise a legitimate arena for competition, as Bob would have it beor is such access a right of everyone in the community, regardless of how narrowly or globally we define the community? If Justin learns in the future about better ways to prevent or extinguish fires in large accumulations of trash like those with which both Bob and Frank work, and assuming that both Bob and Frank remain Justin's clients,

1. Does Justin have a right to not share this information with anyone, because no one neither Bob, nor Frank, nor their insurerasked Justin for this information? 2. Are there any circumstances under which Justin should give this fire safety information to just one client, either Bob or Frank, but not to the other? (I've argued above that one client's paying Justin a special fee for this information is not such a circumstance. However, there may be other sets of circumstances in which withholding the information from either Bob or Frank would be ethically properI'm not sure yet.) 3. If Justin learns that Frank (let's say) really has developed, on his own without Justin's or anyone else's help, some proprietary information on fire safety in trash management, what should Justin, as a true risk management professional interested in effective risk management for the entire community (however broadly or narrowly defined) do? Personally, I think Justin should urge Frank to make his proprietary information public to the world, but I'm an educator, not a business person of any kind. Please tell me what you think Justin should do.

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