Chapter 4 - Constitutional Authority to Regulate Business s1

BLTC-9e Case Problem with Sample Answer

Chapter 8: Ethics and Business Decision Making

8.4 Case Problem with Sample Answer

Havensure, LLC, an insurance broker, approached York International to determine whether it could provide insurance to York at a better rate than it currently was paying. York allowed Havensure to study its policies. Havensure realized that Prudential, an insurance provider for York, had a hidden broker fee in its premium that it used to pay the broker universal life resources (ULR) that provided the Prudential policy for York. Havensure told York that it could provide insurance at a lower price, so York had Havensure send requests for proposals to various insurance companies. To keep York’s business, Prudential offered to match the lowest rate quoted, but Prudential told York that it would have to continue to buy the policy through the broker ULR, and not through Havensure. York agreed. Havensure then sued Prudential for wrongful interference with a business relationship (see Chapter 4). The trial court held for Prudential. Havensure appealed. The appeals court held that what Prudential did, by having a hidden fee for a broker, violated its ethical code and may have violated New York insurance law, but Havensure still had no case. Does it make sense that a firm violating its own rules, as well as possibly violating the law, has no obligation for the loss it may have imposed on another firm that is trying to compete for business? Explain your answer. [Havensure, LLC v. Prudential Insurance, 595 F.3d 312 (6th Cir. 2010)]

Sample Answer:

The appeals court stated that “Havensure alleges that Prudential violated its own internal policies and that this violation suffices to render Prudentials’s conduct wrongful. This argument has no legal basis. Although violations of ‘recognized ethical codes’ or ‘established customs or practices’ may be significant in evaluating the nature of an actor’s conduct, Havensure has identified no authority suggesting that a violation of internal policies has … significance.” That is, violation of ethical codes may be taken into account, but is not the basis for liability. Further, “Havensure also suggests that Prudential used ‘illegal means’ because it included hidden broker compensation in the plan that it originally provided to York. Yet, even if such conduct was illegal, it has no bearing upon the present inquiry.” That is, such a violation would be a matter of concern for insurance regulators, but does not, in itself, create an obligation to Havensure. The court noted that the hidden broker fee ran up the cost of insurance, thereby making Prudential less competitive. Removal of the fee was not improper. York had the right to choose any policy and any broker.