Bob Thomas works for an insurance brokerage firm, Brooks and Burlington (B&B), which is engaged by its clients to obtain the best coverage for their needs. To do this, the firm evaluates a client’s situation, works to stay informed about insurance providers, negotiates on a client’s behalf and presents proposals to the client for approval. The firm’s compensation comes primarily from a commission that is paid by the client as part of the premium. The amount of the commission is calculated as a percentage of the premium amount, and the industry average for commissions is between 10 percent and 15 percent. A secondary source of compensation is a contingency payment that is made annually by insurance providers. The amount of this payment is based on the volume of business generated during the past year.

One of the firm’s clients, a world class museum in a major American city, has been served for years by Indemnity Insurance Company (Indem). Indem is a financially sound insurer that has provided the museum with reliable coverage at reasonable prices. Indem has gone out of its way on many occasions to be accommodating to the museum. When the museum’s general liability policy was up for renewal, B&B was asked to obtain competitive proposals from suitable insurers. Quotes were obtained from four comparable insurance companies with annual premiums ranging from $90,000 to $100,000. A fifth, unsolicited proposal was sent by a small, shaky insurance company named Dependable. The annual premium quoted by Dependable was $60,000.

The museum has a very tight operating budget and funding from public and private sources is always unpredictable. Consequently, the museum is forced to be very frugal in its spending and has always chosen the lowest bid for any service without regard to quality of service or product. Thomas is uncertain as to whether it should present the Dependable bid to the Museum. If he does, the client will almost certainly choose Dependable given its priority of saving money. Because the market indicates the value of the needed policy is around $100,000, Thomas believes the Dependable proposal is an attempt to “low ball” the competition in order to obtain the client’s business with the intention of raising the premium in the future. Thomas is genuinely concerned about whether the financial condition of Dependable is sufficiently sound so that it will be able to honor any and all claims by its insureds.

Allowing the client to accept a low-ball bid might also jeopardize B&B’s relations with reputable insurers who submitted honest proposals in good faith. If the Dependable proposal is not presented, however, the museum may be angry at B&B for not passing along all of the proposals for evaluation. B&B has also enjoyed a good relationship with one of the other four insurance companies that submitted proposals. This insurer allows a 17 percent commission on premiums earned on insurance business placed by B&B. This fact has not been disclosed to the museum.

B& B decides that it would not be in the client’s best interest to share the Dependable proposal with them. With regard to the museum’s existing insurance coverage with Indem and the other proposals, their advice to the client is “maybe it is time to think about a change”

What ethical issues are presented in the above circumstances?