New Jersey Insurance Agents Are Not Exempt From Consumer Fraud Act: State’s High Court

The New Jersey Supreme Court has ruled unanimously that insurance brokers, producers, and agents are not exempt from liability under the state’s Consumer Fraud Act (CFA).

The court found that “extending the learned professional exception to insurance brokers would unduly narrow the scope of the CFA and undermine the Legislature’s intent for it to serve as one of the nation’s strongest consumer protection laws.”

The ruling came in a case brought by James Lowe, M.D, a neurosurgeon who was diagnosed with a vision condition that prevented him from performing neurosurgery. He claims his insurance agents negligently failed to obtain sufficient disability insurance for him.

Lowe’s insurance agents —Bernard Audet and Richard Laver of Creative Financial Group, Ltd. —asked the court to dismiss the case because they argued that they are exempt from the CFA as “semi-professionals” under the “learned professional” exception that has been recognized by courts.

The Appellate Division agreed with the agents that they are exempt and dismissed Lowe’s complaint. But the high court has now reversed the appellate court, vacated the dismissal of the CFA counts in Lowe’s complaint, and remanded the case or further proceedings.

After Lowe was diagnosed with the vision condition that prevented him from performing neurosurgery, he made claims for maximum benefits under the insurance policies that Audet and Laver has procured for him. But the insurers paid only partial benefits due to other business interests of his that were unrelated to his medical practice. Lowe alleges that his agents advised him that he would receive maximum should he become disabled and never advised him that business interests unrelated to his medical practice could affect a benefits claim.

Lowe filed a complaint, alleging that his insurance agents violated the CFA by negligently failing to obtain sufficient disability insurance for him.

The agents then moved to dismiss the CFA count, and the trial court granted the motion, relying on a 2006 Superior Court ruling (Plemmons v. Blue Chip Insurance Services, Inc.) that concluded that like real estate brokers “insurance brokers are ‘semi-professionals’ who are excluded from liability under the CFA for the services they render within the scope of their professional licenses.”

However 13 years later, the Appellate Division disavowed that ruling and decided the learned professional exception to CFA applies only to those professionals “who have historically been recognized as ‘learned’ based on the requirement of extensive learning or erudition.”

The agents insisted that insurance brokers clearly fall within the semi-professional judicially created exceptions to the CFA and should even be considered as exempt as learned professionals.

But the high court explained that the “semi-professional” exception has no support in the text of the CFA, yet the CFA has not been amended to specifically nullify the exception. The court said insurance brokers do not fall under any professional exception, as they are not one of the narrow class of professionals who have historically been recognized as “learned.”

The CFA reads in part:

The act, use or employment by any person of any commercial practice that is unconscionable or abusive, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice . . . .

Those found liable under the CFA face potential penalties that include treble damages, the plaintiff’s court costs and attorney fees, as well as civil fines of up to $10,000 for a first offense.

The high court noted that appellate courts have struggled with the learned professional exception and have issued conflicting rulings about whether it covers licensed semi-professionals.

“Our case law demonstrates that the exceptions to the CFA — both for learned professionals and for semi-professionals — emanate from courts employing different tests and standards to determine whether the CFA encompasses specific conduct. Among the standards courts have considered are the nature of the activity involved; whether that activity is regulated; historical prohibitions on advertising by certain professions; and the level of education and erudition required by a particular field,” the court explained.

The court noted that the state attorney general believes the exception extends only to professionals historically excluded from participating in activities within the CFA’s ambit, which does not include insurance producers . Others have asserted that the “semi-professional” exception is inconsistent with the current text and purpose of the CFA.

While the court said it does not doubt that insurance brokers are skilled in their field, it noted that the educational requirements are minimal: a 20-hour state-approved course for each license type, with no requirement for a high school diploma or equivalent.

The court said the language of the CFA ‘evinces a clear legislative intent that its provisions be applied broadly in order to accomplish its remedial purpose, namely, to root out consumer fraud.”

The court opined that it is well-established “that where the purpose of legislation is remedial and humanitarian, any exemption must be narrowly construed, giving due regard to the plain meaning of the language and the legislative intent.” Accordingly, the court said it must narrowly interpret the learned professional exception while also recognizing the need to broadly interpret the CFA “to accomplish its remedial purpose.”

The court found that the CFA’s substantive, remedial purpose would be undermined if insurance brokers were permitted to seek refuge from CFA liability through the “semi-professional” exemption.

The high court even questioned the “learned professional” exception that has been created by past court rulings in favor of doctors, lawyers, accountants and other professionals with higher education degrees. While the high court stopped short of ending the learned professional exemption, it suggested the Legislature might want to clarify whether any professionals should be exempt from liability under the CFA.