New Jersey Supreme Court rules insurance brokers aren’t exempt from Consumer Fraud Act

A recent New Jersey Supreme Court ruling finds that insurance brokers, producers, and agents are subject to the state’s Consumer Fraud Act (CFA) and can’t avoid liability by claiming they are exempt “semi-professionals.”

The July 15 unanimous ruling in Lowe v. Audet, while in the context of medical disability benefits, could pose broader implications in state insurance claims practices.

According to a court clerk syllabus of the case, the appeal addresses whether insurance brokers, producers, and agents are exempt from the CFA as “semi-professionals” under the “learned professional” exception. It states that Dr. James Lowe is a neurosurgeon who co-owned a medical practice and several unrelated businesses.

Lowe purchased disability insurance from defendants Bernard Audet and Richard Laver, who are insurance brokers and producers employed by the Creative Financial Group, Ltd., between 2003 and 2016. He was reportedly advised that he would receive maximum benefits if he were ever to become disabled.

“Defendants never disclosed other business interests could affect benefits,” states a LexisNexis summary of the Supreme Court ruling. “Lowe was diagnosed with bilateral maculopathies preventing neurosurgery in 2021. Insurance companies paid only partial benefits due to Lowe’s other businesses.”

The syllabus adds that Lowe’s vision condition prevented him from performing neurosurgery, and because of this, he made claims for maximum benefits under his insurance policies.

“The insurance companies paid only partial benefits due to plaintiff’s other business interests unrelated to his medical practice,” the syllabus states.

“Plaintiff filed a complaint, alleging that defendants violated the CFA by negligently failing to obtain sufficient disability insurance for him. Defendants moved to dismiss the CFA count, and the trial court granted the motion, relying on Plemmons v. Blue Chip Insurance Services, Inc., 387 N.J. Super. 551 (App. Div. 2006). The trial court acknowledged, however, that it was ‘arguably faced with two competing’ appellate decisions, Plemmons and Shaw v. Shand, 460 N.J. Super. 592 (App. Div. 2019). The Appellate Division affirmed. The court granted leave to appeal the dismissal of the CFA count.”

The syllabus further notes that in Plemmons v. Blue Chip Insurance Services, the Appellate Division concluded “‘insurance brokers are ‘semi-professional[s]’ who are excluded from liability under the CFA for the services they render within the scope of their professional licenses. …Thirteen years later, the Appellate Division decided Shaw, which ‘narrowly construed’ the learned professional exception and concluded it applies only to those professionals ‘who have historically been recognized as ‘learned’ based on the requirement of extensive learning or erudition.’ Shaw also determined that ‘[t]o the extent our prior decisions, including Plemmons…, have applied the learned professional exception to ‘semi-professionals’ who are regulated by a separate regulatory scheme, we …depart from that reasoning.”

The Supreme Court’s rationale for weighing in was that the “semi-professional” exception lacks textual support in the CFA statute, according to the LexisNexis summary.

“Insurance brokers are not historically recognized learned professionals like physicians or attorneys,” the summary states. “Insurance brokers could advertise when CFA was adopted, unlike exempt professions. Licensing alone is insufficient for CFA exemption under Lemelledo. Extending exemption to insurance brokers would undermine CFA’s remedial consumer protection purpose.”

The Supreme Court ruled 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 Attorney General asserts that, since this Court’s decision in Macedo v. Dello Russo, 178 N.J. 340, 840 A.2d 238 (2004), our appellate courts have struggled to identify the contours of the learned professional exception and have issued conflicting rulings about whether it covers licensed semi-professionals,” the court states according to the summary. “The Attorney General contends that the exception extends only to professionals historically excluded from participating in activities within the CFA’s ambit, which does not include defendants here.

“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 reversed the Appellate Division’s judgment, vacated the dismissal of the CFA counts, and remanded the case back to the lower court for further proceedings.

Insurance Journal reports that the defendants argued the Supreme Court “had no reason to even hear the appeal.”

“They 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,” the article states. “They argued that since 2006, New Jersey courts have held that insurance producers are entitled to the learned professional exemption and that in 2009 (Lee v. First Union Nat’l Bank), the Supreme Court itself agreed that insurance producers are in the same learned class with doctors and lawyers for this purpose. They further argued that the legislature has not amended the CFA to undo this history.”

The article notes the following exerpt from the CFA:

“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…”

A Business Insurance news article on the Supreme Court’s ruling states: “While the ruling clears the way for the physician’s fraud claims to proceed, the justices stopped short of eliminating the broader ‘learned professional’ exception altogether, leaving that question for a future case. The court also invited the New Jersey Legislature to weigh in on which, if any, professionals should be exempt from the law.”

The Supreme Court ruling syllabus backs up the article’s remark, stating that the court “does not assess or affirm the underlying ‘learned professional’ exception and invites the legislature to clarify whether certain professionals are exempt from liability under the CFA.”

It adds: “The NJCA [New Jersey Citizen Action] explains that most states exercise ‘relative caution’ against granting ‘blanket exemptions’ from their consumer fraud laws and that, in thirty-four states, ‘learned professionals, including doctors and lawyers,’ can be sued for claims arising from ‘commercial or entrepreneurial aspects of their profession.’”

The Supreme Court ruled that it permitted the New Jersey Attorney General, the New Jersey Association for Justice (NJAJ), and the NJCA to appear as amici curiae, meaning that while they aren’t parties in the case, they were allowed to advise the court in respect to how the law directly affects the case.

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