White and Williams Limits Reach of New Jersey's Consumer Fraud Act in Two Reported Appellate Decisions
In two reported appellate decisions handed down days apart, attorneys at White and Williams limited the reach of New Jersey’s Consumer Fraud Act (CFA) (codified at N.J.S.A. 56:8-1 et seq.) by exempting licensed insurance producers and the sophisticated insurance products they market from the purview of the Act. On August 21, 2006, New Jersey’s Appellate Division ruled in Plemmons v. Blue Chip Ins. Servs., Inc., 2006 WL 2388672 (N.J. Super. Ct. App. Div. Aug. 21, 2006), that licensed producers are not subject to CFA claims, thus settling law which had been uncertain for at least nine years. In Cetel v. Kirwan Fin. Group, Inc., 2006 WL 2466855 (3d Cir. Aug. 28, 2006), the Third Circuit Court of Appeals ruled that the marketing of sophisticated employee benefit plans, known as a Voluntary Employee Beneficiary Associations (VEBA), were not ordinary consumer products within the purview of the Act.
New Jersey’s CFA was enacted to protect consumers against imposition and loss as a result of fraudulent practices by persons engaged in the sale of goods and services. The Act is commonly recognized as one of the strongest consumer protection laws in the United States. For many years, courts dismissed CFA claims against insurance companies and insurance brokers arising from the sale of insurance. This state of the law changed in 1997, however, when the New Jersey Supreme Court concluded in an insurance “loan packing” case that the CFA extended to the sale of insurance policies as goods and services that are marketed to consumers. But in 2004, the New Jersey Supreme Court concluded, in a case involving physicians, that “learned professionals” were beyond the reach of the CFA. Whether that decision could be extended to benefit the insurance brokerage community was uncertain until the recent decision in Plemmons.
In Plemmons, White and Williams represented an insurance agency and a producer sued in the connection with the sale of business insurance policy. Although the jury initially returned a modest verdict against the brokers on the CFA claims, the trial judge ruled on post-trial motions that the brokers were learned professionals beyond the purview of the Act. New Jersey’s Appellate Division agreed, reasoning that licensed insurance brokers are “semi-professionals” excluded from liability under the CFA for services they render within the scope of their professional licenses. In reaching this conclusion, the Appellate Division noted that insurance producers were already regulated by other provisions of New Jersey Law, including the Insurance Producer Licensing Act (N.J.S.A. 17:22A-26 to 48) and the Standards of Conduct which are imposed upon the licensed brokerage community by the Department of Banking and Insurance (N.J.A.C. 11:17A-1.1 to 17D-2.8).
In Cetel, White and Williams represented an insurance broker who marketed sophisticated employee benefit plans sold to businesses. The plaintiffs asserted a CFA claim, but the district court entered summary judgment in favor of the brokers, ruling that the VEBA plans marketed by the insurance broker were not ordinary consumer transactions. The Third Circuit agreed. It found that the VEBA plans were sophisticated tax-avoidance schemes marketed to certain types of businesses. The plans were neither marketed nor available to the general public, and thus, were not ordinary consumer transactions within the purview of the Act.
Taken together, Plemmons and Cetel represent substantial victories for the insurance broker community in New Jersey because brokers will be exempt from the CFA’s treble d damage and attorney fee exposures.