Hunton Insurance Recovery Blog

New Jersey has some of the strongest consumer-protection laws in the nation. The state’s courts, however, had created judicial carve-outs for professionals and semi-professionals, exempting them from liability under those laws. Those carve-outs expressly included insurance brokers, whom the courts classified as semi-professionals.

That changed in Lowe v. Audet. After the lower courts dismissed a disabled doctor’s consumer-protection claims against his insurance brokers, the New Jersey Supreme Court held that exempting semi-professionals from the state’s consumer-protection laws was inconsistent with the origins of the judicially created “learned professional” exception, undermined the Legislature’s intent, and risked allowing the exception to swallow the rule. The Court also expressly invited litigants to challenge the learned-professional exception itself and invited the Legislature to address whether the exception should remain and, if so, what its scope should be.

This result is a significant victory for policyholders.

The Dispute

The plaintiff was a neurosurgeon who owned a medical practice and several unrelated businesses. For 13 years, the defendants, insurance brokers and their employer, marketed, sold, produced, and procured insurance policies for the plaintiff and his medical practice, including disability coverage. According to the plaintiff, the defendants advised him that he would receive maximum benefits in the event of a disability. He also alleged that they never advised him that his benefits could be affected by his other business interests.

In 2021, the plaintiff was diagnosed with a vision condition that prevented him from performing neurosurgery. He sought maximum benefits under the policies he had purchased through the defendants, but the insurers paid only partial benefits because of his other, unrelated business interests.

The plaintiff sued. Among other claims, he asserted a claim under New Jersey’s Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 et seq., alleging that the defendants negligently failed to obtain sufficient disability insurance. More specifically, he alleged that (i) he was a consumer who purchased the insurance policies; (ii) he suffered a loss resulting from the defendants’ CFA violations; (iii) the defendants were merchants; (iv) the insurance policies constituted “merchandise”; and (v) the CFA applied to the defendants’ marketing, sale, and procurement of the insurance policies issued to him. Among other remedies, the plaintiff sought treble damages under the CFA.

The trial court granted the defendants’ motion to dismiss the CFA claim, and the New Jersey Appellate Division affirmed.

New Jersey’s Consumer Fraud Act

“New Jersey has one of the nation’s strongest consumer protection laws,” and the CFA has continually expanded. In relevant part, it provides as follows:

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 . . . .

N.J.S.A. 56:8-2 (emphases added by the New Jersey Supreme Court). “Merchandise” is defined, in relevant part, as “any … services or anything offered, directly or indirectly to the public for sale.” Id. at -1(c). And “advertisement” is defined to include:

the attempt directly or indirectly by publication, dissemination, solicitation, indorsement or circulation or in any other way to induce directly or indirectly any person to enter or not enter into any obligation or acquire any title or interest in any merchandise or to increase the consumption thereof or to make any loan.

Id. at -1(a).

Historically, New Jersey courts exempted from CFA liability “professionals” and “semi-professionals” which “have historically been recognized as ‘learned’ based on the requirement of extensive learning or erudition.” This group included insurance brokers, whom courts had classified as “semi-professionals.”

The Decision

The Court first recognized that the professional and semi-professional exceptions to the CFA arose from courts applying different tests and standards to different types of conduct. It then surveyed those cases and the Legislature’s responses to certain decisions. Rather than providing clarity, however, the Court concluded that its “review of the CFA and case law related to the so-called ‘semi-professional’ exception leaves more questions than answers.”

The Court was certain of one point: “insurance brokers, producers, and agents are not exempt from the CFA” (emphasis added). They are not among the professionals historically recognized as “learned,” such as doctors, lawyers, and theologians. In addition, insurance brokers have always been permitted to advertise. Although insurance brokers must be licensed, “licensing and regulation alone are not a sufficient basis for exemption from the CFA,” and the Court found no conflict between the CFA and the regulations governing brokers. The Court acknowledged that insurance brokers are skilled, but noted the limited educational requirements for entering the profession.

Ultimately, the Court determined that the CFA’s remedial purpose would be undermined if insurance brokers could avoid liability under the “semi-professional” exception. The CFA was designed to apply broadly to accomplish its remedial purpose, while exceptions must be narrowly construed. Applying those principles, the Court held that “semi-professionals like insurance brokers, producers, and agents are not exempt from the CFA.” The Court observed that the opposite holding would allow the exception to swallow the rule, extend judicially created exceptions beyond their limited origins, and harm consumers. Although the Court declined to overrule the “learned professional” exception itself, it expressed “serious doubts” about the exception and invited a future challenge that would permit the Court to address it directly. The Court also invited the Legislature to provide clarity.

Key Takeaways

This case should incentivize insurance brokers in New Jersey to ensure that coverage aligns with policyholders’ insurance needs and objectives. It also gives policyholders leverage to secure their brokers’ cooperation if an insurer refuses to fully cover a claim. Finally, the decision provides a powerful tool for policyholders who, despite their best efforts, find themselves inadequately insured because of broker missteps. The CFA authorizes treble damages, attorneys’ fees, and costs. If policyholders find themselves in the unfortunate position of being inadequately insured, those remedies provide significant leverage to achieve a potential resolution with the broker and its errors and omissions insurer in lieu of costly litigation. Although the decision arose in the context of insurance brokerage services, it stands to alter the landscape for many semi-professions in New Jersey. The Court effectively eliminated the “learned professional” exception for “semi-professionals” and may have signaled the exception’s eventual demise more broadly.