Gas Co., 77 N.J. 267, 272, 390 A.2d 566 (1978) (New Jersey Supreme Court, under same reasoning, refused to apply the CFA to the rate setting of utility company). But on the other hand, the Pierzga court also explicitly noted that the facts of that case did "not involve a case of a consumer being victimized by unscrupulous or fraudulent marketing practices." Id.
Not surprisingly, defendants' papers selectively focus on the former point, noting that the Insurance Trade Practices Act
, ("ITPA"), N.J.S.A. 17B:30-1 et seq., which contains provisions specifically prohibiting misrepresentations in advertisements of insurance policies, should preclude the application of the more general CFA. According to defendants, jurisdiction over plaintiffs' fraud claim lies solely in the hands of the Commissioner of Banking and Insurance. In response, plaintiffs have, of course, seized the limiting language of Pierzga, and strive to distinguish that case factually. In the absence of any real precedent on the matter, this Court found itself in the uncomfortable position of having to prophesy how the state Supreme Court would rule if presented with this issue.
Then, like a true good buddy who anticipates your needs before you can even articulate them, just days after the papers were filed in this matter, the New Jersey Supreme Court decided Lemelledo v. Beneficial Management Corp. of America, 150 N.J. 255, 696 A.2d 546 (1997) and resolved the present issues squarely and unambiguously.
In Lemelledo, the plaintiff had applied for a $ 2,000 loan from Beneficial. When she went to defendant's office to pick up the check, to her surprise she was presented with a loan contract for $ 2538.47 and a check for $ 2,203.19. While it is unclear why she received $ 203.19 more than she had applied for, the $ 335.28 difference between the amount in the contract and the amount Lemelledo received was earmarked for credit insurance premiums to cover the possibility that she would default on her loan repayment.
Beneficial had provided a form noting that the insurance was not a prerequisite to obtaining credit, but the company's actions led Lemelledo to believe that she would not receive the loan if she did not purchase the insurance. Beneficial presented the insurance and the loan agreements in a single contract with one lump sum. It did not advise Lemelledo as to whether the insurance was appropriate for her, and never discussed the insurance apart from the loan. Moreover, Lemelledo felt pressured to take the insurance because, had she declined, she would have had to return at a later date to receive the reprocessed loan proceeds. These tactics were particularly effective because Lemelledo was of limited financial means and therefore did not have many available sources of credit. Lemelledo repaid the loan but not the entire balance due on the insurance premiums. She then brought an action against Beneficial, asserting, inter alia, violations of the Consumer Fraud Act.
The Supreme Court began its analysis by finding that "although several lower courts have held that the payment of insurance benefits is not subject to the CFA, our reading of the CFA convinces us that the statute's language is ample enough to encompass the sale of insurance policies as goods and services that are marketed to consumers." 150 N.J. at 265 (emphasis in original) (internal citations omitted). Then, as if tracking the arguments presented in this case, the Lemelledo Court addressed the issue of multiple regulation.
The Supreme Court held that "Daaleman. . . does not stand for the bright-line proposition that a regulated practice is automatically covered by the CFA or automatically exempt from it based solely on the number of administrative agencies having regulatory jurisdiction over the practice." Id. at 267. The Court observed that the CFA was specifically drafted to be cumulative to other legal remedies, N.J.S.A. 56:8-2.13, and that the statute, by providing for private causes of action, "contemplates that consumers will act as 'private attorneys general.'" Id. at 268. This, the Court concluded, reflects a specific "legislative intent to enlarge fraud-fighting authority and to delegate that authority among various governmental entities." Id. at 269. Lemelledo thus requires that courts "assume that the CFA applies to the covered practice," id. at 268, and then consider the implications of multiple regulation by examining "whether a 'real possibility' of conflict would exist if the CFA were to apply to a particular practice." Id.
In Lemelledo, the defendant insurer argued that the ITPA, the Insurance Producer Licensing Act ("IPLA"), N.J.S.A. 17:22A-1 et seq., and the Credit Life and Health Insurance Act ("CLHIA"), N.J.S.A. 17B:29-1 et seq. subjected it to substantial regulation by the Department of Banking and Insurance, and that additional regulation by the Division of Consumer Affairs and private civil actions would give rise to a "real possibility of conflict." The Court disagreed, however, and found instead that the CFA, with its shared legislative purpose, "simply complements those statutes, allowing for regulation by the Division of Consumer Affairs and a private cause of action to recover damages." Id. at 273.
The Supreme Court therefore concluded that the CFA can be applied without conflict, even in the face of other legislation such as the ITPA,
if courts are cognizant of the obligations created by other statutes and if they interpret the scope of the broad language of the CFA so as not to impose conflicting duties or duplicative financial obligations on the regulated party. . . . Should the broad application of the CFA implicate the jurisdiction of more than one agency, those agencies should utilize that framework to resolve the conflict in an orderly or efficient manner. . . . In the vast majority of cases, it will [likely] be clear which of the agencies has primary jurisdiction. Once the other agency defers and the primary agency takes action, the deferring agency can take future action as may be necessary or appropriate to award any additional or complimentary relief.
Id. at 273-74.
This is exactly what has happened here. Apparently because it felt it lacked the fact-finding jurisdiction of the courts, the Department of Banking and Insurance, despite its initial finding that "it seems that Mrs. Yourman's concerns are valid," suggested that the Yourmans pursue their action in this forum. Thus, we have a situation to which Lemelledo 's thoughtful policy analysis directly applies. The Yourmans have alleged consumer fraud in the sale and advertisement of an insurance policy. This is an allegation which falls directly within the broad legislative purview of the CFA. Moreover, although empowered to address this issue, the Department of Banking and Insurance has, for its own reasons, recommended that the resolution of this matter be addressed by other properly empowered entities. The Yourmans have therefore become private attorneys general and present their case to the Court. And there is now direct precedent ordaining that the CFA can and should apply to the sale and advertisement of insurance. The Court is confident that it can apply the CFA without imposing conflicting duties or duplicative obligations on the insurance industry.
Because plaintiffs have alleged that Durham and Group Administration employed deception in the advertisement and sale of goods and services covered by the CFA, the motion to dismiss this count of the complaint by those defendants is denied. However, because the complaint (1) makes no such allegations as to defendant U.S. Life, and (2) does not allege that U.S. Life assumed Durham's liabilities in tort-- particularly those of intentional torts-- when it assumed Durham's contractual obligations, this count of the complaint is dismissed as to U.S. Life.
II. Plaintiffs' Claim Under The New Jersey Law Against Discrimination
In counts eight, nine and ten of the complaint, plaintiffs charge that Durham's refusal to provide insurance to Sarah and Jeffrey Yourman because each suffers from cystic fibrosis constitutes unlawful discrimination on the basis of a handicap in violation of the New Jersey Law Against Discrimination ("LAD"), N.J.S.A. 10:5-1 et seq. Defendants respond that the LAD is inapplicable to the terms of insurance plans or policies in this context. Because the Court finds that application of the LAD would subject the insurance industry to the type of multiple regulation that would result in "real conflict," defendants' motion to dismiss these counts is granted.
The LAD was enacted "to provide the handicapped full and equal access to society. . . ." D.I.A.L. v. Dep't of Community Affairs, 254 N.J. Super. 426, 439, 603 A.2d 967 (App. Div. 1992). In pursuit of this goal, the statute makes it unlawful "for any person to refuse to buy from, sell to, lease from or to, license, contract with, or trade with, provide goods, services or information to, or otherwise do business with any other person," N.J.S.A. 10:5-121, "because such person is or has been at any time handicapped. . . ." N.J.S.A. 10:5-4.1. The New Jersey Supreme Court has admonished that the LAD "should be construed 'with that high degree of liberality which comports with the preeminent social significance of its purposes and objects.'" Andersen v. Exxon Co., 89 N.J. 483, 495, 446 A.2d 486 (1982) (citation omitted).
Defendants contend that by its express terms, the LAD does not apply to insurance programs. They note that Section 10:5-2.1 of the act provides:
Nothing contained in this act. . . shall be construed to. . . interfere with the operation of the terms or conditions and administration of any bona fide retirement, pension, employee benefit or insurance plan or program. . . .
Plaintiffs respond that this "safe harbor" provision must be construed narrowly in the context of its specific language. They note that "retirement," "pension" and "employee benefit" programs all relate to a person's employment. Because "insurance" is often part of the same package of benefits as the other three, it follows, according to plaintiff's argument, that the statute must be read as excluding only employee insurance programs.
Both logic and linguistics support plaintiffs' reading of this provision, and, indeed, this interpretation has been alluded to by both the Third Circuit and other courts in this district. See Zinger v. Blanchette, 549 F.2d 901, 907 (3d Cir. 1977), cert. denied, 434 U.S. 1008, 54 L. Ed. 2d 750, 98 S. Ct. 717 (1978) (comparing the Age Discrimination in Employment Act, 29 U.S.C. §§ 621 et seq., to the portion of Section 10:5-2.1 here at issue); Nolan v. Otis Elevator Co., 560 F. Supp. 119, 121 (D.N.J. 1982) (discussing this section in an employment context). Nevertheless, this Court need not resolve this issue because application of the LAD as suggested by plaintiff would have substantial legal and policy consequences that this Court will not impose.
Plaintiffs do not allege that Durham declined to issue coverage on the basis of plaintiffs' handicap. Rather, they simply assert that Durham protected itself from the higher risk of insuring Sarah Yourman by offering coverage with a deductible less favorable than that offered to persons not suffering from cystic fibrosis. In effect, this condition was similar to charging plaintiffs a higher premium for the coverage.
The business of insurance and the mechanics of insurance regulation both strive to strike a balance between two competing goals. "On the one hand, if two purchasers of insurance coverage have different predicted losses or actual loss experiences, it is easy to conclude that the prices that each pay should reflect those differences. On the other hand, insurance may also be viewed as a method of risk sharing in which a group of insureds collectively bears the risk that a group member will suffer a loss." Kenneth S. Abraham, Efficiency and Fairness in Insurance Risk Classification, 71 Va. L. Rev 403, 403 (1985). Obviously, efficiency is promoted when risks are effectively classified and policyholders are charged different premiums or offered different deductibles according to their expected loss. It is indeed on this basis that the insurance industry largely operates-- leveraging these efficiency gains in order to compete with protection alternatives such as self-insurance. See id. at 407 ("through classification, [insurers] can offer low-risk individuals lower prices"). The Court, of course, recognizes that there may be instances in which social policy or politics dictate that certain risks be borne evenly by an entire class of insureds. However, decisions on which risks, if any, merit such treatment and how to distribute the costs of those risks are the provence of the legislature-- not the judiciary.
Insurance rates and the regulation thereof, are, as is well known, the topic of much legal, social and political debate, and New Jersey has an extensive legislative infrastructure governing the establishment of insurance rates. For example, N.J.S.A. 17:29A-4 mandates that:
. . . every insurer which makes its own rates, shall make rates that are not unreasonably high or inadequate for the safety and soundness of the insurer, and which do not unfairly discriminate between risks in this State involving essentially the same hazards. . .
Insurers must file proposed rates with the Commissioner of Insurance, N.J.S.A. 17:29A-6, who must approve of the rates only if he finds
that such rating systems provide for, result in, or produce rates that are not unreasonably high, and are not inadequate for the safeness and soundness of the insurer, and are not unfairly discriminatory between risks in this State involving essentially the same hazards and expense elements. . . .