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Plemmons v. Blue Chip Ins. Services Inc.

387 N.J. Super. 551, 904 A.2d 825 (App. Div. 2006)

CONSUMER FRAUD ACT; INSURANCE BROKERS —An insurance broker is a semi-professional who qualifies for exemption from liability under New Jersey’s Consumer Fraud Act.

The plaintiff purchased a residential property with a plan to convert it to commercial use. He obtained insurance through an insurance broker who was employed by a corporation that was also an insurance broker. The initial policy was voided after a delay in closing and in the meantime, the broker learned of the planned commercial use. The broker advised the owner’s representative that he needed a business policy but no policy was ever issued. The broker’s company never returned the initial premium paid for the voided residential policy and the owner never paid a premium for a business policy.

The owner struggled to get the necessary approval from the municipal planning and zoning board to effect the change in use. He obtained a permit for electrical work prior to applying for the necessary site plan approval, but the municipal construction official stopped the work when he learned that it exceeded the scope of the permit. The owner then submitted an application for site plan approval that was found inadequate. Following this rejection, the owner hired an engineer to prepare a complete site plan.

Around this time, a storm blew a tree down on the property’s roof and rear porch. The owner obtained emergency approval to repair the roof, however, the municipal construction official visited the site over the next few weeks and saw no work being done on the roof. Consequently, he concluded that the work was not critical and issued a stop work order. The owner appealed this order to the county construction board of appeals. This appeal ended with a settlement that allowed the owner to finish repairing the roof, demolish the porch, and finish the electrical work that didn’t relate to the commercial use.

The owner submitted the site plan prepared by the engineer and the municipal zoning board approved it. The owner failed, however, to pay the required escrow fees so the board withheld memorialization approval by resolution as was its customary practice when fees were not paid. The owner didn’t deposit the required fees for six months and no further construction took place. In the end, the owner sold the home without completing the construction and filed suit against the individual insurance broker, the corporate insurance broker, the insurance company that issued the residential policy, the municipality, the municipal construction official, the chairwoman of the planning and zoning board, and the construction official’s secretary. He alleged breach of contract, negligence, and violations of the Consumer Fraud Act (CFA) against the insurance defendants. He asserted claims under 42 U.S.C. Section 1983 for violations of substantive and procedural due process against the municipal defendants.

The lower court granted the municipal defendants’ motions for summary judgment on the Section 1983 claims. The lower court also dismissed the breach of contract claim against the insurance defendants on summary judgment. At the end of the presentation of evidence, the lower court dismissed the owner’s claims against the insurance provider. A jury returned a verdict on the negligence and CFA claims against both the individual insurance broker and the corporate entity for whom he worked . The lower court granted the brokers’ motion for a judgment notwithstanding the verdict based on its holding that insurance brokers were not subject to the CFA and entered a molded judgment against the brokers on the negligence count. The owner appealed the dismissal of the CFA claim and the summary judgment on the Section 1983 claims.

The Court held that the insurance brokers could not be liable under the CFA. In doing so, it relied on a recent Supreme Court opinion reasoning that the CFA is designed to protect consumers from sharp dealing in merchandise. Merchandise includes services but does not include professional or semi-professional services that are subject to testing, licensing, regulations, and penalties through other legislative provisions. The Court rejected the owner’s argument that this decision should be controlled by case law holding that companies that sell insurance policies as goods and services to consumers are subject to the CFA. Instead, the Court explained that the legislative intent to exclude professionals subject to sanction elsewhere, controlled this case. It then cited various statutes and regulations that control insurance broker behavior to illustrate that a broker qualified as a semi-professional, and therefore was exempt from the CFA.

The Court also affirmed the dismissal of the Section 1983 claims against the municipal defendants. The Court noted that the owner made no showing that he was treated differently than any other homeowner and thus, had no claim for violation of his equal protection rights. The owner also failed under procedural due process claims because there are procedural remedies available under the statutory scheme. In essence, the Court held that the owner was not denied any process, but rather that his damages, if any, were the result of his failure to avail himself of these remedies in a timely fashion. The Court also found no claim under the substantive due process clause. The Court explained that none of the municipal actions were egregious enough to pass the “shocks the conscience” test. Finally, it denied claims against the municipality itself because the owner failed to show that his damages were caused by any formal policy, the actions of a municipal employee with final policy-making authority, or the ratification of a subordinate by an employee with that authority so there could be no municipal respondeat superior liability. The Uniform Construction Code and its regulations controlled the construction official’s actions. Therefore, by definition, the construction official lacked policy making authority, and this barred a judgment against the municipality.

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