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By: Thomas Paschos, Esq.
Thomas Paschos & Associates, P.C.
Haddonfield, New Jersey

In Khan v. Conventus Inter-Insurance Exchange, 2013 N.J. Super. LEXIS 216 (N.J. Super. 2013)(Approved for publication April 29, 2015), the court was faced with the issue of whether the CFA is applicable to transactions involving the purchase and sale of medical malpractice insurance.

Plaintiff purchased a medical malpractice policy from Coventus on Aug. 25, 2010. As part of her initial membership, plaintiff was required to make a one time contribution to the exchange's surplus equal to the first year premium. Plaintiff agreed to make this surplus payment in ten annual installments. The obligation to make the full surplus contribution remained even if she withdrew from the exchange prior to completing the ten annual installments. About nineteen months after purchasing the policy, plaintiff notified the exchange and its administrator that she was cancelling her policy as of that month. Plaintiff wanted to purchase tail coverage from Coventus but was advised she could only do so if she paid her remaining surplus contributions in full.

Plaintiff sued Conventus. The complaint alleged violations of the New Jersey Consumer Fraud Act (CFA) with respect to the purchase of the medical malpractice insurance policy. Specifically, the complaint alleged that Conventus’ attempt to accelerate payment of the surplus contribution was in violation of the parties' written agreement and was in violation of the CFA. Additionally, plaintiff argued that Conventus improperly debited the her business account without her permission for premium and surplus payments, which also violated the CFA.

Plaintiff argued that medical malpractice insurance policies are an insurance product offered to the general public and are subject to the CFA. In support of this proposition, plaintiff cited to other insurance products such as credit insurance, disability insurance, automobile insurance, homeowners' insurance, business interruption insurance and variable life insurance that have been held to be subject to the CFA.

The court dismissed the claim with prejudice. The court held that the medical malpractice insurance policy was not merchandise that was offered, directly or indirectly to the public for sale, as required for a CFA claim. The court explained that while insurance products offered to the public at large were subject to the CFA, insurance products that were not offered to the general public were not covered by the CFA. The court provided that medical malpractice insurance was not offered to the general public because in order to purchase medical malpractice insurance one must complete a lengthy education and training process and then obtain licensure from the state as a physician.

As such, the court concluded that medical malpractice insurance is not subject to the strictures of the CFA. Therefore, plaintiff's claims for violations of the CFA were dismissed with prejudice.

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