Insurer's Lanham Act claim against broker proceeds through necessary implication theory

New Jersey Physicians United Reciprocal Exchange v. Boynton & Boynton, Inc., No. 12–05610, 2014 WL 317179 (D.N.J. Jan. 28, 2014)

Plaintiff NJ PURE sued defendants for false advertising under the Lanham Act, libel, slander, and violations of the NJ Insurance Trade Practices Act; the court dismissed only the last.  Plaintiff is a nonprofit that sells malpractice insurance to physicians and other potential policyholders. Defendant is an insurance broker in the business of soliciting, advertising, and obtaining clients for plaintiff’s for-profit competitors.

Defendants allegedly libeled and slandered NJ PURE in oral and email exchanges with its prospective clients, and falsely advertised by issuing “Marketplace Updates” to prospective clients which offer misleading or false comparisons of NJ PURE’s financials with those of for-profit competitors served by defendants. Essentially, the Marketplace Updates allegedly highlighted as significant certain of NJ PURE’s financial indicators and statistics which are not relevant to the financial health of a nonprofit reciprocal exchange, but are relevant to its for-profit competitors (defendants’ clients).  This allegedly gave a false or misleading impression of NJ PURE’s relative inferiority and undesirability as a malpractice insurer to potential clients.

The Lanham Act claims: Defendants, somewhat surprisingly, didn’t argue standing.  Instead they challenged whether their emails/statements constituted “commercial advertising or promotion,” because they were individual instances of communication instead of disseminated to a widespread market segment.  But NJ PURE alleged a much larger scheme carried out by email and other media; “information and belief” was appropriate at this stage, before discovery.  (Also surprising: that defendants didn’t focus on the part of the Gordon & Breach test that requires competition between the parties—though there is obviously a solid case for competition here, in that defendants seem to make more money when plaintiff makes less and vice versa.)

Next, defendants argued that NJ PURE didn’t allege literal falsity, and also didn’t allege that consumers were actually misled, and thus the complaint failed.  NJ PURE pled both falsity and misleadingness; whether the statements in the Marketplace Updates were literally true was a factual question.  Also, NJ PURE’s main theory was falsity by necessary implication: by comparing data side by side when that data was only relevant for for-profit firms, “coupled with explanatory paragraphs which explained the significance of the financial indicators in such a way that was true for Plaintiff’s for-profit competitors, but not true for a non-profit entity such as Plaintiff,” the statements as a whole were literally false.  This sufficiently pled literal falsity by necessary implication: the Updates allegedly conveyed the message that NJ PURE wasn’t financially sound “as clearly as if it had been stated directly.”  There was no need to evaluate misleadingness.

The libel and slander claims were also sufficiently pled.  NJ PURE alleged pecuniary harm in the form of loss of former policyholders, delays in obtaining new policyholders and the loss of prospective contracts with potential policyholders.  New Jersey’s Supreme Court has made clear that presumed damages are available in private defamation cases, so NJ PURE didn’t have to plead special damages; nominal harm sufficed.

The Insurance Trade Practices Act claim was dismissed because there’s no private cause of action under that law.  There’s precedent that a violation of ITPA can found an unfair competition claim, but that’s not what NJ PURE’s complaint pled.