Antitrust Law Daily Wrap Up, ADVERTISING—D.N.J.: Lanham Act counterclaims stand against malpractice insurance seller, (Oct 2, 2015)

By Greg Hammond, J.D.

An insurance agency could move forward with Lanham Act counterclaims, alleging that a Health care insurance exchange made false statements that it received a favorable rating from A.M. Best Company when it did not. The federal district court in Trenton, New Jersey, denied the exchange’s motion to dismiss the counterclaims, finding that the insurance agency sufficiently alleged economic injury for standing under the Lanham Act, actual injury, and that the statements were literally false or misleading and tending to deceive (New Jersey Physicians United Reciprocal Exchange v. Boynton & Boynton, Inc., October 1, 2015, Wolfson, F.).

The New Jersey Physicians United Reciprocal Exchange (NJ PURE) is a not-for-profit reciprocal inter-insurance exchange that sells malpractice insurance to physicians and other potential policyholders. Boynton & Boynton, Inc. solicits, advertises, and obtains clients for competitors of NJ PURE in the medical malpractice liability insurance market. NJ PURE filed suit, alleging that Boynton libeled and slandered NJ PURE in oral and email exchanges with two prospective clients of NJ PURE and engaged in unfair competitive practices by issuing “Marketplace Updates” to prospective clients offering misleading or false comparisons of NJ PURE’s financials with those of for-profit competitors served by Boynton.

Boynton filed Lanham Act counterclaims against NJ PURE and a third-party complaint against two NJ PURE employees, alleging that NJ PURE and its employees made false and misleading statements that NJ PURE was rated favorably by A.M. Best Company to several existing and prospective customers of Boynton, when it was not so-rated. NJ PURE and its employees moved to dismiss the counterclaim and third-party complaint.

The court determined that Boynton alleged a prima facie violation of the Lanham Act against NJ PURE, but not against the third-party defendants. Boynton alleged in its counterclaim that it suffered an economic injury (loss of a customer), which was proximately caused by NJ PURE’s misrepresentation of its rating by A.M. Best. The court found that, based on these allegations, Boynton had standing to pursue its Lanham Act counterclaims against NJ PURE because it alleged an injury that comes within the “zone of interests” protected by the Lanham Act. Boynton, however, failed to allege such loss against the third-party defendants. The Lanham Act claims in the third-party complaint were therefore dismissed for lack of standing.

With regard to the counterclaims against NJ PURE, Boynton also had sufficiently alleged an actual injury under the Lanham Act. In particular, Boynton alleged that NJ PURE’s misrepresentations actually deceived a portion of the buying public which profited NJ PURE, and that a customer was deceived by NJ PURE’s misrepresentation concerning it’s A.M. Best rating, ceased using Boynton as its broker, and switched its insurance coverage to NJ PURE.

Boynton also sufficiently alleged that NJ PURE’s statements were literally false or misleading and tending to deceive. It claimed that an unknown representative of NJ PURE verbally advised a representative of a customer that NJ PURE had received a favorable rating from A.M. Best Company. Because it provided a two-month date range, a specific allegation concerning the nature of the statement made and why the statement was false, Boynton’s allegations rose above the level of specificity that other courts have rejected under the intermediate pleading standard for false advertising claims under the Lanham Act. The motion to dismiss the Lanham Act counterclaims was therefore denied.

The case is Nos. 12-5610 (FLW)(LHG) and 13-2286 (FLW)(LHG).

Attorneys: Manuel J. Almeida, Jr. (Rudolph & Kayal) for New Jersey Physicians United Reciprocal Exchange. Diego Juan Rosado (Drinker Biddle & Reath LLP) for The Medical Protective Company, Inc. James M. Nardelli (Parsons & Nardelli) for Whitboy, Inc.

Companies: New Jersey Physicians United Reciprocal Exchange; The Medical Protective Company, Inc.; Whitboy, Inc.; Boynton & Boynton, Inc.

Cases: Advertising NewJerseyNews