The Public Adjusters Licensing Act and Its Regulations

Zimmerman v. Diviney, 477 N.J. Super. 1 (App. Div. 2023). As the New Jersey appellate courts are getting fully geared up for the Term that began on September 1, there normally are not many published opinions in September. This ruling by Judge Mawla was the only published opinion issued this week.

The matter involved two appeals from the Department of Banking and Insurance (“DOBI”). In each instance, DOBI concluded that defendants violated the Public Adjusters Licensing Act, N.J.S.A. 17:22B-1 et seq. (“PALA”). The PALA regulates the conduct of public adjusters in order to “safeguard the interests of the people” who deal with adjusters. The PALA also authorizes the promulgation of regulations by DOBI.

One of the cases charged the defendants with violations of PALA and its regulations regarding entry into contracts that did not clearly define the services to be rendered, did not indicate the time that the contracts were executed, and did not specify the procedures for insureds who wanted to cancel their contracts. The other case entailed only charges related to the procedures for cancellation. The cases went to the Office of Administrative Law and up the chain within DOBI. DOBI won summary rulings in its favor in both cases. All defendants were ordered to pay fines and costs for the violations.

Defendants appealed to the Appellate Division. They asserted that the regulations were ultra vires, beyond the power of DOBI to adopt, and that the rulings against them violated due process.

Judge Mawla noted that reversal could be achieved only if defendants showed that the agency actions were arbitrary, capricious, unreasonable, or not “supported by substantial credible evidence in the record as a whole.” Moreover, “[w]hen an agency interprets its own regulation, [courts] give substantial deference to the agency unless its interpretation is inconsistent with the governing legislation.” Finally, “our courts disfavor a finding that an agency acted in an ultra vires fashion in adopting regulations.”

Judge Mawla analyzed the PALA, the regulations at issue, and the purpose of the PALA to protect consumers. “N.J.A.C. 11:1-37.13(b)(3)(ii)’s mandate that all contracts contain a list of services to be rendered was deliberated by DOBI prior to adoption. Requiring a list is protective of consumers and consistent with PALA. The regulation represents a proper exercise of the legislative mandate to inform consumers of the services provided by a public adjuster.” The panel thus upheld DOBI’s finding of a violation as regarded the failure to list all services in contracts. The court reached the same conclusion as to the failure to indicate the time that the contracts were entered.

But Judge Mawla concluded that DOBI had erred in finding a violation for failure to provide for cancellation of contracts at any time. Agency regulations cannot go beyond the authorizing statute. “PALA’s legislative history does not convince us the Legislature intended public adjuster contracts must contain provisions for cancellation at any time. Indeed, the legislative history shows the Legislature deleted a provision permitting insureds to unilaterally cancel a contract with a public adjuster within three days of entering the contract. A. 1548 (1992) (third reprint) (deleting previously proposed § 14). However, there is no evidence this translated into legislative authorization for promulgation of a regulation permitting cancellation at any time.”

Besides, “[t]he regulations do not codify a right of the consumer to cancel a contract with a public adjuster at any time.” Judge Mawla held that DOBI erred in ruling that the PALA authorized DOBI to promulgate regulations permitting cancellation at any time or that DOBI’s regulations in fact so provided.

The Appellate Division thus affirmed in part and reversed in part. Due to the partial reversal, the panel remanded the matter for reconsideration of the amount of the fines and costs imposed.