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Association Group Life Inc. v. Catholic War Veterans of United States

Decided: July 7, 1971.


Conford, Kolovsky and Carton. The opinion of the court was delivered by Conford, P.J.A.D. Kolovsky, J.A.D., dissenting.


Plaintiff Association Group Life, Inc. ("AGL") brought this action against the defendants, Catholic War Veterans of the United States of America ("CWV") and the North American Life and Casualty Company ("NAL") for breach of contract and for tortious interference with business relationships and advantageous economic position. Plaintiff appeals from the dismissal at a jury trial of the contract claims at the end of the plaintiff's case, and the dismissal of the tort claims at the close of defendants' case.

AGL is a corporation organized in 1962 for the purpose of placing group life insurance policies with veterans' or fraternal organizations. It was a two-man operation, the principals being Charles Witzburg and Albert Mehrbach, functioning from Witzburg's general insurance offices in Union, New Jersey.

In the latter part of 1962 and early 1963 AGL, through Mehrbach, interested the national officers of CWV in a program of group life insurance for its members. Thereafter it negotiated a tentative proposal by NAL to write the policy, under which AGL would receive commissions of 35% of premiums for the first year and 12 1/2% thereafter on any

policies written. It would solicit CWV's full membership. The proposal was approved by the CWV National Board. On March 2, 1963 the appropriate officers of CWV, pursuant to resolution of that body, wrote AGL a letter agreeing that (1) AGL was authorized to solicit its membership for NAL life insurance; (2) CWV would furnish AGL annually a list of its members; (3) it was certified that "this agreement" was duly authorized by resolution of the National Board.

AGL at once began soliciting CWV members, using a mailing list submitted by CWV and a brochure prepared by AGL and paid for by NAL. It eventually enrolled some 1700 CWV members in the insurance program. NAL and AGL entered into a written agreement effective as of July 1, 1963. Article V of the agreement, the hereafter underscored portion of which was at first objected to by AGL but insisted upon by NAL, read:

The Broker [AGL] shall be paid a commission of 20% of the premiums paid in the first twelve months period on each certificate and 7 1/2% of the premiums paid each subsequent twelve months period for each certificate. In addition the Administrator [AGL] shall receive an expense allowance of 15% of the premiums paid in the first twelve months period on each certificate and 5% of the premiums paid in each subsequent twelve months period for each certificate. In the event a new agent of record or administrator shall be appointed or recognized by the Association [ CWV ], thereafter the Company [ NAL ] shall have no further obligation to pay commissions and/or expenses to the Broker and Administrator [ AGL ] . . . (Emphasis added.)

Under the agreement AGL was to canvass the CWV Group and distribute Certificates to insureds at its own expense and NAL was to print material for AGL for sales purposes. A master policy provided that it was to be renewed from year to year subject to the company's right to establish new premium rates for renewal periods.

Dissatisfaction with the program began to be manifested by both CWV and NAL within a year of its inception. CWV thought the promotional efforts by AGL were inadequate.

Near the end of 1964 NAL notified AGL it did not intend to renew the policy after July 1, 1965 because its loss experience was excessive in relation to receipts and expenses. While it wanted, as an alternative, to increase premiums, AGL persuaded it to employ the expedient of reduction of benefits instead, and CWV reluctantly agreed thereto. Thereafter CWV became increasingly dissatisfied with the reduction of the benefits and sought detailed accounting by AGL and NAL of their expenses in connection with this business. AGL pressed NAL to restore the benefits. In December 1965 the latter agreed to restore the benefits on a sliding scale roughly related to increased enrollment of CWV members in the program. AGL tried, with the acquiescence of CWV, to find another carrier which would maintain the desired scale of benefits, and it received a proposal from one company. That was rejected by CWV because of doubts as to the reliability of the proposed insurer.

At about the same time as the foregoing events CWV conceived the idea of eliminating AGL and taking over the latter's functions and compensation. It felt it could do the administrative work necessary out of its Washington headquarters. It broached the subject to NAL but stipulated that the original insurance benefits would have to be restored if NAL was to continue to underwrite the program. It also took the position that since brokerage would be eliminated under the new arrangement the amount of the administrative fees previously paid to AGL should be increased, under the new arrangement with CWV, by the amount of such brokerage fees. NAL apparently indicated tentative approval thereof.

On March 26, 1966 the CWV National Commander, Riley, wrote AGL that CWV would self-administer the program and that AGL's services as agent were terminated as of June 30, 1966. AGL remonstrated to CWV, but in vain.

To prepare for the new arrangement NAL had its Newark office manager appointed as agent of record on the CWV life insurance program. However, that individual was not

to be compensated and was not expected to perform any services. Internal correspondence within the NAL corporate organization indicates that the nominal broker was designated, by advice of counsel, "so as not to violate this agreement [the one with AGL]." That correspondence also stated: "Actual commissions and expense allowances are being paid to the Catholic War Veterans' organization. Thus, there has been no increase in our expense".

CWV took over responsibility for administering the program on July 1, 1966 but failed over the next few years to increase the membership in the program over that attained by AGL or substantially to reduce administrative expenses.


Defendant CWV makes the preliminary point that the result below is justified, if for no other reason, on the ground that AGL had failed to secure an insurance broker's license from the State prior to solicitation of CWV's members for group life insurance. Both Mehrbach and Witzburg were licensed insurance brokers in this State; the corporation AGL was not, at any time here involved. It paid a fine for violation of the licensing act after this action began.

N.J.S.A. 17:22-6.6 and 17:22-6.9 set forth in detail the procedures an individual applicant for an insurance broker's license must follow. The two sections prescribe minimum requirements as to age, education, experience, and reputation. These provisions were originally enacted as L. 1944, c. 175. N.J.S.A. 17:22-6.9 was amended by L. 1945, c. 82, ยง 1, to contain the following additional language:

A license may be issued by the commissioner to and in the name of any copartnership or corporation engaged in the insurance brokerage business upon written request and payment of the $25.00 fee prescribed in section 13 of this chapter [ N.J.S.A. 17:22-6.13]; provided, all members of the copartnership or all of the officers of the corporation, as the case may be, actively engaged in the insurance brokerage business of the copartnership or corporation in this State hold an unexpired license as an insurance broker issued in accordance with the provisions of this act.

Nothing more is required of the corporation than that it pay the $25.00 (now $35.00) fee and that all of its active officers be licensed individually.

In urging that AGL's failure to secure a license should be conclusive against its right to bring this action, the defendants point to N.J.S.A. 17:22-6.18, which provides in part:

No insurance company or licensee shall pay any money or commission or brokerage or give or allow any valuable consideration . . . to any person, partnership, association or corporation, other than a licensee, for or because of service rendered or performed in this State in negotiating or effecting in this State a contract of insurance on any property, or insurable interests, or business activities located within or transacted within this State . . .

However, nothing in the act prohibits actions by unlicensed brokers to recover for breach of contract. Compare N.J.S.A. 45:15-3, which does contain such a prohibition with respect to real estate brokers.

Also relevant to the issues presented are N.J.S.A. 17:22-6.25, which subjects to a $1,000 penalty for an initial offense and a $2,000 penalty for each succeeding offense "any person, persons or corporation violating any of the provisions of this act" (emphasis added); and N.J.S.A. 17:22-6.20, which declares it unlawful "for any person (emphasis added), without conforming to the * * * act, * * * to represent himself to be the agent of any insurance company * * * or to solicit, negotiate or effect in this State any contract of insurance or renewal thereof. * * *"

In Tanenbaum v. Sylvan Builders, Inc. , 29 N.J. 63 (1959), the Supreme Court held that an unlicensed realty broker could not maintain a tort action for interference with a contract of brokerage. The statute there involved, as noted above, expressly disallows an action for recovery on a realty brokerage agreement by an unlicensed broker, and the court held the statutory policy so reflected was equally applicable to the maintenance of a tort action by such a broker. The instant situation is distinguished by the absence

of an express prohibition of right to sue in the insurance statute and the fact that the individual brokers who actually did the ...

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