This is an action by a beneficiary on a group life insurance policy issued by defendant Prudential Insurance Company of America (hereinafter "Prudential") to defendant Wilbur B. Driver Company (hereinafter "Driver") for the benefit of Driver's employees. Plaintiff is the widow of George A. Wells, who had been an employee of Driver and an insured under the policy. The parties have moved for summary judgment.
Wells had been employed by Driver since 1947. He stopped working on April 30, 1969 due to neoplasm of the colon and received disability payments for six months thereafter. On November 10, 1969 Driver's personnel director and his assistant held a meeting with Wells and his wife during which there was a discussion of Wells' employment status. As a result Wells subsequently ceased working. He died on February 12, 1970 and Prudential paid plaintiff, as Wells' beneficiary, $5,043.15 on April 15, 1970, which amount defendants contend represented the full amount of death benefits due under the group policy. Plaintiff asserts that she was entitled to insurance coverage in the amount of $18,300 and now claims the difference.
The Group Policy No. G-8489 herein was a noncontributory plan which provided life insurance coverage for each employee of Driver based upon the employee's compensation. Upon the death of an employee while insured the amount of insurance which would be payable was that set forth in a certificate issued to each insured employee periodically. Upon the attainment of age 65 or retirement the policy provided that the amount of an employee's life insurance was $5,000. Upon the termination of employment there was also provided a right to convert all or a portion of the insurance to an individual policy without additional evidence of insurability.
The employer under the contract was responsible for the administration of various phases of the insurance policy, including maintenance of records concerning the particulars of each employee's insurance, the furnishing of periodic reports to Prudential indicating new employees, changes in amounts of insurance and terminations of insurance.
The insurance documents must be assessed within a statutory frame. N.J.S.A. 17:34-32 states that
No policy of group life insurance shall be delivered in this State unless it contains in substance the following provisions, * * * (9)[a] provision that if the insurance, or any portion of it, on a person covered under the policy ceases because of termination of employment * * * such person shall be entitled to have issued to him by the insurer, without evidence of insurability, an individual policy of life insurance * * * provided application for the individual policy shall be made, and the first premium paid to the insurer, within thirty-one days after such termination * * *.
Now N.J.S.A. 17B:27-19.*fn* The group policy was faithful to this statutory directive. In the section entitled "Conversion Privilege" it provided that
If employment with the Employer is terminated, the Employee insured hereunder shall be entitled to convert all or part of his insurance, without evidence of insurability, to an individual policy of life insurance, provided written application and the first premium payment are made to the Insurance Company within thirty-one days from the date of termination of employment * * *.
The statute does not further explicate what acts or circumstances constitute a "termination of employment" sufficient to trigger the conversion privilege accorded by N.J.S.A. 17:34-32(9). The policy itself, however, states specifically that
* * * Termination of employment shall for all purposes of the Policy, be deemed to occur upon cessation of active full-time work * * * except that an Employee who is * * * retired will nevertheless be considered as still employed on a full-time basis until the Employer, acting in accordance with rules precluding individual selection, terminates the Employee's insurance by notifying the Insurance Company to that effect or by discontinuing premium payments for his insurance * * *.
Issue is joined initially on whether there was such a termination of employment.
It is not unusual that a group insurance policy provide that termination of employment shall end an employee's insurance coverage. Mau v. Union Labor Life Ins. Co. , 31 N.J. Super. 362 (App. Div. 1954); Keane v. Aetna Life Ins. Co. , 22 N.J. Super. 296 (App. Div. 1952); Shaffer v. Metropolitan Life Ins. Co. , 133 N.J.L. 53 (Sup. Ct. 1945). But it must be "such a termination of the relationship of employer and employee as will make applicable and effective all parts of the insurance contract." Ambrose v. Metropolitan Life Ins. Co. , 18 N.J. Misc. 42, 43, 10 A.2d 479, 480 (Sup. Ct. 1939). A retired employee is one who has voluntarily withdrawn from employment and has ended his regular activity by arrangement with the employer. Jacobs v. N.J. State Highway Authority , 54 N.J. 393 (1969); Watson v. Brower , 24 N.J. 210 (1957). Consequently, retirement is a termination of employment within the meaning of a "termination of employment" clause in a group insurance policy. See Geist v. National Bellas Hess, Inc. , 241 F. Supp. 209, 212-213 (E.D.N.Y. 1965); Young v. Minton , 49 Ga. App. 545, 176 S.E. 662 (Ct. App. 1934).
There was a meeting on November 10, 1969, between Driver's representatives and Wells, the subject of which was his retirement; a written request by Wells for payment from the Driver's Employee's Security Plan was sent on the same date and there was a notation thereon to the effect that retirement was as of November 28, 1969; his retirement was also noted in the 1969 Christmas issue of Driver's publication. There was also correspondence from Driver's director of
personnel to the administrator of group insurance and Driver's manager that Wells would retire December 1, 1969 and his last day on the payroll would be November 28, 1969. Thereafter Wells received wage security benefits, sabbatical payments and a pension payment, the last of which was on or about January 9, 1970. These events can be assimilated only upon the rationale that Wells had retired from Driver.
A termination of insurance in the context of this case requires a coalescence of two events. There must, in the language of the policy, be a "cessation of active full-time work." Where such "cessation" is brought about through retirement there must also be either a notification by the employer to the insurer that the retired employee's insurance has been terminated or a discontinuance of premium payments for his insurance. Plaintiff contends that notwithstanding Wells' retirement, his insurance was not terminated because there was no subsequent notification of the termination of his insurance to the insurer or a discontinuance of premiums as required under the policy with respect to a retired employee.
Group insurance policies frequently provide that individual coverage shall terminate when the insurer is notified to that effect. Cf. Kowalski v. Travelers Ins. Co. , 115 N.J. Super. 545 (Law Div. 1971); Novern v. John Hancock Mut. Life Ins. Co. , 107 N.J. Super. 570 (Law Div. 1969); Keane v. Aetna Life Ins. Co., supra; cf. Passkowski v. Prudential Ins. Co. of America , 182 F. Supp. 819 (D. Conn. 1960). The facts herein are that a report dated December 1, 1969 was sent to Prudential by Driver on December 10, 1969, which showed the amounts of group insurance added and terminated on that date. While there was no specification in the report of the names of the employees involved and no breakdown regarding the amounts of such individual changes, the records of Driver disclosed that the ...