On appeal from the Superior Court, Law Division, Essex County.
Furman, Brody and Long. The opinion of the court was delivered by Long, J.A.D.
The Prudential Insurance Company of America (Prudential) and the Board of Trustees (Board) of the Teachers Pension and Annuity Fund (TPAF) here challenge a determination by the trial judge that James McKenna, a TPAF member, died within the conversion period provided in his group insurance policies, thus entitling plaintiff, Elizabeth McKenna, his widow and Executrix, to the amount of insurance McKenna might have converted had he lived to the end of the period. We affirm.
By way of background, a brief description of the relevant statutory scheme is in order. TPAF is the corporate entity which arranges for the payment of retirement and death benefits to those who qualify for membership in the fund. N.J.S.A. 18A:66-2(q). In addition to basic retirement allowances, the TPAF statute provides death benefits for its members. These benefits, which are the focus of this appeal, fall into two broad categories: basic noncontributory benefits and optional contributory benefits. Upon the death of a member "in service," the beneficiaries of the member shall receive 1 1/2 times the salary of the last year of creditable service. N.J.S.A. 18A:66-38(b). This is a basic noncontributory benefit. In addition to this, a member may purchase a further death benefit of two times the final salary to be paid upon his or her death in service. N.J.S.A.
18A:66-53(e). Thus, the beneficiary of a member who dies in service may receive a total death benefit of 3 1/2 times final salary. If a member elects early retirement, the basic noncontributory death benefit is reduced from 1 1/2 to 3/16 times the member's final salary. N.J.S.A. 18A:66-37. Likewise, upon retirement, the optional benefit of two times final salary is reduced to 1/4 (4/16) times final salary. A retired member thus may receive a total death benefit package of 7/16 times final salary.
In order to provide these benefits, the State Treasurer and the Board are authorized to purchase group life insurance policies. N.J.S.A. 18A:66-74. These policies must conform with statutory requirements including N.J.S.A. 18A:66-79, which prescribes that such policies: "shall include, with respect to any insurance terminating or reducing because the member has ceased to be in service or has retired, the conversion privilege available upon termination of employment as prescribed by the law relating to group life insurance."
The law relating to group life insurance is set forth in N.J.S.A. 17B:27-1 et seq. and requires that the group policy contain
a provision that if the insurance, or any portion of it, on a person covered under the policy ceases because of termination of employment or of membership in the class or classes eligible for coverage under the policy, 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 31 days after such termination . . . [ N.J.S.A. 17B:27-19.]
The payment of benefits upon death within the conversion period is covered by N.J.S.A. 17B:27-21, which requires that the policy must also contain
a provision that if a person insured under the group policy dies during the period within which he would have been entitled to have an individual policy issued to him in accordance with section 17B:27-19 . . . and before such an individual policy shall have become effective, the amount of life insurance which he would have been entitled to have issued to him under such individual policy shall be payable as a claim under the group policy, whether or not application for the individual policy or the payment of the first premium therefor has been made. [ N.J.S.A. 17B:27-21.]
N.J.S.A. 18A:66-79 likewise requires that these policies "provide that if a member dies during the 31-day period during which he would be entitled to exercise the conversion privilege, the amount of insurance with respect to which he could have exercised the conversion privilege, shall be paid as a claim under the ...