Keane v. Aetna Life Ins. Co. of Hartford, Conn.

• Decision Date: 03 October 1952
• Docket Number: No. A--241,A--241
• Citation: 91 A.2d 875,22 N.J.Super. 296
• Parties: KEANE v. AETNA LIFE INS. CO. OF HARTFORD, CONN. et al.
• Court: New Jersey Superior Court — Appellate Division

Page 296

22 N.J.Super. 296

91 A.2d 875

KEANE v. AETNA LIFE INS. CO. OF HARTFORD, CONN. et al.

No. A--241.

Superior Court of New Jersey, Appellate Division.

Argued Sept. 8, 1952.

Decided Oct. 3, 1952.

John A. Laird, Newark, argued the cause for plaintiff-appellant (George A. Costello, Newark, attorney).

James J. Langan, Jersey City, argued the cause for defendants-respondents (Markley & Broadhurst, Jersey City, attorneys; Edward A. Markley, Jersey City, of counsel and on the brief).

Before Judges JAYNE, PROCTOR and SCHETTINO.

The opinion of the court was delivered by

SCHETTINO, J.S.C. (temporarily assigned).

This is an appeal from a summary judgment entered in favor of both defendants.

Plaintiff is the beneficiary named in a certificate issued to her husband, Anthony P. Keane, by defendant Aetna Life Insurance Company of Hartford, Connecticut (hereinafter called 'the insurer') under a group life insurance policy issued by the insurer to Keane's employer, the defendant General Aniline & Film Corporation (hereinafter called 'the employer'). Plaintiff brought this action against the insurer upon the certificate and basic group policy to recover the sum of $8,000, the amount specified in the certificate. Alternatively she sought judgment against the employer on the charge that the employer breached its duty in respect hereinafter mentioned, as the result of which the insurance protection was lost.

The group policy was written under a plan whereby both the employer and employee contributed to the cost of the insurance. The policy provides for payment of the total premium by the employer, and requires the employer to collect the employee's contributions. To that end, Keane executed a form authorizing the employer to make a monthly deduction 'from my wages or salary.'

On June 17, 1949, Keane was laid off for lack of work. The employer paid the premium for the month of June, but made no payment on behalf of Keane thereafter. The policy contained a grace period of 31 days with respect to non-payment of premium, and also permitted conversion to an individual policy within a like period after termination of employment. No application for conversion was made. Keane died on August 11, which was 11 days after the expiration of coverage on the thesis advanced by the insurer.

At the time of the lay-off, Keane was paid $70.40 in lieu of vacation. Subsequently, beginning four weeks after the lay-off, he was paid 'severance pay' in four weekly installments, totaling $228.48, the last payment being made on August 8. The employer made deductions from those payments for unemployment insurance, social security benefits and income tax, but made no deduction for the insurance premium.

I Claim against Insurer

Plaintiff seeks to recover from the insurer upon two theses. The first is that Keane's employment was not terminated within the meaning of the policy; that the employer was bound to deduct the premium contribution from the vacation and severance pays; that the insurer is chargeable with the employer's failure on the hypothesis that the employer was insurer's agent for payment; and that there was a 'clerical error' within the meaning of the policy provision. The second is that the insurer may not terminate an employee's coverage without notice of such termination and of his right to convert; and that no such notice was here given. We will take the contentions in the stated order.

The group policy provides:

'Individual Terminations

'In the event any employee fails to make the required contribution for the insurance under this policy, the insurance of such employee will automatically cease at the end of the period for which contribution is made.

'Insurance of any employee will automatically cease thirty-one days after termination of employment. * * * If an employee is absent on account of sickness or injury, or is temporarily laid off, granted leave of absence, pensioned or retired, employment shall be deemed to terminate when permium payments for such employee's insurance are discontinued.'

It will be observed that under the quoted provisions, the insurance of any employee will terminate during his active employment if he 'fails to make the required contribution.' It is independently provided that insurance ceases 31 days 'after termination of employment,' but with respect to the classes of termination of active work set forth in the second sentence of the second quoted paragraph, the insurance may be continued but 'employment shall be deemed to terminate when premium payments for such employee's insurance are discontinued.' We note that with respect to this last provision the termination hinges upon the non-payment of premium rather than upon the employee's failure to make contribution, as in the case of the first quoted paragraph. We will return later to this difference of phraseology.

The initial step in plaintiff's first thesis is that Keane was temporarily laid off and that such termination of active work did not Per se constitute a termination of employment within the meaning of the policy provision. The insurer asserts that the lay-off was permanent and hence resulted in termination of insurance 31 days after the lay-off whether or not premiums were paid.

The policy does not define the words 'temporarily laid off' and hence necessarily shifts the inquiry to the transaction viewed as between employer and employee. We note that in the policy as originally drawn it was provided that 'in any event employment shall be deemed to terminate not later than two months following cessation of active work when a lay-off or leave of absence exceeds a two month's period.' The substitution by rider of a provision devoid of specific time limitation indicates that the period of lay-off during which employment may be deemed not to be terminated was intended to be a variable period ascertainable solely by the events which occur between employer and employee. Defendant's affidavits state that Keane was notified that he was being laid off for lack of work and would be 'given notice to return for re-employment' if work became available. The Works Agreement between the employer and the union nowhere defines lay-offs in terms of temporary or permanent lay-offs. The Works Agreement refers to various types of terminations of active work, such as quits, discharges, leaves of absence, retirements and lay-offs. The comprehensive term, apparently including all separations from active work other than those specified, is lay-off.

The insurer relies strongly upon the circumstance that 'severance pay' accrued, but we cannot attribute to that fact that finality which the insurer urges. The Works Agreement provides that 'severance pay is intended to cover lay-offs due to lack of work and not cases of quits or discharges.' Excluded also are layoffs 'because of conditions beyond the control of the Company, such as fire, flood, earthquake, strikes, or inability to obtain necessary materials.' The agreement then says:

'For employees permanently laid off Because of lack of work who have been in our employ six (6) months, or longer, payments shall begin after the fourth week of lay-off.' (Italics appear in the Works Agreement).

A subsequent provision sets forth a formula for the calculation of the severance pay. There follows a provision that severance pay shall 'upon re-employment * * * cease with the payment for the last work day before rehiring' and 'will be cancelled as of the date on which he was scheduled to return to work' if the employee refuses to return. As we read the Works Agreement, the right to severance pay depends upon the duration of the lay-off. If less than four weeks, none is payable. In short, the right of the employee to that pay is determined, not at the moment of lay-off, but by the subsequent duration of it. If the employer at the time of the lay-off for lack of work contemplated re-employment within three weeks, the lay-off would be no more or less temporary at the time of its occurrence than it would be if the period anticipated were five weeks. Hence, we cannot agree that the accrual of a right to severance pay bespeaks a permanent lay-off. We have not overlooked the word 'permanently' in the passage quoted from the Works Agreement. In its context, at least on the record before us, we believe that it relates to the duration of the lay-off as time reveals it, because, as stated above, it seems clear that the employee's right to severance pay is determined by the actual duration of the lay-off rather than by any characterization of it which an employer may express to the employee (and here did not) at the moment of lay-off. The provisions of the Works Agreement relating to 'continuous service' provide that a lay-off of less than 30 days shall not affect the employee's continuous service; that a lay-off in excess of 30 days but less than 13 months shall not affect accumulated service, whereas a lay-off exceeding 13 months shall cancel all previously accumulated service credits. In these circumstances it cannot be said as a matter of law that the lay-off was permanent at its inception, and we observe that if it be deemed to be permanent four weeks or 30 days after its inception, the employment would then have terminated on July 15 or 17, and if we add the 31 day period prescribed in the first sentence of the second quoted paragraph, we would reach a date of automatic cessation of insurance by reason of termination of employment beyond the date of Keane's death on August 11.

The insurer urges that the employer's privately held view of the nature of the lay-off should be controlling. We think not. The question whether the employee must receive notice of termination of employment was expressly left open in Ambrose v. Metropolitan Life Insurance Co., 10 A.2d 479, 18 N.J.Misc. 42 (Sup.Ct.1939) (not reported in the State reports). The results reached elsewhere appear to be in conflict. See Nick v. Travelers Ins. Co., ...