McGinnis v. Bankers Life Co., Des Moines, Iowa

• Decision Date: 13 July 1972
• Citation: 334 N.Y.S.2d 270,39 A.D.2d 393
• Parties: Evelyn McGINNIS, Respondent, v. BANKERS LIFE COMPANY, DES MOINES, IOWA, Defendant, and Associated Transport, Inc., Appellant.
• Court: New York Supreme Court — Appellate Division

Page 270

334 N.Y.S.2d 270

39 A.D.2d 393

Evelyn McGINNIS, Respondent, v. BANKERS LIFE COMPANY, DES MOINES, IOWA, Defendant, and Associated Transport, Inc., Appellant.

Supreme Court, Appellate Division, Second Department.

July 13, 1972.

Casey, Lane & Mittendorf, New York City (William H. Cusick and William E. Kelly, New York City, of counsel), for appellant.

Leon Wasserman, New York City, for respondent.

Before MUNDER, Acting P.J. and GULOTTA, CHRIST, BRENNAN and BENJAMIN, JJ.

BENJAMIN, Justice.

The plaintiff, Evelyn McGinnis, is the beneficiary of a group life insurance certificate issued to her husband, William J. McGinnis, now deceased, under a plan of group insurance for employees entered into between defendant Associated Transport, Inc. (hereinafter referred to as 'Associated Transport'), her husband's employer, and defendant Bankers Life Company, Des Moines, Iowa (hereinafter referred to as 'Bankers Life'). Bankers Life disclaimed liability under the certificate. The plaintiff, alleging that the policy was in effect at the time of death, seeks to recover the death benefit, some $5,000, from Bankers Life. Alternatively, she seeks to recover an equivalent amount from Associated Transport on the theory that it wrongfully terminated the insured's coverage.

At the close of the defendants' proof, the Civil Court of the City of New York directed a verdict in the plaintiff's favor against both defendants and judgment was entered accordingly. The Appellate Term, Second and Eleventh Judicial Districts, reversed the judgment against defendant Bankers Life and dismissed the first cause of action. It affirmed the judgment against defendant Associated Transport. We granted defendant Associated Transport's motion for leave to appeal to this court. The plaintiff did not cross-move for leave to appeal insofar as the order reversed the judgment against Bankers Life and dismissed her cause of action against that defendant.

The question before us is whether Associated Transport had a duty to advise its employee that his employment was terminated for insurance purposes and to advise him of the conversion privileges which were then available to him without evidence of insurability. We hold that these duties existed.

The essential facts are not in dispute. Bankers Life issued a group policy, bearing number GL72, to Associated Transport effective December 1, 1942. Under the policy certain empoloyees were eligible to apply for contributory group insurance. William McGinnis applied for coverage and he was issued a certificate of insurance effective November 15, 1948. The original certificate of insurance was superseded by certificate bearing number 11584, effective February 1, 1957. The plaintiff is the named beneficiary on the certificate.

The policy (as amended in 1962) provides that insurance coverage terminates on the date of termination of employment. Termination of employment for insurance purposes is defined therein as the 'cessation of active work as an employee, except: (a) if an Employee's cessation of active work is caused by sickness * * * his employment may be deemed to continue until payments for such Employee's insurance are discontinued by the Employer.' The policy also contains the conversion privilege required by paragraph (e) of subdivision 1 of section 161 of the Insurance Law. Under the conversion clause the employee is entitled to be issued an individual policy of insurance without evidence of insurability upon his application with premium within 31 days after termination of employment. The policy also requires Associated Transport to keep records of employees insured under it and to furnish periodically to the insurer information as to new employees who become insured, changes in beneficiaries, and terminations of insurance coverage. Premium payments are made by Associated Transport to Bankers Life by a single Associated Transport draft which includes the sum of insurance premiums on behalf of all employees. In the case of contributory group coverage, such as the insured's herein, his share of the premium is deducted from his payroll check. ¹

On November 12, 1965, William Mc.ginnis suffered a heart attack. He ceased active employment on that date and never returned to work. He received no wages after November 13, 1965. Associated Transport paid no further premiums for him. It did not advise him that his employment had terminated for insurance purposes and that it would not remit premiums for him during his illness, as was its option, or that he had the aforementioned coversion privilege. William McGinnis died on May 31, 1966, without having exercised the conversion privilege. Shortly after the insured's death the plaintiff submitted a claim for death benefits to Associated Transport. The claim was forwarded to Bankers Life along with a letter dated June 7, 1966. The letter advised that no premium had been forwarded for Mr. McGinnis after November 13, 1965; that Mr. McGinnis had died on May 31, 1966; and that he had not actually been terminated as an employee although he received no wages after November 13, 1965.

In our opinion, Bankers Life is not liable for the claimed death benefit. Under the terms of the policy group coverage automatically terminated upon the insured's cessation of active work, which event occurred on November 12, 1965. Associated Transport did not elect to continue the coverage during the insured's disability as was its right. The insured did not exercise his conversion privilege within 31 days after the date employment terminated and he did not die within this period (death within this period would be deemed a conversion under the policy). In this connection we note the effect of subdivision 3 of section 204 of the Insurance Law as it read at the times here in question. It provided in part:

'In the event a group life insurance policy hereafter issued * * * permits a certificate-holder to convert to another type of life insurance within a specified time after the happening of an event, such certificate-holder shall be notified of such privilege and its duration within fifteen days after the happening of the event, provided that if such notice be given more than fifteen days, but less than ninety days after the happening of such event, the time allowed for the exercise of such privilege of conversion shall be extended for fifteen days after the giving of such notice. If such notice be not given within ninety days after the happening of the event, the time allowed for the exercise of such conversion privilege shall expire at the end of such ninety days.'

In the instant case, as above stated, no notice was given to the insured of the conversion privilege. By operation of the statute, therefore, the privilege of conversion was extended to 90 days after the happening of the specified event (De Ville v. Continental Assur. Co., 10 A.D.2d 386, 199 N.Y.S.2d 876, affd. 8 N.Y.2d 1080, 207 N.Y.S.2d 453, 170 N.E.2d 487; Payne v. Equitable Life Assur. Soc. of United States, 14 A.D.2d 266, 220 N.Y.S.2d 493, affd. 11 N.Y.2d 1006, 229 N.Y.S.2d 752, 183 N.E.2d 763; Miller v. Metropolitan Life Ins. Co., 64 Misc.2d 658, 315 N.Y.S.2d 353; Oakley v. National Western Life Ins. Co., D.C., 294 F.Supp. 504). However, the insured died on May 31, 1966, more than 90 days after the defined event, which occurred on November 12, 1965. Accordingly, all rights under the policy had expired and the insurer is not liable to the beneficiary for the death benefit.

We now examine the ground for liability against Associated Transport. The Appellate Term stated in its opinion:

'(T)he evidence warranted a direction of verdict in plaintiff's favor against defendant-employer predicated upon its failure to advise the employee that his employment had been terminated for insurance purposes and in failing to advise him of the conversion privileges which were then available to him without evidence of insurability' (McGinnis v. Bankers Life Co., N.Y.L.J., May 26, 1971, p. 19, col. 4).

The appellant's principal contention is that until 1940 there was no statutory or common-law rule requiring that a certificate holder be given notice by anyone of his group conversion privileges,...