Reger v. National Ass'n of Bedding Mfrs. Group Ins. Trust Fund

• Court: New York Supreme Court
• Writing for the Court: JOSEPH F. GAGLIARDI
• Citation: 83 Misc.2d 527,372 N.Y.S.2d 97
• Decision Date: 04 June 1975
• Parties: Mary B. REGER, Plaintiff, v. NATIONAL ASSOCIATION OF BEDDING MANUFACTURERS GROUP INSURANCE TRUST FUND and National Association of Bedding Manufacturers, Defendants.

Page 97

372 N.Y.S.2d 97 83 Misc.2d 527 Mary B. REGER, Plaintiff,
v.
NATIONAL ASSOCIATION OF BEDDING MANUFACTURERS GROUP
INSURANCE TRUST FUND and National Association of
Bedding Manufacturers, Defendants. Supreme Court, Westchester County. June 4, 1975.

Page 104

Cerrato, Sweeney & Cohn, Yonkers, for plaintiff.

Rogers & Wells, New York City, for defendants.

JOSEPH F. GAGLIARDI, Justice.

PROLOGUE

The renewed motions presented in the instant matter cause a host of vaxatious legal questions which require extended discussion of the facts and legal principles applicable thereto. It seems best to first summarize the essence of the case to properly understand the claims and contentions.

Plaintiff is the widow of Frederick C. Reger (hereafter referred to as the insured), and is the named beneficiary of a group life insurance policy once outstanding on the life of the insured. At the time of Mr. Reger's demise, the insurance policy no longer was viable. Plaintiff contends that defendants owed the insured a duty to advise him of his conversion rights upon termination of insurance coverage. The gravamen of the complaint sounds in negligence for the tort of nonfeasance. Defendants deny that they owed any duty to the insured as claimed, and, further, whatever duty was owed was responsibly dischared.

So much for the facts relating to the merits. Defendants are non-resident corporations and the master policy (as well as another contract between the defendants) contains a choice-of-law provision. A previous motion was decided by this court on August 28, 1973. Since that time one party has been dismissed, another added, pleadings amended, and a stipulation of Agreed Facts executed. The broad legal areas that require consideration are: In personam jurisdiction, conflict of laws and the duty owed to an insured to advise him of conversion rights.

PROCEDURAL BACKGROUND

As noted, counsel have stipulated to a Statement of Agreed Facts. ¹ Originally, plaintiff sued the John Hancock Mutual Life Insurance Company (hereafter 'John Hancock'), and the National Association of Bedding Manufacturers Group Insurance Trust Fund (hereafter 'the Fund'). Thereafter, plaintiff moved for summary judgment; the Fund cross-moved for dismissal, and John Hancock cross-moved for

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summary judgment. By decision dated August 28, 1973, this court granted John Hancock's cross-motion holding that notwithstanding 'which state's law governs (New York or Illinois), the insurer is not liable to the beneficiary of an insured-employee under a group plan for the employer's failure to notify the insured-employee of his conversion privilege, where the insured dies after expiration of the statutory grace period (McGinnis v. Bankers Life Co., 39 A.D.2d 393 (334 N.Y.S.2d 270); Schwartz v. Mutual Benefit Life Ins. Co., 28 Misc.2d 367 (212 N.Y.S.2d 359), affd., 14 A.D.2d 754 (218 N.Y.S.2d 526); Degnan v. Metropolitan Life Insurance Co., 178 Misc. 312 (34 N.Y.S.2d 238) (App. Term 1st Dept.); Christofferson v. General Motors Corp. (332 Ill.App. 702), 54 N.E.2d 642 (abstract opinion); cf. Smith-Hurd Illinois Ann.Stats., Ch. 73 § 846(2); Kolodziej v. Metropolitan Life Insurance Co. (307 Ill.App. 657, 30 N.E.2d 916))'.

The court denied plaintiff's motion without prejudice to renewal upon the joinder of the National Association of Bedding Manufacturers (hereafter 'NABM'), which was claimed to be an alter ego of the Fund. Similarly, the Fund's cross-motion was also denied without prejudice. The court directed discovery proceedings, particularly on the jurisdictional issues raised (see Peterson v. Spartan Industries, Inc., 33 N.Y.2d 463, 354 N.Y.S.2d 905, 310 N.E.2d 513), and requested certain additional information, most of which has now been supplied by the Statement of Agreed Facts. The court fixed January, 1974, as the outside state for renewal of any motions. However, the parties by agreement have extended the time for resubmission.

Subsequent to this court's decision, the parties stipulated to add NABM as a party defendant provided that NABM reserved the right to assert jurisdictional defenses.

THE FACTS

During the period March 1, 1958 through June 30, 1969, the decedent was employed in an executive capacity by a New York firm, Charles P. Rogers & Co., Inc. (also known as Spring Air of Greater New York). On June 4, 1968, the decedent purchased thirteen shares of common stock in said company, representing five to ten per cent ownership therein. Charles P. Rogers & Co., Inc. was a member of NABM, which is a non-profit corporation organized under the laws of the State of Illinois, having its only office in Washington, D.C. ² NABM was incorporated in 1915, is a membership association of bedding manufacturers and permits suppliers to join as associate members. At present NABM has 373 members and 232 associate members. Twenty-one members and 24 associate members are located

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in New York. NABM is not licensed to do business in this state, has no office or telephone listing here, and employs fourteen persons, all located in Washington, D.C. NABM publishes a trade magazine and prior to January, 1975, utilized the services of one person in this state to solicit advertising for its magazine. NABM characterized this person as a part-time employee or advertising representative working on a commission basis, and all advertisements had to be accepted at its office in Washington, D.C.

The Fund was created in 1958 under the laws of the State of Illinois by an agreement called the 'Trust Agreement' between NABM and the Trustees of the Fund. The purpose of the Fund was to make low cost group policy life insurance available to employees of member companies if such companies desired to offer the coverage. The Fund has its sole office in Washington, D.C., is not licensed to do business in New York, has no office in this state or telephone listing, and no employees here. The Fund's only contact with New York is through five members of NABM who are 'participating employers' in the insurance plan which presently covers forty-eight employees working in this state.

The insurance provided by the Fund is pursuant to the terms of a group policy issued by John Hancock to the Trustees of the Fund, with the Fund being the policyholder. The insurance is provided on a non-contributory basis--the employer is required to pay all premiums for covered employees. At bar, Charles P. Rogers & Co., Inc. paid all premiums for decedent on a month to month basis as part of a 'compensation package' and not as 'a negotiated fringe benefit obtained by means of a labor contract' (Agreed Facts, par. 9). Neither the Fund nor NABM ever paid a premium for the decedent.

The procedure for obtaining life insurance coverage and continuation thereof is as follows: an employee of a participating employer-member who desires life insurance coverage through the Fund submits an application for life insurance to the employer, who forwards it on a form supplied by either of the defendants, to the Fund in Washington, D.C. The Fund returns a certificate of insurance to the participating employer who delivers it to the employee. The certificate states that it is subject to the terms and conditions of the group policy, but is silent on governing law. The certificate also sets forth in great detail the insured's options regarding conversion to an individual life policy without evidence of insurability on termination of insurance coverage under the group plan. The insurer bills the employer on a monthly basis and the employer remits the premiums to the Fund. The Fund forwards all premiums received to the insurer. The Fund administers the group plan, its expenses defrayed by payment from its members and it maintains all records in connection with the group plan. These records consist of the names (but not the

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addresses) of the insured-employees. This procedure for obtaining and continuing insurance coverage was used at bar.

The Trust Agreement provides (section 8.01): 'This Agreement and Declaration of Trust shall be construed in accordance with the laws of the State of Illinois . . .' Participating employers, who are defined as 'any employer who becomes a party to this agreement' (section 1.13) agree to be bound by the terms of the trust (section 2.01). The Trust Agreement also provides that the word 'employer' means 'the Association (i.e. NABM) and all regular and associate members in good standing of the Association' (section 1.05). The group policy provides that 'This policy is delivered in Illinois and is governed by the laws of that jurisdiction'. The policy contains a conversion privilege whereby an insured may, within thirty-one days after termination of employment, obtain an individual life policy without evidence of insurability.

Pursuant to usual procedure plaintiff's decedent was accept for insurance on March 1, 1958, and insured for the sum of $5,000, which sum was subsequently increased to $10,000. Plaintiff was the named beneficiary. While decedent was employed by Charles P. Rogers & Co., Inc., he was responsible for administrative matters regarding the group insurance plan and was the recipient of correspondence concerning said plan. Plaintiff's decedent was an insured under the group policy until July 3, 1969, when Charles P. Rogers & Co., Inc. went out of business. In early July, 1969, a premium bill was returned to NABM by Charles P. Rogers & Co. Inc. with the notation that it has ceased to do business. On July 15, 1969, NABM notified decedent's employer that insurance coverage for its employees had terminated as of June 30, 1969. In fact, coverage actually ceased on July 31, 1969 (Agreed Facts, par. 15). ³ Neither defendant notified decedent of his conversion privilege (nor did the insurer or employer), although certain officers of the defunct employer did request such information and other employees took advantage of the conversion privilege (Agreed Facts, pars. 12...