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Slobodien v. Medical Inter-Insurance Exchange of New Jersey

A-2078-01T5 (N.J. Super. App. Div. 2003) (Unpublished)

CORPORATIONS; DIRECTORS; BENEFITS—Where a director’s fringe-style benefit is a mere gratuity, it may be terminated by the corporation at any time.

A company offered a death benefit plan to the beneficiaries of the company’s directors and former directors, subject to the right of its board of directors to amend or terminate the plan. The benefits were funded by key man life insurance policies paid for by the company. The directors had no direct interest in the policies; their only obligation was to submit an application if they wanted to participate in the plan. The company reorganized and, as part of its reorganization, terminated the death benefit plan. A company director sued the company for the cash value of the key man insurance policy on his life. He claimed that the death benefit plan was equivalent to a pension plan, and that he had a vested right to the cash value of the policy as of the date the company terminated the death benefit plan. The lower court, in awarding the cash value of the death benefit to a director’s beneficiaries, to be payable after his death, relied on another case dealing with the termination of a corporate contributory pension plan after an employee retired and was receiving benefits. In that case, the court held that the pension plan was an offer to pay a pension if the employee complied with the terms and conditions. The lower court reasoned that, as in the pension case, the director should not forfeit a benefit that was earned before the death benefit plan was terminated. The Appellate Division reversed. It found that the death benefit plan was not like a pension plan because the directors contributed nothing toward it. It was a mere gratuity that could be terminated by the company at any time. Since it was a gratuity, the director’s beneficiaries were not entitled to the cash value of the death benefit.

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