UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

MICHAEL F. GELARDI, Trustee of

Centurion Health Trust; ELI S.

CHOVITZ, Trustee of Centurion

Health Trust; MICHAEL T. LEIBIG,

Trustee of Centurion Health Trust;

ROBERT W. MATHIESON, Trustee of

No. 96-1403

Centurion Health Trust,

Plaintiffs-Appellants,

v.

ATLANTA LIFE INSURANCE COMPANY,

Defendant-Appellee.

Appeal from the United States District Court

for the Eastern District of Virginia, at Norfolk.

Raymond A. Jackson, District Judge.

(CA-95-722-2)

Argued: January 30, 1997

Decided: July 16, 1997

Before HALL and ERVIN, Circuit Judges, and

BUTZNER, Senior Circuit Judge.

_________________________________________________________________

Affirmed by unpublished opinion. Senior Judge Butzner wrote the

opinion, in which Judge Hall and Judge Ervin joined.

_________________________________________________________________

COUNSEL

ARGUED: Wyatt B. Durrette, Jr., DURRETTE, IRVIN & BRADSHAW, P.C., Richmond, Virginia, for Appellants. James Strother
Crockett, Jr., MAYS & VALENTINE, Richmond, Virginia, for

Appellee. ON BRIEF: Barrett E. Pope, John C. Warley, Arnold C.

Moore, Jr., DURRETTE, IRVIN & BRADSHAW, P.C., Richmond,

Virginia, for Appellants.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

_________________________________________________________________

OPINION

BUTZNER, Senior Circuit Judge:

Michael Gelardi and three other trustees of Centurion Health Trust

appeal the order of the district court granting summary judgment to

Atlanta Life Insurance Company. We affirm the order on slightly different grounds than those stated in the opinion of the district court.

Jurisdiction is based on 28 U.S.C. § 1331 (federal question).

I

Centurion is a health insurance trust that was established by the

Virginia Beach Police Benevolent Association (PBA) and Ocean

Breeze Festival Park, Inc., pursuant to their collective bargaining

agreement. The trust marketed a health benefits package to PBA and

others. Centurion purchased stop-loss insurance for its health insurance plan from Atlanta Life pursuant to a one-year contract executed

on August 1, 1994. The stop-loss contract obligated Atlanta Life to

reimburse Centurion for payments it made in excess of a stipulated

amount. Centurion and Atlanta Life each employed insurance specialists who conducted their day-to-day business and whose correspondence is relevant to this case. For simplicity, however, we will refer

to Centurion and Atlanta Life instead of their agents who actually

wrote the letters.

On January 20, 1995, Atlanta Life informed Centurion that effective February 28, 1995, the policy would be cancelled because of dif-

 2
ficulties Centurion was having with state insurance departments.

After discussion between the parties, Atlanta Life wrote a letter dated

February 28, 1995, stating that the policy "will be extended to midnight on March 31, 1995 provided all premiums remain current and

paid in full." The same day Centurion responded by noting receipt of

the letter "extending" coverage to March 31 and by paying the February premium.

Centurion failed to pay the March premium, claiming that it never

agreed to the extension for March coverage. Atlanta Life offset the

unpaid premium against a claim filed by Centurion in February on

behalf of Wayne Schelb. The claim sought reimbursements for benefits Centurion had paid to Schelb during February. In May, Centurion

filed an additional Schelb claim for reimbursement, most of which

also had been paid in February. Centurion later withdrew $824.22

from the additional Schelb claim when it realized that this amount had

been paid to Schelb in March.

Centurion sued for failure to pay the Schelb claim. Atlanta Life

moved for summary judgment on the grounds that the Schelb claim

was properly offset by the unpaid March premium. In its cross-motion

for summary judgment, Centurion claimed that it did not owe the

March premium because Centurion never agreed to extend coverage

through March 31, as evidenced by the fact that it did not pay the

March premium. The district court granted Atlanta Life's motion for

summary judgment and denied Centurion's cross-motion for summary judgment. The court also ruled as a matter of law that Atlanta

Life was entitled to offset the Schelb claim against the March premium.

II

We review summary judgment orders de novo. United States v.

Carolina Transformer, 978 F.2d 832, 835 (1989). The sole legal issue

in this case is whether Atlanta Life was authorized to offset the

Schelb claim against the unpaid March premium. Resolution of this

issue depends on an underlying question--did Centurion owe a premium for March coverage? The district court ruled that Atlanta Life's

February 28 letter was an offer for a new contract for stop-loss coverage through March 31, 1995, which Centurion accepted.

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We affirm the district court on slightly different grounds. We view

Atlanta Life's letter of February 28 as an offer"extending" the policy

through March 31 provided all premiums remain current and are paid

in full. The letter written by Centurion the same day acknowledged

Atlanta Life's letter "extending" coverage through March. The same

letter enclosed a check for the February premium. Atlanta Life has

produced sufficient evidence showing that the parties mutually agreed

to the extension of coverage. On February 28, the February premium

was outstanding and the 30-day grace period was about to expire.

Centurion immediately sent in payment of the February premium, the

only premium that was not "current" or "paid in full" as of February

28, 1995.

We are not persuaded by Centurion's contention that the extension

of the policy was conditioned upon payment of the March premium.

The March premium was not "due" or "current" on February 28. It did

not become due until March 1 and the grace period gave Centurion

until March 31 to pay the premium, the same day the extended stoploss coverage would be cancelled.

Two of Centurion's trustees testified that they understood that the

stop-loss coverage would extend through March 31 provided that the

February premium was paid. It was the trustees, with whom the decision to purchase stop-loss insurance was vested, who directed payment of the February premium. Robert Mathieson, Centurion trustee

and President of the Virginia Police Benevolent Association, testified

that by reason of the letter from Atlanta Life he understood that Centurion would have stop-loss coverage through March 31. Another

trustee, Michael F. Gelardi, believed that Atlanta Life would provide

coverage through March, though he thought such coverage would be

"free." Gelardi thought that "free" coverage was in consideration of

Centurion allowing Atlanta Life to cancel coverage before August 1,

1995. Centurion cites no communication from Atlanta Life to this

effect. Centurion has not offered any other evidence to support this

theory.

We find additional support of Centurion's intent to keep the policy

in force through March by its procurement of a substitute stop-loss

policy with John Alden Insurance that went into effect April 1, 1995.

Mathieson testified that the trustees never elected to forego stop-loss

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coverage during March 1995. Centurion contends, contrary to the testimony of two of its trustees, that the Atlanta Life policy was not in

force during March. Centurion never introduced testimony from its

other two trustees. It offers no evidence to explain why the John

Alden policy or any other replacement coverage was not in force during March.

Centurion also contends that Atlanta Life never believed that a

March premium was owed because it did not demand the premium

until May 1995. To support its position, Centurion points to a May

22, 1995, memorandum written by the underwriter for Atlanta Life's

policy. This memo, written shortly after initial settlement negotiations

between the parties had broken down, stated that an underwriting officer had suggested that Atlanta Life demand the March premium since

"no deal was finalized." This evidence does not establish that Centurion owed no premium for March.

Based on the letters exchanged on February 28, 1995, the testimony of Centurion's two trustees, and the replacement insurance purchased by Centurion effective April 1, 1995, we conclude that

Centurion agreed to accept the offer which extended their stop-loss

policy with Atlanta Life through March 31, 1995.

III

Since the policy was extended, its original terms remained in

effect. Two relevant provisions of the policy were the "Grace Period"

and "Offset" provisions:

 3.2 Grace Period. A Grace Period of thirty (30) days

from premium due date shall be allowed for the payment of

each premium. . . . Coverage shall terminate at the end of

the Grace Period if any premium due remains unpaid at the

end of the Grace Period.

 * * *

 8.10 Offset. [Atlanta Life] shall be entitled to offset

claim reimbursements to [Centurion] against any amount

due and unpaid by [Centurion] under the Policy.

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When Centurion did not pay the premium by the end of the March

grace period, Atlanta Life offset the Schelb claim against the unpaid

premium in accordance with the express terms of the offset provision.

Virginia law provides additional support for Atlanta Life's right to

offset the Schelb claim against the March premium. In Pacific Mutual

Life Insurance Co. v. Turlington Adm'r., 140 Va. 748, 753, 125 S.E.

658, 660 (1924), the Virginia Supreme Court, in dicta, stated the rule

that a life insurer had a duty to apply any outstanding amounts due

the insured to any unpaid premium. Such a rule advances the public

policy of keeping coverage in force as long as there are available

assets to pay for it. We do not agree with Centurion's contention that

this rule should be limited to the facts of Pacific Mutual which

involved "life insurance policies covering aging individuals clearly

lacking even minimal levels of business sophistication." (Centurion

brief at 14). Centurion argues that "a court's zealous efforts to protect

such people is hardly surprising and contrasts sharply with this case,

wherein commercial insurance is being negotiated between two

astute, experienced business entities." Id. It is Centurion's thousands

of persons that it insures, not Centurion, whom the rule is designed

to protect. If the public policy against forfeiture will protect a single

insured who causes his or her own default, it should certainly protect

a whole group of insureds whose stop-loss coverage lapses through

no fault of their own. The district court succinctly stated:

[I]t would be unusual behavior for an entity such as Centurion not to obtain coverage for its members at all times.

[Centurion] failed to produce sufficient evidence to convince the Court that it chose such a dangerous and unusual

course of action. The Court therefore is not persuaded to

abandon the public policy embodied by traditional Virginia

insurance law.

IV

Centurion argues that even if coverage continued through March,

failure to pay the March premium by the end of the grace period terminated coverage retroactively to the day prior to the start of the 30-

day grace period. Centurion draws this conclusion from the termination provision in the policy which reads:

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 2.2 Termination of Coverage. . . .[Centurion's] Coverage

Period, and the coverage hereunder, shall be terminated by

[ALIC] upon not less than thirty (30) days prior written

notice of [ALIC] on the earliest of:

* * *

 (7) if any premium remains unpaid at the end of the

Grace Period, then retroactively to the day before the due

date of such unpaid premium.

Atlanta Life argues that this provision simply makes the notice of termination retroactive, not the termination itself.

Ambiguous language in insurance policies are resolved in favor of

the insured. Cuna Mut. Ins. Soc. v. Norman, 375 S.E.2d 724, 725, 237

Va. 33, 36 (1989). But the termination provision of this policy,

despite its tortured language, is not ambiguous. This provision refers

to the notice of termination that is retroactive. There are three grounds

to support this interpretation. First, Centurion's view that coverage

terminates at the beginning of the month for which it is in default

directly conflicts with the "Grace Period" provision which states: "if

a premium is unpaid at the end of the Grace Period, the policy terminates at the end of the Grace Period." Second, accepting Centurion's

view would lead to a perverse result. If failure to pay a premium by

the end of a month retroactively terminates coverage at the beginning

of that month, Centurion could avoid its obligation to pay the March

premium by simply waiting to see whether any claims were filed.

Third, Centurion's argument falls prey to the offset provision. The

contract and the law provided that the Schelb claim, which accrued

in February, be automatically offset against the unpaid March premium. Since the March premium was paid on time by operation of the

offset provision, there was no default to trigger Centurion's interpretation of the termination provision.

V

We conclude that the stop-loss policy was extended, that Centurion

owed the premium for March and that Atlanta Life was authorized to

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offset the Schleb claim against the unpaid premium as a matter of

law. The district court properly granted summary judgment in favor

of Atlanta Life.

AFFIRMED

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