Court Opinion

ID: 2963490
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:10:48.576239+00
Date Added: 2024-06-11T11:42:41.833863
License: Public Domain

USCA1 Opinion

	

          July 5, 1995          [NOT FOR PUBLICATION]

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT

                                                     
                                 ____________________

        No. 94-2187

                     INTERNATIONAL ASSOCIATION OF MACHINISTS AND 
                       AEROSPACE WORKERS, DISTRICT LODGE NO. 38
                               HEALTH AND WELFARE FUND,

                                Plaintiff, Appellant,

                                          v.

                       LINCOLN NATIONAL LIFE INSURANCE COMPANY,

                                 Defendant, Appellee.

                                                     
                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                              FOR THE DISTRICT OF MAINE

                     [Hon. D. Brock Hornby, U.S. District Judge]
                                            ___________________

                                                     
                                 ____________________

                                Selya, Cyr and Stahl,

                                   Circuit Judges.
                                   ______________

                                                     
                                 ____________________

             Jeffrey  T. Edwards,  with whom  John  J. Flaherty,  Elizabeth J.
             ___________________              _________________   ____________
        Wyman  and Preti,  Flaherty,  Beliveau &  Pachios  were on  brief  for
        _____      ______________________________________
        appellant.
             Harold J.  Friedman,  with whom  Karen  Frink Wolf,  Jonathan  M.
             ___________________              _________________   ____________
        Dunitz and Friedman & Babcock were on brief for appellee.
        ______     __________________

                                                     
                                 ____________________

                                                     
                                 ____________________

                    Per  Curiam.   Appellant  International  Association of
                    Per  Curiam
                    ___________

          Machinists and  Aerospace Workers,  District Lodge No.  38 Health

          and  Welfare Fund  ("Health  and Welfare  Fund" or  "appellant"),

          challenges a district court ruling that its Shared Fund Agreement

          ("Agreement") with Lincoln National Life ("Lincoln") unambiguous-

          ly permitted Lincoln to retain certain monies upon termination of

          their  agreement.   For  the  reasons  hereinafter discussed,  we

          affirm.

                                          I
                                          I

                                      BACKGROUND
                                      BACKGROUND
                                      __________

                    The  Agreement  was intended  to  implement appellant's

          commitment  to provide health  insurance to the  members of Lodge

          No.  38 ("union members") by funding a reserve account from which

          their medical claims  were to  be satisfied.   The Agreement  re-

          quired appellant to  remit to Lincoln a  prescribed percentage of

          the funds in  the reserve account as a premium.   Lincoln in turn

          would  pay all covered medical  claims by union  members from the

          reserve account.  A side agreement between  appellant and Lincoln

          provided for a Premium  Stabilization Fund and an escrow  account

          to  fund medical  benefits  to union  members  in the  event  the

          Agreement itself were terminated.

                    The Agreement also stated that there would be an Annual

          Experience Calculation at the end  of each year.  If  the covered

          medical claims  against the Health  and Welfare Fund  amounted to

          less than  appellant's actual deposits into  the reserve account,

          the surplus would  be refundable  to appellant or  placed in  the

                                          3

          Premium Stabilization Fund at appellant's option.  If the covered

          medical claims against  the Health and Welfare  Fund exceeded the

          amount  set aside by appellant, Lincoln  was permitted to recover

          the deficit  from the  Premium Stabilization  Fund.  The  present

          dispute arises from the parties' disagreement over the contractu-

          al consequences of a year-end deficit which could not be met with

          monies in the Premium Stabilization Fund.

                    At the end of  Policy Year Ten (October 31,  1990), the

          deficit calculated in accordance  with the procedures mandated in

          the  Agreement  totalled $380,503.    Since  appellant failed  to

          satisfy the deficit, Lincoln carried  it forward into Policy Year

          Eleven.   Following completion of the  Annual Experience Calcula-

          tion at the  close of  Policy Year Eleven,  appellant once  again

          failed to satisfy the accumulated  deficit and Lincoln carried  a

          $344,311 deficit into Policy Year Twelve. 

                    Appellant terminated the  Agreement during Policy  Year

          Twelve.   The accumulated deficit  stood at $352,909.   Since the

          Premium Stabilization  Fund  had been  depleted, Lincoln  applied

          $352,909  from  the  escrow  account and  remitted  the  $553,692

          balance to appellant.  Appellant thereupon instituted the present

          action to recover the $352,909 previously applied to  the accumu-

          lated deficit by Lincoln. 

                     In  order  to  determine  whether  deficits  could  be

          carried over  into subsequent years, the  district court proposed

          to  bifurcate the  proceedings.   First,  it  would decide  on  a

          stipulated record  whether the language of  the Agreement plainly

                                          4

          governed year-end  deficit carryovers.  If not,  it would conduct

          an evidentiary hearing on  the parties' course of dealing.  As it

          turned out, the district court ruled that the Agreement unambigu-

          ously provided  that  deficits  were to  be  carried  over  until

          satisfied.  Accordingly, it entered summary judgment for Lincoln,

          and the Health and Welfare Fund appealed.

                                          II
                                          II

                                     DISCUSSION1
                                     DISCUSSION
                                     __________

                    Whether a  contractual term is ambiguous  is a question

          of law which we review de novo.  Jimenez v. Peninsular & Oriental
                                 __ ____   _______    _____________________

          Steam Navigation Co., 974 F.2d 221, 223 (1st Cir. 1992) (collect-
          ____________________

          ing cases); In  re Navigation  Tech. Corp., 880  F.2d 1491,  1495
                      ______________________________

          (1st Cir. 1989) (applying New Hampshire law).  "Contract language

          is considered ambiguous where the contracting  parties reasonably

          differ  as to its meaning."  Id. (quoting Commercial Union Assur.
                                       ___          _______________________

          Cos. v. Town  of Derry, 118 N.H. 469, 471,  387 A.2d 1171 (1978),
          ____    ______________

          overruled on other grounds, American Home Assur. Co. v. Fish, 122
          __________________________  ________________________    ____

          N.H.  711, 451 A.2d 358 (1982)).  Whenever possible, all contract

          terms must be given  reasonable effect and all unambiguous  terms

          must  be given their plain meaning.  Commercial Union Ins. Co. v.
                                               _________________________

          Walbrook Ins.  Co., 7 F.3d  1047, 1052-53  (1st Cir. 1993).   The
          __________________

          introduction  of  extrinsic evidence  is  appropriate  only on  a

          preliminary showing that the terms of the contract are ambiguous.

          Richey  v. Leighton,  632  A.2d 1215,  1217  (N.H. 1993);  In  re
          ______     ________                                        ______
                              
          ____________________

               1The parties agree that the substantive law of New Hampshire
          governs their dispute.

                                          5

          Navigation Tech.,  880 F.2d  at  1495 (citing  MacLeod v.  Chalet
          ________________                               _______     ______

          Suisse Int'l, Inc., 401 A.2d 205, 209 (1979)). 
          __________________

                    Section I(A) of the Agreement states:

                    Annual Experience Calculation means  the cal-
                    culation completed at the  end of each Policy
                    Year whereby the amounts of premiums paid  by
                    the  Policyholder during that Policy Year are
                    offset  by 1)  the amount  of Claims  paid by
                    Lincoln  National under the  Plan, 2) Lincoln
                    National's retention and  3) any deficit  re-
                    maining from the prior Policy Year.

          Section IV (B) of the Agreement states:

                    At the end of a Policy Year  deficits will be
                    carried  forward  in  the  Annual  Experience
                    Calculation  for  succeeding years  until the
                    deficit is eliminated.2

          Section V of the Agreement states:

                    B.   Upon termination of  the Policy(ies)  or
                         the  termination  of this  agreement the
                         Policy  holder  will  pay the  following
                         amount to Lincoln National:

                         . . . .

                         4.   any  deficit   amount  payable
                         from the Annual Experience Calcula-
                         tion  for the Policy Year ending on
                         the termination date.

                    . . . .

                    D.   . . . The charges applied to the maximum
                         terminal liability3 amount are:
                              
          ____________________

               2Similarly, Section  IV(A) provides  that if the  Annual Ex-
          perience Calculation  indicates an overpayment by  the Health and
          Welfare  Fund, "the excess amount  may be payable  to the Policy-
          holder as a refund."

               3Section V(D) defines "maximum terminal liability" as 22% of
          the  Equivalent Conventional Premium  for the twelve-month period
          immediately before  termination plus the amount  of medical bene-
                                          ____
          fits  that  clear  after  termination,  claim  processing charges
          applicable to  checks issued after termination,  interest charges

                                          6

                         -    any  deficit  amount   payable
                              from  the   Annual  Experience
                              Calculation  for   the  Policy
                              Year ending on the termination
                              date.

                    Appellant  contends  that the  Agreement  provides that

          deficits were to be recouped by increasing premiums in subsequent
                                                                 __________

          policy years.   Moreover, appellant argues, even if the Agreement

          does  not plainly support this contention, it is at least ambigu-

          ous on  this  point; therefore,  remand  is necessary  to  permit

          extrinsic evidence on the parties' understanding.  

                    We reject appellant's interpretation for three reasons.

          First,  it  is unsupported  by  the  language of  the  Agreement.

          Second,  it  would render  nugatory  both  the contract  language

          providing for  deficits  to  be carried  over  and  the  language

          requiring  that  the  Annual  Experience  Calculation  take  into

          account  any unpaid deficit from  a prior year.   Bosse v. Litton
                                                            _____    ______

          Unit Handling  Sys., 646 F.2d  689, 694  (1st Cir. 1984)  ("It is
          ___________________

          axiomatic that constructions which render contract terms meaning-

          less or  futile are to be avoided.") (applying N.H. law).  Third,

          viewed through  any lens but its  own, appellant's interpretation

          is highly implausible, since it would permit appellant to recover

          its premium overpayments, see note 2 supra, yet escape payment of
                                    ___        _____

          unsatisfied deficits by terminating the agreement at the end of a

          policy  year.  See  Green Mountain Ins.  Co. v. George,  634 A.2d
                         ___  ________________________    ______

          1011, 1015  (N.H. 1993) (differing interpretations  which are not
                              
          ____________________

          for funding  medical benefits  after termination and  any deficit
                                                                ___ _______
          amount  payable from  the Annual  Experience Calculation  for the
          ______  _______ ____  ___ ______  ______________________  ___ ___
          Policy Year ending on the termination date.
          ______ ____ ______ __ ___ ___________ ____

                                          7

          reasonable do  not give  rise to cognizable  ambiguity); Jimenez,
                                                                   _______

          974 F.2d at 223  (contract terms must be given  reasonable inter-

          pretation).4

                    Appellant  contends further that  the term "deficit" is

          ambiguous, noting that  it is  used in two  different places  and

          defined in  slightly different terms.   Throughout the Agreement,

          however,  the term "deficit" is  used to refer  to the difference

          between  the amount of money Lincoln paid on union member medical

          claims and the amount appellant has paid Lincoln to satisfy those

          claims.  Appellant posits no sound reason for giving the language

          of the Agreement any other meaning.  See Commercial Union, 7 F.3d
                                               ___ ________________

          at 1052-53.

                     The district court judgment is affirmed.  
                                                    ________

                              
          ____________________

               4Appellant points to its nonpayment of year-end deficits for
          Policy  Years Ten and  Eleven as support  for its interpretation.
          Section IV(B), immediately prior  to providing for deficit carry-
          overs, states that nonpayment of any amount due within thirty-one
          days of demand automatically  terminates the contract.  Appellant
          contends  that  the  fact the  agreement  was  not terminated  by
          Lincoln  demonstrates that  both parties  understood  the deficit
          would be paid down through premium increases in subsequent years.
          As  this  argument is  raised for  the first  time on  appeal, we
          decline to  consider it.  McCoy  v. M.I.T., 950 F.2d  13, 22 (1st
                                    _____     ______
          Cir. 1991),  cert.  denied, 504  U.S. 910  (1992) (arguments  not
                       _____  ______
          presented  to the district court  not preserved for  appeal).  We
          note,  nonetheless, that an insurer  "may waive provisions  . . .
          placed  in  [the  policy]  for the  insurer's  benefit,"  without
          waiving  the  underlying right  to demand  payment.   Gaillien v.
                                                                ________
          Connecticut Gen.  Life Ins. Co., 49 F.3d  878, 884 (2d Cir. 1995)
          _______________________________
          (quoting  16B John A. Appleman & Jean Appleman, Insurance Law and
                                                          _________________
          Practice   9081, at 498 (1981) (collecting cases)).  
          ________

                                          8