July 5, 1995 [NOT FOR PUBLICATION]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.
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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)).
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IAMAW v. Lincoln National
Combined Opinion