

July 5, 1995          [NOT FOR PUBLICATION]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 &amp;  Pachios  were on  brief  for                                                         
appellant.
   Harold J.  Friedman,  with whom  Karen  Frink Wolf,  Jonathan  M.                                                                              
Dunitz and Friedman &amp; 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

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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

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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 &amp; 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 &amp; Jean Appleman, Insurance Law and                                                                           
Practice   9081, at 498 (1981) (collecting cases)).                    

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