
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          July 5, 1995          [NOT FOR PUBLICATION]                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                          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
