Gelardi v. Atlanta Life Ins ( 1997 )

UNPUBLISHED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Affirmed by unpublished opinion.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 & BRAD-
SHAW, 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Unpublished opinions are not binding precedent in this circuit.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 dif-
ferent 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 insur-
ance 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 special-
ists who conducted their day-to-day business and whose correspon-
dence 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 effec-
tive 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 mid-
night 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 Febru-
ary 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 bene-
fits 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 sum-
mary judgment. The court also ruled as a matter of law that Atlanta
Life was entitled to offset the Schelb claim against the March pre-
mium.
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 pre-
mium for March coverage? The district court ruled that Atlanta Life's
February 28 letter was an offer for a new contract for stop-loss cover-
age through March 31, 1995, which Centurion accepted.
3
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 stop-
loss 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 deci-
sion to purchase stop-loss insurance was vested, who directed pay-
ment 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 Cen-
turion 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
4
coverage during March 1995. Centurion contends, contrary to the tes-
timony 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 dur-
ing 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 offi-
cer had suggested that Atlanta Life demand the March premium since
"no deal was finalized." This evidence does not establish that Centu-
rion owed no premium for March.
Based on the letters exchanged on February 28, 1995, the testi-
mony of Centurion's two trustees, and the replacement insurance pur-
chased 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.
5
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 Centu-
rion not to obtain coverage for its members at all times.
[Centurion] failed to produce sufficient evidence to con-
vince 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 ter-
minated coverage retroactively to the day prior to the start of the 30-
day grace period. Centurion draws this conclusion from the termina-
tion 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 ter-
mination 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 termi-
nates 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 pre-
mium. Since the March premium was paid on time by operation of the
offset provision, there was no default to trigger Centurion's interpre-
tation 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
7
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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