Unpublished Disposition, 916 F.2d 716 (9th Cir. 1985)

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US Court of Appeals for the Ninth Circuit - 916 F.2d 716 (9th Cir. 1985)

CUMMINS SOUTHWEST, INC., an Arizona corporation, Plaintiff-Appellant,v.CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticutcorporation, and Transamerica Occidental LifeInsurance Company, a Californiacorporation, Defendants-Appellees.

No. 88-15362.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 26, 1990.Decided Oct. 17, 1990.

Before WALLACE, POOLE and CYNTHIA HOLCOMB HALL, Circuit Judges.


MEMORANDUM* 

Cummins Southwest ("Cummins") appeals the district court's grant of summary judgment and entry of substantial money judgments in favor of the two appellees, Connecticut General Life Insurance Company ("CG") and Transamerica Occidental Life Insurance Company ("Transamerica").1  In this diversity action involving Extended Medical Benefits under a group insurance plan, policyholder Cummins brought suit seeking declaratory relief adjudging CG, or in the alternative, Transamerica, liable for approximately $300,000.00 in medical expenses incurred by the totally disabled dependent of a Cummins' employee during 1985.

The major issue presented in this appeal is whether the district court properly concluded that the policy termination agreement, negotiated by representatives of CG and Cummins, released CG from direct liability for the payment of Mrs. Iverson's Extended Medical Benefits claim. In addition, we examine whether the $75,000 Stop-Loss provision should have operated to limit the money judgment awarded. We affirm.

STANDARD OF REVIEW

We review de novo the district court's grant of summary judgment, viewing the evidence in the light most favorable to Cummins. Ashton v. Cory, 780 F.2d 816, 818 (9th Cir. 1986). Our task is to determine whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Moore v. Bechtel Power Corp., 840 F.2d 634, 636 (9th Cir. 1988). In diversity cases, the substantive law of the forum state controls. Nelson v. International Paint Co., 716 F.2d 640, 643 (9th Cir. 1983).

DISCUSSION

Cummins asserts that the parties' termination plan did not release CG from liability for payment of Mrs. Iverson's claim because (1) it did not constitute a "clear and unambiguous" agreement as concluded by the district court; (2) Arizona law precluded the parties from contracting to shift responsibility for providing Extended Medical Benefits from the insurer to the employer; and (3) CG breached its duty of good faith and fair dealing when it failed to raise with Cummins and explicitly resolve which of the two parties would be responsible for covering Extended Medical Benefits claims submitted during the year following the policy termination date. Additionally, Cummins argues that, at the very least, there exists a genuine issue of material fact as to whether the parties ever mutually agreed to release CG from ultimate liability for payment of Extended Medical Benefits.

Was the agreement ambiguous?

Cummins contends that the district court erred in concluding that by the "clear and unambiguous" terms of the parties' termination agreement, CG was released from further responsibility for payment of Extended Medical Benefits. According to appellant, the agreement could not have contemplated such a release since the particular topic of Extended Medical Benefits never arose in the course of the parties' discussions, and since Campbell, Cummins' representative during the negotiations, was unaware that such benefits had been a feature of the original insurance package.

The mere fact that parties to a contract disagree as to the meaning of its terms does not thereby render their agreement ambiguous. United California Bank v. Prudential Insurance Co. of America, 140 Ariz. 238, 258, 681 P.2d 390, 410 (App.1983); Sun-Air Estates, Unit 1 v. Manzari, 137 Ariz. 130, 131, 669 P.2d 108, 109 (App.1983). "An agreement is ambiguous only if the language can reasonably be construed in more than one sense and the construction cannot be determined within the four corners of the instrument." J.D. Land Co. v. Killian, 158 Ariz. 210, 212, 762 P.2d 124, 126 (App.1988). Whether a contract is ambiguous is a question of law, which this court is free to evaluate independently. See Abrams v. Horizon Corp., 137 Ariz. 73, 78, 669 P.2d 51, 56 (1983).

We agree with the district court that the relevant language of the policy termination agreement, as embodied in Pratts' February 27 letter to Campbell, is not ambiguous. Paragraph 2 of Pratts' letter plainly provides that CG was to reject, and return to Cummins for processing by Transamerica, all new claims submitted on or after January 1, 1985 and all run-out claims submitted after February 28, 1985. (ER 64). When later deposed, Campbell testified that Paragraph 2 of Pratts' letter was entirely consistent with his own understanding of the agreement. (ER 168-69). Also, in a memo to his superiors at Cummins, written shortly after the negotiations, Campbell himself reported that the parties had agreed that CG would "reject any 1985 claims and return to [Cummins] for submission to Transamerica." (emphasis added) (ER 62). Under any reasonable construction of the parties' language CG would not be responsible for the Iverson claim since it was not forwarded to CG for payment until approximately May 1, 1985.

Our conclusion that the agreement is not ambiguous is not undermined by the fact that the Extended Medical Benefits provision of the original policy may not have been specifically addressed during the February 12 meeting. The parties intentionally divided all medical claims into two broad categories--new medical claims and run-out medical claims--according to when they were incurred. There is nothing on the face of the termination agreement, as evidenced by the letters of Pratts and Campbell, to suggest that either party contemplated an exception for medical claims that would have been compensable under the Extneded Medical Benefits provision of the original insurance policy.

Did Arizona law preclude the agreement with respect to Extended Medical Benefits?

Relying on provisions of regulations promulgated by the Arizona Department of Insurance, Cummins claims that Arizona law imposes a non-delegable duty on insurers to provide Extended Medical Benefits to eligible beneficiaries for a period extending 12 months from the date a policy is discontinued. A.C.R.R. Sec. R4-14-210.

The district court rejected Cummins' position. It reasoned that the original CG policy did in fact contain an Extended Medical Benefits provision; that the purpose of the regulation requiring insurance policies to provide for an extension of medical benefits is to protect the beneficiaries, not the employers; and that Cummins had failed to adduce any authority demonstrating that parties may not legally contract to shift the obligation for paying such benefits to an employer. (ER 238).

We apply a de novo standard when reviewing the district court's interpretation of Arizona law. See Union Central Life Insurance Co. v. Wernick, 777 F.2d 499, 500 (9th Cir. 1985). There appears to be no Arizona case law on point. However, we start from the generally recognized premise that parties to an insurance agreement are free to contract as they wish, although they must remain mindful that their agreements may not be repugnant to public policy. See Security Insurance Co. of Hartford v. Andersen, 158 Ariz. 426, 430, 763 P.2d 246, 250 (1988) (en banc); Mason v. State Farm Mutual Automobile Insurance Co., 148 Ariz. 271, 274, 714 P.2d 441, 444 (App.1985).

Under the circumstances of this case, we do not consider the insurance regulations cited by appellant an impediment to the enforcement of the parties' termination agreement. As Cummins concedes, the central purpose behind the regulations is undoubtedly to protect the eligible beneficiaries. (Appellant's Opening Brief at 26). This purpose was served when CG and Transamerica together paid Mrs. Iverson's claim. While the regulations dictate that the prior insurer ultimately remains liable to beneficiaries to the extent of its "extensions of benefits," we do not read them so broadly as to bar the enforcement of a private agreement between the insurer and the employer which serves to reallocate the risks of providing such benefits in the first instance to the employer.

Did CG breach its duty of good faith and fair dealing?

Cummins argues that CG breached its duty of good faith and fair dealing when CG's representative neglected to inform Campbell at the parties' February 12 meeting that Extended Medical Benefits claims could conceivably arise during the year following Cummins' proposed termination of its policy with CG.

Although the law implies a duty of good faith and fair dealing in every contract, that duty does not convert an insurer into a fiduciary of the insured. Rawlings v. Apodaca, 151 Ariz. 149, 153, 155, 726 P.2d 565, 569, 571 (1986) (en banc). The insurer does, however, have an obligation to deal honestly and fairly with the insured and to give him equal consideration. Id. at 155, 726 P.2d at 571. Our review of the record convinces us that in this regard CG met its obligations to Cummins. Therefore, we reject appellant's contention that a breach was committed as without merit.

Was summary judgment proper?

Cummins asserts that summary judgment was improperly granted to CG because there remains a genuine issue of material fact as to whether the parties ever mutually agreed to release CG from its obligation to pay Extended Medical Benefits.

Although the parties never discussed Extended Medical Benefits claims per se during their February 12 meeting, the similarly broad language used both in Campbell's memorandum to his superiors stating that CG was to reject "any 1985 claims" and in Pratts' February 27 letter to Campbell offers clear evidence that both parties originally contemplated releasing CG from responsibility for paying all medical claims as of the deadlines assented to in their agreement. Cummins' intentions at the time the agreement was formed were not altered by later information causing Cummins to perceive it had struck a less favorable bargain than anticipated. Cummins may not now escape the consequences of its shortsightedness and apparent lack of preparation for a meeting it solicited by claiming belatedly that there was no meeting of minds.

Does the Stop-Loss apply?

During oral argument before us appellant conceded that in the event we affirm the district court's conclusion that based on the parties' termiantion agreement CG had no duty to pay claims submitted after February 28, 1985, including those for Extended Medical Benefits, then the Stop Loss provision does not apply. Since we make such a determination, we conclude that Cummins' liability for the Iverson claim was properly not limited by the $75,000 Stop Loss provision of the original policy.

AFFIRMED.

 *

This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3

 1

While Transamerica is included in the caption of the notice of appeal filed by Cummins, nowhere in its appellate briefs does Cummins challenge the district court's conclusion that summary judgment was proper with respect to Transamerica. In fact, Cummins appears to concede that Transamerica clearly is not liable for the contested medical benefits costs. (Appellant's Opening Brief at 2). Therefore, we affirm the grant of summary judgment as to Transamerica without discussion

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