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AETNA LIFE INS. CO. v. AMERICAN NAT'L BANK & TRUST

March 4, 1997

AETNA LIFE INSURANCE COMPANY, Plaintiff,
v.
AMERICAN NATIONAL BANK & TRUST COMPANY OF CHICAGO, as Trustee, etc., et al., Defendants.



The opinion of the court was delivered by: SHADUR

 In this diversity action Aetna Life Insurance Company ("Aetna") seeks payment of retrospective premiums that it claims are owed to it by Bridge Products, Inc. and American National Bank and Trust Company as Trustee of the latter's Employee Benefit Trust (for convenience, both defendants are collectively termed "Bridge," treated as a singular noun) pursuant to a split-funded insurance arrangement. Bridge has now moved for summary judgment under Fed. R. Civ. P. ("Rule") 56. Both sides have submitted statements called for by this District Court's General Rule ("GR") 12(M) and 12(N), adopted to highlight the existence or nonexistence of any material fact disputes. *fn1"

 At this point Bridge's motion is fully briefed and ready for decision. For the reasons set out in this memorandum opinion and order, the motion is granted and this action is dismissed.

 Judgment Standards

 Under familiar Rule 56 principles, a party seeking summary judgment bears the burden of establishing the lack of a genuine issue of material fact ( Celotex Corp. v. Catrett, 477 U.S. 317, 324, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986)). This Court is called upon to draw inferences in the light most favorable to the non-moving party, but it is "not required to draw every conceivable inference from the record--only those inferences that are reasonable" ( Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir. 1991)).

 When a case turns on interpretation of an unambiguous contract term, it is ripe for final disposition at the summary judgment stage ( Bechtold v. Physicians Health Plan of N.Ind., Inc., 19 F.3d 322, 325 (7th Cir. 1994) and cases cited there). If however the contact is ambiguous and its meaning must be derived from conflicting extrinsic evidence, the question is a factual one best left to the trier of fact ( LaSalle Nat'l Trust, N.A. v. ECM Motor Co., 76 F.3d 140, 145 (7th Cir. 1996)).

 Background2

 Effective September 1, 1984 Bridge and Aetna entered an arrangement for a group insurance policy that reflected a change from a conventionally insured policy to a "split-funded" arrangement with a retrospective premium (B. 12(M) P5; A. 12(N)(b)(3) P17). That arrangement was memorialized in two documents in addition to the underlying group policy itself: the Split Funded Agreement ("SF Agreement," A. Ex. B) and the one-page Retrospective Premium Agreement ("RP Agreement," A. Ex. C), under the combination of which documents Aetna agreed to process claims while Bridge agreed (in addition to paying Aetna a premium) to be responsible for payment of claims each month up to a specific liability limit (A. Mem. 4). As both parties agree (A. 12(N)(b)(3) P2):

 For each contract year Aetna calculated a base monthly liability limit that determined Bridge's maximum payment toward claims made under the policy during the first month of that year (B. 12(M) PP8-10). Then Bridge's aggregate liability limit for each later month during that contract year was equal to the monthly base amount plus any excess liability limit not used by claims from the previous month (B. 12(M) P11). If however the claims for any month exceeded Bridge's aggregate liability limit for that month, Aetna paid the excess *fn3" and Bridge's aggregate liability limit for the next month then equaled the base amount (B. 12(M) P11).

 Pursuant to the RP Agreement, at the end of each contract year Aetna generated experience accounting statements *fn4" for an annual accounting of the payments made under the SF Agreement (A. 12(N)(b)(3) P8; B. 12(M) P15). Both parties agree that:

 
1. If in any month during the contract year Aetna paid claims in excess of the existing aggregate liability limit, that would be considered a deficit for accounting purposes (B. 12(M) P13).
 
2. If the total of the deficits in any contract year was less than the amount of unused aggregate liability limit at the end of the contract year, the deficit would be recaptured in the form of a retrospective premium that Aetna could "call" from the unused liability limit (A. Mem. 5; B. Mem. 6; RP Agreement).

 Where Aetna and Bridge disagree, however, is as to how a contract year's total deficit should be handled when it is greater than the amount of unused liability limit remaining at the end of the year.

 Bridge owed a retrospective premium in only two of the first six years of the arrangement, and on neither of those occasions did that payment exceed the amount of unused liability limit (9/1/86-8/31/87 Statement; 9/1/87-8/31/88 Statement). For the 9/1/90-8/31/91 contract period, however, the deficit exceeded Bridge's unused liability limit for the first time (A. 12(N)(b)(3) P6; Lambert Aff. Ex. 1). Aetna seeks to recover part of that $ 154,009 *fn5" deficit by carrying it forward to the next (and final) abbreviated contract period *fn6" and by thus offsetting against it the $ 96,669 of unused liability limit at the end of that contract period (A. 12(N)(b)(3) P6). Bridge rejects that claim, arguing that the RP Agreement does not allow deficits to be carried forward to a later contract period and that Aetna therefore remains responsible for all claims paid beyond Bridge's liability limit for the 9/1/90-8/31/91 contract period (B. Mem. 5-6).

 Contract Interpretation

 For cases sounding in diversity, the Erie v. Tompkins mandate to turn to state law for the substantive rules of decision includes the application of the forum's choice of law doctrines ( Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941) and its numerous progeny). Neither Aetna nor Bridge addresses that subject--instead their memoranda simply cite Illinois' internal law. In that situation, as Wood v. Mid-Valley Inc., 942 F.2d 425, 426 (7th Cir. 1991) teaches:

 
The operative rule is that when neither party raises a conflict of law issue in a diversity case, the federal court simply applies the law of the state in which the federal court sits.

 Following Wood, this opinion applies Illinois substantive law to the contract issue at hand. *fn7"

 In that respect In re Doyle, 144 Ill. 2d 451, 467, 581 N.E.2d 669, 676, 163 Ill. Dec. 515 (1991), quoting Schek v. CTA, 42 Ill. 2d 362, 364, 247 N.E.2d 886, 888 (1969), instructs:

 
The objective to be reached "in construing a contract is to give effect to the intention of the parties involved." Provided no ambiguity exists within the contract, the intentions of the parties, at the time the contract was ...

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