International Broth. of Elec. Workers, AFL-CIO Local 47 v. Southern California Edison Co., AFL-CI

• Decision Date: 03 April 1989
• Docket Number: AFL-CI,LOCAL,No. 88-6075,88-6075
• Citation: 880 F.2d 104
• Parties: 131 L.R.R.M. (BNA) 3167, 112 Lab.Cas. P 11,344 INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS,47, Plaintiff-Appellant, v. SOUTHERN CALIFORNIA EDISON COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 104

880 F.2d 104

131 L.R.R.M. (BNA) 3167, 112 Lab.Cas. P 11,344

INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO LOCAL 47, Plaintiff-Appellant, v. SOUTHERN CALIFORNIA EDISON COMPANY, Defendant-Appellee.

No. 88-6075.

United States Court of Appeals Ninth Circuit.

Submitted April 3, 1989. ^*

Decided by Memorandum April 13, 1989.

Order and Opinion July 18, 1989.

Paul Crost, Reich, Adell & Crost, Orange, California and Anthony R. Segall, Reich, Adell & Crost, Los Angeles, Cal., for plaintiff-appellant.

Gordon E. Krischer, Robert N. Eccles, Kenneth E. Johnson, O'Melveny & Myers, Los Angeles, Cal., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before WRIGHT, FARRIS and NELSON, Circuit Judges.

NELSON, Circuit Judge:

I. Overview

Appellant is a labor organization that represents a unit of Southern California Edison Company ("Edison") employees. Appellant sued Edison for breach of contract, seeking to recover benefits wrongfully withheld under a health care plan negotiated by the parties and administered by appellee. The district court granted summary judgment for the defendant on the grounds that the contract explicitly permitted Edison to withhold the benefits as it did, and that the district court must defer to Edison's interpretation of the contract unless that interpretation was arbitrary and capricious. We reverse and remand. The court should not defer to Edison's interpretation of the contract. The contract is ambiguous on its face and appellant's reading of the contract is reasonable, precluding summary judgment.

II. Factual and Procedural Background

In 1968, Edison and Local 47 negotiated the creation of the medical benefits plan at issue in this case as part of a collective bargaining agreement. The plan provides for medical benefits to dependents of Edison employees. The parties periodically have negotiated amendments to the plan, most recently in 1983 and 1986. In the 1983 contract negotiations, Edison proposed but failed to secure a limit on benefits payable under the plan in the form of a schedule of "reasonable and customary" charges for certain medical procedures. Nevertheless, in 1984 Edison began to disallow dependent claims to the extent that they exceeded the amounts specified in Edison's schedule of reasonable and customary charges. Local 47 discovered the practice in 1987 and protested. In response, Edison suspended its use of the schedule. Local 47 sued Edison in federal court for breach of contract, seeking payment of the benefits withheld under the schedule. The district court granted summary judgment to the defendant on two grounds: 1) the collective bargaining agreement expressly authorized Edison to limit benefits to reasonable and customary charges; and 2) even if the contract were ambiguous, Edison's interpretation must be upheld because it was not arbitrary or capricious.

III. Standard of Review

We review the district court's grant of summary judgment de novo. See Pope v. Savings Bank of Puget Sound, 850 F.2d 1345, 1356-57 (9th Cir.1988).

In reviewing a district court's grant of summary judgment, we must view the evidence, and make all inferences from that evidence, in the light most favorable to the non-moving party. See Twentieth Century-Fox Film Corp. v. MCA, Inc., 715 F.2d 1327, 1328-29 (9th Cir.1983). We must determine whether there is any genuine issue of material fact and whether the moving party is entitled to judgment as a matter of law. See M/V American Queen v. San Diego Marine Constr. Corp., 708 F.2d 1483, 1487 (9th Cir.1983); Fed.R.Civ.P. 56(c). "We have emphasized that '[w]here a contract's meaning is not clear on its face, its interpretation depends upon the parties' intent at the time it was executed, which is an issue for the trier of fact.' " Arizona Laborers, Teamsters & Cement Masons Local 395 Health & Welfare Trust Fund v. Conquer Cartage Co., 753 F.2d 1512, 1515 (9th Cir.1985) [hereinafter Arizona Laborers ] (quoting Laborers Health & Welfare Trust Fund v. Kaufman & Broad, Inc., 707 F.2d 412, 418 (9th Cir.1983) (citations omitted) [hereinafter Laborers Health & Welfare ].

IV. Discussion

The aspect of coverage at issue in this case is the "major medical expense benefits" described in section 9 of the plan description. Section 9(b) states:

If a covered employee incurs Covered Medical Expenses as described below, in excess of Basic Benefits and the Deductible in any calendar year, the Major Medical Expense Benefit provision pays 80% of any excess expense, subject to the Stop Loss provision provided in paragraph (i) and the maximum lifetime benefit set forth in paragraph (h).

(emphasis in original)

Section 9(d) defines "covered medical expenses" as "charges which a covered employee is required to pay for the following services and supplies received" (emphasis added), and lists various hospital, medical, diagnostic, and related services. Section 9 does not limit the major medical expense benefit to a schedule of reasonable and customary charges for specified services. This is in contrast to section 8(b), which expressly limits surgical benefits to reasonable and customary charges, a list of which is appended to the plan.

Section 10, the provision on which Edison relies to justify its imposition of a schedule of benefit limits, is a compendium of general provisions applicable to both the basic (including surgical) benefit in section 8 and the major medical benefit in section 9. Section 10(c), entitled "Exclusions," provides that "[n]o benefits are payable under this Plan for [listed] charges," including

(4) Charges for services and supplies which are:

--not necessary for treatment of the injury, illness, or disease;

--not recommended and approved by the attending physician;

--charges deemed unreasonable by the Health Care Services Department; or

--incurred while committing or attempting to commit an unlawful act.

Appellee argues that the first and third exclusions in section 10(c)(4) entitle it to refuse to reimburse dependents for medical expenses that otherwise would be covered but that exceed Edison's unilaterally adopted schedule of fee limitations for particular medical procedures. Appellee reasons that section 10(c)(4) allows it to exclude charges which it deems "not necessary for treatment" or "unreasonable." Appellant counters that the parties did not intend section 10 to allow Edison to impose of its own accord a schedule limiting charges for procedures under section 9. Appellant argues that such a schedule of limitations is precluded by section 9(d), which defines the benefit amount as the amount that the covered dependent "is required to pay." Appellant cites various parol evidence demonstrating that this was Edison's understanding of the agreement. In particular, appellant observes that Edison did not attempt to use section 10(c)(4) to impose a schedule of reasonable and customary charges on beneficiaries for over fifteen years; section 10(c)(4) was part of the original contract drafted in 1968. The employer replies that the district court appropriately disregarded this evidence because the contract was unambiguous on its face and the parol evidence rule therefore required its exclusion.

We disagree with the district court that the contract expressly authorizes Edison to adopt a schedule limiting reimbursements for major medical benefits to charges Edison deems "reasonable and necessary." The definition of "covered medical expenses"--charges that the covered dependent "is required to pay" for specified medical services--conflicts with this interpretation of section 10(c)(4). If the benefit covers whatever fee the dependent is required to pay for a service that is listed, as section 9(d) seems to mandate, the benefit may sometimes exceed the amount Edison deems reasonable for that particular service. Yet section 10(c)(4) allows Edison to exclude "charges [it deems] unreasonable." Therefore, the contract's provisions conflict.

When the meaning of an agreement is ambiguous on its face and contrary inferences as to intent are possible, an issue of material fact exists for which summary judgment ordinarily is inappropriate. Arizona Laborers, 753 F.2d at 1517-18 (citing Laborers Health & Welfare, 707 F.2d at 418). The court should look to parol evidence to determine what the parties intended the conflicting provisions to mean. See, e.g., Pierce County Hotel Employees & Restaurant Employees Health Trust v. Elks Lodge, B.P.O.E. No. 1450, 827 F.2d 1324, 1327 (9th Cir.1987) [hereinafter Pierce County ]; Kemmis v. McGoldrick, 767 F.2d 594, 597 (9th Cir.1985). See generally 3 Corbin on Contracts Sec. 536, at 27-28 (1960). This circuit has noted that this general principle of contract law applies with even greater liberality in disputes regarding collective bargaining agreements. "In ascertaining the intent of the parties to a collective bargaining agreement, 'the trier of fact may look to the circumstances surrounding the contract's execution, including the preceding negotiations.... It may also consider the parties' conduct subsequent to contract formation ... and such conduct is to be given great...