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## United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 97-2787

___________ Sherrie A. Farley, * * Appellee, * *
v. * App eal from the United States Distric t * Court for the Western District o f Arkansas Blue Cross and Blue * Arkansas. Shield, A Mutual Insurance * Company, * * Appellant. *

___________ Submitted: May 13, 1998 Filed: June 30, 1998

___________ Before BEAM, LOKEN, and MURPHY, Circuit Judges.

___________ BEAM, Circuit Judge.
Sherrie A. Farley brought this action to review the denial of medical benefit s under an employee benefits plan, which is governed by the Employee Retiremen t Income Security Act, 29 U.S.C. § 1132(a)( 1)(B) (ERISA). The district court held that the claims administrator, Arkansas Blue Cross and Blue Shield (Blue Cross), abused its discr etion in denying Farley's claim for benefits. Blue Cross appeals tha t determination. After a review of the record, we reverse.Uterine leiomyomata is "ch aracterized by the development of multiple, sharply 1 circumscribed, unencapsulat ed, gray-white tumors, which are firm, usually round, and show a whorled pattern on cut section." Dorland's Illustrated Medical Dictionary 911 (28th ed. 1994).
-2- I. BACKGROUND

On October

19, 1994, Farley saw Dr. Greg Booker for a routine gynecological exam. Dr. Booker detected a n enlarged uterus, which he recorded as "consistent with probably uterine leiomyomata." He also recorded an assessment of polymenorrhe a 1 (abnormally frequent menstruation). Dr. Booker did not recommend any immediat e treat ment, but noted that Farley may be a candidate for hormonal treatment "[i]f thi s continues to bother her or it worsens.”
App roximately two weeks later, Farley became eligible for health insuranc e under a group plan (the Plan) that her spouse's employer, Interna tional Paper Company, establish ed for its employees and their eligible dependants. Blue Cross insures an d administer s the Plan. The Plan excludes coverage for the "[t]reatment of pre-existing
con ditions or diseases," which is defined as "a condition or disease which cause s sympto ms, before the effective date, that would have caused an ordinarily pruden t person to seek diagnosis, care, or treatment."

In Mar ch of 1995, Farley returned to Dr. Booker, complaining of significan t cramping and pain. Dr. Booker discovered that her uterus was enlarged "to abou t twelve weeks size and tender consistent with uterine leiomyomata." After discussing th e treatment options with Farley, Dr. Booker performed a total abdomina l hysterectomy and right

salpingo-oophorectomy (removal of a uterine tube and ovary). Dr. Booker subsequently submitted an insurance form to Blue C ross, diagnosing Farley
as hav ing polymenorrhea, dysmenorrhea (painful menstruation), and uterin e leiomyomata. Dr. Bo oker did not mention, however, Farley's postoperative diagnosisAdenomyosis is "a benign condition characterized by endometrial glands an d 2 st roma within the myometrium, accompanied by hypertrophy of the myometrium. " Dorland's Illustrated Medical Dictionary 28 (28th ed. 1994) -3- of two additional conditions, pelvic endometriosis (a tissue condition) an d ade nomyosis. Farley filed a timely claim for $5,819.61, representing the medica l

2 expenses incident to the surgery.

Blue Cross denied Farley's claim for the reason that the medical expenses were for a preexisting conditi on. Farley appealed the initial denial to a Blue Cross Appeals Coordinator, who denied coverage after reviewing Farley's medical records, whic h included Dr. Booker's notes from the March 1995 consultation. Those notes state that Farley "has a long history of heavy vaginal bleeding with periods lasting several days and significant dysmenorrhea and pain radiating through to her back." The Appeal s Coordin ator

also found support for the benefits denial in the insurance form that wa s submitted by Dr. Booker, which stated that he had treated Farle y for this condition prior to the insured period. The Appeals Coordi nator invited Farley to submit any additional medical records to show that Farley's condition was not preexisting.

On November 1, 1995, Dr. Booker submitted an additional letter which stated, "[a]lthough Mrs. Farley had experienced symptoms prior to her eff ective date, these had not been disabling to her and affecting her ability to perform her duties at work." After receiving that lett

er, the Appeals Coordinator reviewed Dr. Booker's office notes from the October 1994 consultation and again denied Farley's claim, again inviting Farley to submit any additional information.
Farley then filed this cause of action in state court. Blue Cross removed the case to federal court based on federa l preemption under ERISA. The district court properly analyzed the case under 29 U.S.C. § 1132(a)(1)(B), as an action to recover benefit s pursuant to the terms of a qualifying plan. After reviewing the stipulated administrativeTh e Plan provides that Blue Cross "shall have authority and full discretion t o 3 determine all questions arising in connection with your insurance ben efits, including but not limited to eligibility, interpretation of Plan language, and findings of fact wit h regard to any such questions."
-4- record, the district court entered judgment for Farley, concluding that Bl ue Cross abused its di scretion in denying Farley's claim for medical benefits. On appeal, Blue Cros s asserts th at the district court erred in substituting its own judgment for that of Blu e Cross and erred in finding that Blue Cross's decision was unreasonable.

II. DISCUSSION

A. Standard of Review

The district court reviewed Blue Cross's decision for an abuse of discretion

. None theless, Farley now asks that we review the decision under a more stringen t standard. We decline to do so.

We review de novo the distr ict court's determination of the appropriate standard of review. See Woo v. Deluxe Corp. , 1998 WL 261176, *2 (8th Cir. 1998). Where a plan provides the administrator with "d iscretionary authority to determine eligibility for benefits," we examine the administrator's de cision for an abuse of discretion. Firestone Tire & Rubber Co. v. Bruch , 489 U.S. 101, 115 (1989). The parties do not dispute that the Plan provides this discretionary authority. Farley, however, now asserts that w e 3 should accord Blue Cross less deference because its desire to maintain competitiv e insurance rates encourages it to deny claims, thus creating an inherent conflict o f interest. See id. at 115 (stating that if a fiduciary "is operating under a conflict o f interest , that conflict must be weighed as a factor in determining whether there is a n abuse of discretion") (quotation omitted).A palpable conflict of interest or serious procedural irregularity will ordinarily 4 be apparent o n the face of the administrative record or will be stipulated to by th e parties. Thus, the district court will only rarely need to permit discovery an d supplementation of the record to establish these facts. We note, however, tha t con ducting limited discovery for the purpose of determining the appropriate standard of review does not run afoul of the general prohibition on admitting evidence outside the administrative re cord for the purpose of determining benefits. See Brown v. Seitz Foods, Inc. Disability Benefit Plan , 140 F.3d 1198, 1200 (8th Cir. 1998). -5- ERISA s pecifically contemplates the utilization of fiduciaries that may not b e entirel y neutral. See 29 U.S.C. § 1108(c)(3) (providing that employers may appoin t their employees to serve as plan fi duciaries, despite the employer's status as a "party in inte rest"); 29 C.F.R. § 2560.503-1(g)(2) (providing that an insurance company ma y
rev iew and decide upon denied benefit claims after making the initial denial)

. Accordingly , not every allegation of impartiality alters the standard of review. A plan beneficiary is not entitled to less defe rential review absent material, probative evidence demonstrating that a palpable conflict of interest exis ted, which caused a serious breach of the administrator's fiduciary duty. See Woo , 1998 WL 261176 at *3-4 (holding that the combination of a palpable conflict of interest and a serious procedural irregularity warrants significantly less deferential review). 4
When considered in isolation, an insurer's desire to maintain competitiv e insura nce rates could be construed as a conflict of interest. However, a benefit s de termination includes equally compelling long-term business concerns that woul d encourage insurers to make these determinations in a fair and consistent manner, thus negating a ny indicia of bias. In the long run, an insurer that routinely denies vali d claims for benefits would have difficulty ret aining current customers and attracting new bu siness. See Chalmers v. Quaker Oats Co. , 61 F.3d 1340, 1344 (7th Cir. 1995 ) (findin g no conflict of interest when a corporate officer that is administrating a larg e unfunded co mpany sponsored benefits plan is confronted with a relatively small claim for benefits). We therefore hold that Farley has not demonstrated a palpable conflictThis case demonstrates why the claims adm inistrator’s dual role as plan insurer 5 should not automatically warrant heightened review. See Woo , 1998 WL 261176 at *3 n.2. Although not entirely clear from the record, Blue Cross does not have a direct profit mo tive in denying claims because it is a nonprofit corporation. Accordingly , Blue Cross's dual role does not create a palpable conflict of interest. When determining whether an administrator's interpretation of a plan i s 6
reaso nable, we apply a five-factor test. See Finley v. Special Agents Mut. Benefi t Ass'n, Inc. , 957 F.2d 617, 621 (8th Cir. 1992). Here, however, neither party disputes the administrator's interpretation of the Plan. We are asked to review th e adm inistrator's evaluation of the facts to determine the application of the Plan. Thus, the five-factor test is not instructive. See Donaho , 74 F.3d at 899-900 n.9.
-6- of interest. See Kotros its v. GATX Corp. Non-Contributory Pension Plan for Salaried Em ployees , 970 F.2d 1165, 1173 (3d Cir. 1992) (holding that a fiduciary's desire t o maintain actuarial soundn ess of the plan does not constitute a conflict of interest). But
see Lee v. Blue Cross/Blue Shield of Alabama , 10 F.3d 1547, 1552 (11th Cir. 1994 ) (holding that an insurer 's desire to maintain competitive rates does constitute a conflict of interest ). We will consequently review Blue Cross's decision for an abuse o f

5 discretion.

B. Blue Cross's Decision to Deny Medical Benefits

We revie w de novo the district court's application of the deferential standard of review. See Bolling v. Eli Lilly and Co. , 990 F.2d 1028, 1029 (8th Cir. 1993). Under this standard, an administrat or's decision to deny benefits will stand if reasonable. See Donah o v. FMC Corp. , 74 F.3d 894, 899-900 (8th Cir. 1996). In determinin g reasonableness, we focus on whether the deci sion is supported by substantial evidence. Id. at 900. We consider only the evid ence that was before the administrator when the

6 cla im was denied. See Brown v. Seitz Foods, Inc. Disability Benefit Plan , 140 F.3 d 1198, 1200 (8th Cir. 1998). We do not, however, substitute our own weighing of the-7-

evidence f or that of the administrator. See Cash v. Wal-Mart Group Health Plan , 107 F.3d 637, 641 (8th Cir. 1997).

The is sue before the Appeals Coordinator was whether Farley had a conditio n causing symptoms, before November 1, 1994, that would have caused an ordinaril y prudent person to seek diagnosis, care, or treatment. The Appeals Coordinato r concluded that Farley had such a condition. In reaching that conclusion, the Appeals Coordinator primarily relied upon Farley's medic al records and Dr. Booker's statements indic ating that Farley had symptoms prior to the insured period. Our task is t o determ ine whether the Appeals Coordinator's conclusion is supported by substantia l evidence. We find overwhelming support in the record.
After Farley's surgery, Dr. Booker submitted an insurance form di agnosing Farley as having polymenorrhea, dysmenorrhea, and uterine leiomyomata. The form stated that Farley first consul ted Dr. Booker for this condition on March 16, 1995; that it was not
a chro nic condition; and that he had treated Farley for it on October 19, 1994. Th e statem ent that Farley first consulted Dr. Booker for this condition in March seems t o contradict the statement that he had treated her for this condition the previous October. The Appeals Coordinator, however, resolv ed that ambiguity by reviewing Dr. Booker's office notes.

Dr. Booker's notes, dated March 20, 1995, state that Farley "has a long history of hea vy vaginal bleeding" and that because a recent exam "showed the uterus to b e enl arged to about twelve weeks size and tender consistent with uterine leiomyomata , we have elected to proceed with" surgery. These notes clearly show that Dr. Booker elected to proceed with surger y to correct Farley's heavy bleeding and enlarged uterus. Thus, her postoperative diagnosis of two additional conditions that were also corrected by the hysterectomy does not alter the fact that Farley had the surgery to correct he r heavy blee ding and enlarged uterus, which were detected before she was eligible fo r Plan benefits.-8-

Dr. B ooker's October 19, 1994, notes show that, prior to the insured period , Farley had been bothered by abnormally frequent menstruation and that she had a n enlarged uterus, which was "co nsistent with probably uterine leiomyomata." Although Dr. Booker did not recommend any treatment in October, the record supports th e
con clusion that Farley was then experiencing, although to a lesser degree, the sam e symptoms that led to her surgery approximately five months later.

Moreov er, the Appeals Coordinator's conclusion that Farley's medical record s demons trated that she had a "preexisting condition," was further supported by Dr

. Booker's let

ter. Dr. Booker, apparently at the request of Farley's counsel, submitted a letter to Blue Cross stating that "Farley had experienced symp toms prior to her effective date." After receiving this letter, the Appeals Coordinator took the additional step of reviewing Dr. Booker's office notes from the October, 19, 1994, consultation, and came to the same conclusion.

After care fully reviewing the stipulated administrative record, we conclude that the decisio n to deny Farley's claim for medical benefits is supported by substantia l evidence. Therefore, the district court erred in finding an abuse of discretion.

III. CONCLUSION
For the reasons given above, we reverse the dist rict court's judgment and remand with instructions to enter judgment consistent with this opinion.
A true copy.

ATTEST:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.