United States Court of Appeals FOR THE EIGHTH CIRCUIT

No. 97-1712

Pamela E. Armstrong, *
* Appellant, *
* Appeal From the Unite d States
v. * District Court for the
* Western District o f Missouri. Aetna Life Insurance Company, * Aetna Health Plan, Plan Administrator, *
* Appellees. *

Submitted: September 8, 1997 Filed: November 13, 1997

Before RICHARD S. ARNOLD, Chief Judge, and HEANEY an d BEAM, Circuit Judges.

HEANEY, Circuit Judge.

Pamela E. Armstrong appeals the district court’ s grant of summary judgment in favor of Aetna Lif e Insu rance Company, Aetna Health Plan, and Pla n Administrator (collectively “Aetna”) on Armst rong’s claim that Aetna wrongfully denied her benefits under a health plan administered by Aetna and governed by the Employe e Reti rement Security Income Act, 29 U.S.C. § 100 1 (“ERISA”). We affirm.2 I.3

In May 1993, Armstrong was diagnosed with leukemia

. She underwent chemotherapy for the disorder after whic h the leukemia went into remission in October 1 993. At the time, Arms trong had health-care coverage through a group health pla n administered by Travelers Insurance Company. On May 1, 1995, Armstrong left her residence in Colorado, taking a j ob with a realtor in Kansas City. The realtor offered Armstrong a group health plan insured by Aetna

. Aetna also administers the plan, and, by the terms of the health plan agreement, Aetna has the discreti on to review claims. A rmstrong transferred her coverage to the Aetna plan , becoming eligible for benefits under the plan o n June 1, 1995.

On March 7, 1995, Armstrong visited Dr. Pamela Perry , a pri mary care doctor, to “get established with a ne w phys ician.” After Armstrong informed Dr. Perry of he r history of leukemia, Dr. Perry ordered a complete bloo d
co unt, which was performed the next day. The tes t indicated a white blood count that Dr. Perry described as “abno rmal” and “ low.” Based on the test results an d Arms trong’s medical history, Dr. Perry ordered a mor e detailed t est called a “peripheral smear.” On March 13, 1995, the smear evaluation confirmed that Armstrong’ s white bloo d cell count was low and showed that her blood cells were “atypical, but not leukemic.” Whi le Dr. Perry sugge sted no immediate action as a result of the tes t results, s he encouraged Armstrong to return for a “wellwoman examination” in September 1995.

Armstrong saw Dr. Mark Davidner, an oncologist, o n June 15, 1 995, two weeks after her Aetna coverage began. Dr. Davidner examined Armstrong, finding signs o f4

leukemia. A bone marrow aspiration on June 2 7th resulted in a definitive diagnosis of leukemia. Armstron g subsequently received treatment for leukemia throug h chemotherapy and a bone marrow transplant.

Armstrong sought coverage from Aetna for her leukemi a treatment. Aetna initially indicated that Armstrong’ s policy covered the treatment but subsequently limited her coverage based on the “preexisting condition” provisio n in the health plan.5

The plan defines a preexisting condition as a conditio n that was d iagnosed or treated, or for which treatment or services were received, or prescription drugs o r medicines were prescribed or taken within 180 days of the date coverage became effective. (Appellant’s App. at 92.) The plan limits benefits for treatment of a preexistin g cond ition within the first year of coverage to $4,000

. Armstrong appealed Aetna’s determination that her clai m fell under the preexisting condition limitation. Aetn a reaffirmed its decision because Armstrong had received a service fo r leukemia within the previous six months when Dr. Perry conducted her examination of Armstrong.

Armstrong appealed Aetna’s determination to th e district court. Armstrong argued that the court shoul d review Aetna’s decision de novo because Aetna’s role a s bo th insurer and administrator of the plan created a conflic t of interest. Moreover, she claimed that th e incentives Aetna provided to its claim evalua tors to deny ben efits further justified heightened review by th e
cour t. Armstrong then argued that Missouri law shoul d apply to h er claim and that, under Missouri law, Aetna’s preexisting condition provision is invalid. Armstron g alternativ ely argued that she did not have a “condition” within the meaning of the policy. The court determine d that Aetna’s decision was subject to an abuse-of

discretion standard, Delaware law applied to Armstrong’s claim, and substantial evidence supported Aetna’ s deci sion that Armstrong had a preexisting condition

. Arms trong appeals the district court’s ruling and w e affirm.We have addressed the question of whether a variation of the abuse of discretion 1 shoul dapply where a “procedural irregularity” occurred in a plan administrator’ s determina tion of availability of benefits. See Wald v. Southwestern Bell Customcare Med

. Plan , 83 F.3d 1002, 1007 (8th Cir. 1996); Buttram v. Central States S.E. an d S.W. Areas Health & Welfare F und , 76 F.3d 896, 900 (8th Cir. 1996). In those cases
we held that for a heightened standard to apply, a plaintiff must show that th e procedural irregularity caused the plan trustee to breach a fiduciary duty to the plan’s beneficiary. Wald , 83 F.3d at 1007; Buttram , 76 F.3d at 900. Armstrong does no t
a s sert the existence of a procedural irregularity. Rather, she contends that Aetna has a conflict of

interest as both the plan insurer and administrator and that Aetna’s claim evaluators were biased by Aetna’s financial incentives to reject claims.

6 II.

A. Standard of Review

We revi ew a decision by an ERISA plan administrato r
or fiduciary for an abuse of discretion if the pla n speci fically gives the administrator or fiduciary th e authori ty to construe the terms of the plan. Fireston e Tire & Rubber Co. v. Bruch , 489 U.S. 101, 115 (1989)

. Howe ver, where the administrator or fiduciary has a conflic t of interest or acts with an improper motive , that must be weighed as a “factor in determining whether there is an abuse of discretion.” Restatement (Second ) of Tru sts § 187, Comment d (1959), quoted in Fireston e Tire , 489 U.S. at 115. We have not addressed th e appr opriate standard for review where the insurer of a healt h benefits plan is also the plan administrator. 1 Other circuits have addressed this specific q uestion. In Atwood v. Newmont Gold Company , 45 F.3d 1317, 1323 (9t h Cir. 1995), and Brown v. Blue Cross & Blue Shield o f Alabama, Inc. , 898 F.2d 1556, 1566-67 (11th Cir. 1990) , the Ninth and Eleventh Circuits adopted a “presumptively7

void ” test under which a decision rendered by a pla n adminis trator with such a conflict is presumed to be a n abuse of discretion unless the administrator ca n de monstrate that either (1) under de novo review th e resul t was correct, or (2) the decision was not made t o
serv e the administrator’s conflicting interest. Th e Fourth, Fifth, Seventh, and Tenth Circuits use8

a “s liding scale” approach, under which the reviewin g court alwa ys applies an abuse-of-discretion standard but decr eases the amount of discretion given to th e administrator’s decision in proportion to the seriousness of t he conflict. See Chambers v. Family Health Pla n Corp

. , 100 F.3d 818, 824-27 (10th Cir. 1996); Doe v

. Group Hospitalization & Med. Serv. , 3 F.3d 80, 87 (4t h Cir. 1993); Wilbur v. ARCO Chem. Co. , 974 F. 2d 631, 638- 42 (5th Cir. 1992); Van Boxel v. Journal Co. Employees ’ Pension Trust , 836 F.2d 1048, 1052-53 (7th Cir. 1987).

We hold that the circumstances of this case requir e
us to r eview Aetna’s decision to deny benefits de novo

. We are informed by the reasoning of the Elevent h Circ uit’s holding in Brown , which stated that a relat ionship that places an ERISA benefits pla n administrator in “perpetual conflict” warrants a highe r level of scrutiny. Brown , 898 F.2d at 1561. Aetna faces
a c ontinuing conflict in playing the dual role o f admi nistrator and insurer of the health benefits plan

. As the insurer, Aetna has an obvious interest i n minimizing its claim payments. Apparently to limit claim paym ents, Aetna provides incentives and bonuses to it s clai ms reviewers based on criteria that include a cate gory called “claims savings.” (Appellant’s App. a t 250-6 6). Despite Aetna’s argument that there is n o evid ence that Aetna has directed its reviewers t o impr operly reject claims, we cannot view the fiduciar y arrangemen t between Aetna, its claims reviewers, and the plan beneficiaries as the type ERISA provides a s administer ed “solely in the interest of the participants and beneficiaries.” 29 U.S.C. § 1104 (a)(1).

B. Choice of Law9

Armstrong argued below that Delaware law applies t o her c laim. She now argues that Missouri law applies

. Although w e generally need not consider arguments raised for the first time on appeal, see Ryder v. Morris , 75 2 F.2 d 327, 332 (8th Cir. 1985), we conclude that th e district court properly determined that Missouri court s apply the law of the state in which a policy i s delivered. See Miller v. Home Ins. Co. , 605 S.W.2d 778, 780 (Mo. 1980). The evidence presented belo w demonstrates that10

Aetn a delivered the policy in Delaware. Therefore , Delawar e law applies. An examination of the Delawar e statute governing the treatment of preexistin g condi tions, 18 Del. Code § 3517 (a), reveals that th e statu te only applies prospectively from the statute’ s enactment, which occurred after the delivery of the Aetna health benefits plan, leaving the plan outside of th e statute’s reach. In the absence of a statuto ry directive invalidating the Aetna plan’s preexisting condition s clause, the provision is construed based on its plai n language.
C. Aetna’s Decision to Deny Benefits

We now turn to whether Armstrong is entitled t o bene fits. Armstrong contends that because her leukemi a
was in remission during the 180-day period prior to he r coverage, she did not have a preexisting condition under the terms of the plan. Under the terms of the plan , howe ver, if a plan participant receives treatment or a service for a condition within the 180 days p rior to when coverage b egan, the plan limits benefits. Armstrong did not c ontest below, nor does she do so now, that th e testing she received was a “service” within the meanin g of the plan. Therefore, we accept that she r eceived such

a ser vice. See Ryder , 752 F.2d at 332. Likewise, th e parties do not dispute whether leukemia is a “condition” within the meaning of the plan.

The district court determined that sufficien t evidence s upported a finding that Armstrong had leukemia prior to the commencement of her coverage und er the plan. Because that inquiry is not relevant under the terms o f the plan, we need not consider the propriety of th e11

distric t court’s conclusion. Under the Aetna plan, a “preexisting condition” is a condition for wh ich services

or t reatment were rendered within the 180-day perio d preceding coverage regardless of whether the conditio n manifested itself during that period. Armstr ong received

a servi ce for leukemia during the 180-day period, an d leukemia is a condition under the terms of th e plan. She therefore is only entitled to benefits for the treatment of that condition as devised in the plan for a preexisting condition.The conflict in Firestone Tire resul ted from Firestone being both the sole source of 2 funding for and the ad

ministrator of the ERISA plans at issue while in this case Aetna

12 III.

For the foregoing reasons, the decision of th e dist rict court to grant Aetna’s motion for summar y judgment and deny Armstrong’s motion for summ ary judgment is affirmed.
BEAM, Circuit Judge, concurring and, in part, dissenting.

I con cur in the result reached by the court. I disa gree, however, with the conclusions reached in Par t IIA of the opinion on the standard of review. Thus, i n part, I dissent.

The holding "that the circumstances of this cas e require us to review Aetna's decision to deny benefits de novo" is, essentially, obiter dictum. Ante at 5. Thi s is because under any standard of review the distric t court's decision must be affirmed given th e inte rpretation we place on the words of the employer' s pla n insured by Aetna. Accordingly, we are not at al l required t o establish a review standard in this case and we should not do so under these particular circumstances since th e issue appears to be a matter of firs t impression in this circuit.

Even assuming that our decision calls for th e establishment of a standard of review, the de nov o stan dard adopted is directly contrary to Supreme Cour t precedent established in Firestone Tire & Rubber Co. v. Bruch , 489 U.S. 101 (1989). The plan 2is bo th the benefits insurer and the plan administrator. For our purposes in applyin g

Firestone Tire , this is a distinction without a difference. Indeed, sinc e we know nothing of the premium

arrangement between Armstrong's employer and Aetna, it is possible, if not likely, that Firestone had a more intense conflict of interest than does Aetna i n this matter.

13 at i ssue here specifically gives Aetna broad discretio n to co nstrue the terms of the plan. Absent any element s of a "c onflict of interest," any review of Aetna's act s or decisions would be based upon an unconstr ained "abuse of discretion" standard. Id. at 115. "Of course, if a bene fit plan gives discretion to an administrator o r fiduciary who is operating under a conflict of interes t [as her e], that conflict must be weighed as a 'facto[r ] in determining whether there is an abuse of d iscretion.'" Id. (second alteration in original) (citation omitted)

. It is difficult, if not impossible, to read t his language from Firestone Tire contrary to the "sliding scale " approach-- under which the reviewing court always applies an abuse o f discretion standard but decreases the amount of d iscretion given to the administrator's decision i n propo rtion to the seriousness of the conflict-

- esta blished by the Fourth, Fifth, Seventh and Tent h Circuits. See Chambers v. Family Health Plan Corp. , 100 F.3d 818, 824-27 (10th Cir. 1996); Doe v. Grou p Hospit alization & Med. Servs. , 3 F.3d 80, 87 (4th Cir

. 1993); Wildbur v. ARCO Chem. Co. , 974 F.2d 631, 638-4 2 (5 th Cir. 1992); Van Boxel v. Journal Co. Employees ' Pension Trust , 836 F.2d 1048, 1052-53 (7th Cir. 1987).

I can find no other circuit that presently applies a de no vo review under the circumstances of this or an y similar case. In establishing this de novo s tandard, the court a sserts that it is "informed" by the reasoning o f14

th e Eleventh Circuit in Brown v. Blue Cross & Blu e Shield , 898 F.2d 1556, 1561 (11th Cir. 1990). Ante at 5. It is some what difficult to understand how the court has pro cessed information from Brown since the Elevent h Circu it said "[w]e therefore hold that the abuse o f discretion, or arbitrary and capricious, stan dard applies to ca ses such as this one, but the application of th e standard is shaped by the circumstances of the inheren t conflict of interest." Brown , 898 F.2d at 15 63. Indeed, the court also stated:

While de novo review is an att ractive avenue for controlling the exercise of discretion contrar y to the interests of the beneficiaries, th e appl ication of this strict standard would den y Blue Cross the benefit of the bargain it made in the insurance contract.15

Id. In short, Brown does not support the pro position for which it i s advanced by the court. Indeed, no case that I have discovered does so.
Accordingly, while I concur in the result reached by the court, I disagree with its decision to es tablish a de novo stand ard of review for this circuit in this case of first impression.

A true copy.

Attest.

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

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