United States Court of Appeals

FOR THE EIGHTH CIRCUIT

 

No. 97-1712

 

Pamela E. Armstrong, *

*

Appellant, *

* Appeal From the United

States

v. * District Court for the

* Western District of

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 and

BEAM, Circuit Judges.

 

HEANEY, Circuit Judge.

Pamela E. Armstrong appeals the district court’s

grant of summary judgment in favor of Aetna Life

Insurance Company, Aetna Health Plan, and Plan

Administrator (collectively “Aetna”) on Armstrong’s claim

that Aetna wrongfully denied her benefits under a health

plan administered by Aetna and governed by the Employee

Retirement Security Income Act, 29 U.S.C. § 1001

(“ERISA”). We affirm. 
2

I.
3

In May 1993, Armstrong was diagnosed with leukemia.

She underwent chemotherapy for the disorder after which

the leukemia went into remission in October 1993. At the

time, Armstrong had health-care coverage through a group

health plan administered by Travelers Insurance Company.

On May 1, 1995, Armstrong left her residence in Colorado,

taking a job 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 discretion to review

claims. Armstrong transferred her coverage to the Aetna

plan, becoming eligible for benefits under the plan on

June 1, 1995. 

On March 7, 1995, Armstrong visited Dr. Pamela Perry,

a primary care doctor, to “get established with a new

physician.” After Armstrong informed Dr. Perry of her

history of leukemia, Dr. Perry ordered a complete blood

count, which was performed the next day. The test

indicated a white blood count that Dr. Perry described as

“abnormal” and “ low.” Based on the test results and

Armstrong’s medical history, Dr. Perry ordered a more

detailed test called a “peripheral smear.” On March 13,

1995, the smear evaluation confirmed that Armstrong’s

white blood cell count was low and showed that her blood

cells were “atypical, but not leukemic.” While Dr. Perry

suggested no immediate action as a result of the test

results, she encouraged Armstrong to return for a “wellwoman examination” in September 1995. 

Armstrong saw Dr. Mark Davidner, an oncologist, on

June 15, 1995, two weeks after her Aetna coverage began.

Dr. Davidner examined Armstrong, finding signs of
4

leukemia. A bone marrow aspiration on June 27th resulted

in a definitive diagnosis of leukemia. Armstrong

subsequently received treatment for leukemia through

chemotherapy and a bone marrow transplant.

Armstrong sought coverage from Aetna for her leukemia

treatment. Aetna initially indicated that Armstrong’s

policy covered the treatment but subsequently limited her

coverage based on the “preexisting condition” provision

in the health plan. 
5

The plan defines a preexisting condition as a condition

that was diagnosed or treated, or for which treatment or

services were received, or prescription drugs or

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 preexisting

condition within the first year of coverage to $4,000.

Armstrong appealed Aetna’s determination that her claim

fell under the preexisting condition limitation. Aetna

reaffirmed its decision because Armstrong had received a

service for leukemia within the previous six months when

Dr. Perry conducted her examination of Armstrong. 

Armstrong appealed Aetna’s determination to the

district court. Armstrong argued that the court should

review Aetna’s decision de novo because Aetna’s role as

both insurer and administrator of the plan created a

conflict of interest. Moreover, she claimed that the

incentives Aetna provided to its claim evaluators to deny

benefits further justified heightened review by the

court. Armstrong then argued that Missouri law should

apply to her claim and that, under Missouri law, Aetna’s

preexisting condition provision is invalid. Armstrong

alternatively argued that she did not have a “condition”

within the meaning of the policy. The court determined

that Aetna’s decision was subject to an abuse-ofdiscretion standard, Delaware law applied to Armstrong’s

claim, and substantial evidence supported Aetna’s

decision that Armstrong had a preexisting condition.

Armstrong appeals the district court’s ruling and we

affirm.
 We have addressed the question of whether a variation of the abuse of discretion 1

should apply where a “procedural irregularity” occurred in a plan administrator’s

determination 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. and

S.W. Areas Health & Welfare Fund, 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 the

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 not

assert 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 review a decision by an ERISA plan administrator

or fiduciary for an abuse of discretion if the plan

specifically gives the administrator or fiduciary the

authority to construe the terms of the plan. Firestone

Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989).

However, where the administrator or fiduciary has a

conflict 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 Trusts § 187, Comment d (1959), quoted in Firestone

Tire, 489 U.S. at 115. We have not addressed the

appropriate standard for review where the insurer of a

health benefits plan is also the plan administrator.1

Other circuits have addressed this specific question. In

Atwood v. Newmont Gold Company, 45 F.3d 1317, 1323 (9th

Cir. 1995), and Brown v. Blue Cross & Blue Shield of

Alabama, Inc., 898 F.2d 1556, 1566-67 (11th Cir. 1990),

the Ninth and Eleventh Circuits adopted a “presumptively
7

void” test under which a decision rendered by a plan

administrator with such a conflict is presumed to be an

abuse of discretion unless the administrator can

demonstrate that either (1) under de novo review the

result was correct, or (2) the decision was not made to

serve the administrator’s conflicting interest. The

Fourth, Fifth, Seventh, and Tenth Circuits use
8

a “sliding scale” approach, under which the reviewing

court always applies an abuse-of-discretion standard but

decreases the amount of discretion given to the

administrator’s decision in proportion to the seriousness

of the conflict. See Chambers v. Family Health Plan

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

Group Hospitalization & Med. Serv., 3 F.3d 80, 87 (4th

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 require

us to review Aetna’s decision to deny benefits de novo.

We are informed by the reasoning of the Eleventh

Circuit’s holding in Brown, which stated that a

relationship that places an ERISA benefits plan

administrator in “perpetual conflict” warrants a higher

level of scrutiny. Brown, 898 F.2d at 1561. Aetna faces

a continuing conflict in playing the dual role of

administrator and insurer of the health benefits plan.

As the insurer, Aetna has an obvious interest in

minimizing its claim payments. Apparently to limit claim

payments, Aetna provides incentives and bonuses to its

claims reviewers based on criteria that include a

category called “claims savings.” (Appellant’s App. at

250-66). Despite Aetna’s argument that there is no

evidence that Aetna has directed its reviewers to

improperly reject claims, we cannot view the fiduciary

arrangement between Aetna, its claims reviewers, and the

plan beneficiaries as the type ERISA provides as

administered “solely in the interest of the participants

and beneficiaries.” 29 U.S.C. § 1104 (a)(1). 

B. Choice of Law
9

Armstrong argued below that Delaware law applies to

her claim. She now argues that Missouri law applies.

Although we generally need not consider arguments raised

for the first time on appeal, see Ryder v. Morris, 752

F.2d 327, 332 (8th Cir. 1985), we conclude that the

district court properly determined that Missouri courts

apply the law of the state in which a policy is

delivered. See Miller v. Home Ins. Co., 605 S.W.2d 778,

780 (Mo. 1980). The evidence presented below

demonstrates that
10

Aetna delivered the policy in Delaware. Therefore,

Delaware law applies. An examination of the Delaware

statute governing the treatment of preexisting

conditions, 18 Del. Code § 3517 (a), reveals that the

statute only applies prospectively from the statute’s

enactment, which occurred after the delivery of the Aetna

health benefits plan, leaving the plan outside of the

statute’s reach. In the absence of a statutory directive

invalidating the Aetna plan’s preexisting conditions

clause, the provision is construed based on its plain

language.

C. Aetna’s Decision to Deny Benefits

We now turn to whether Armstrong is entitled to

benefits. Armstrong contends that because her leukemia

was in remission during the 180-day period prior to her

coverage, she did not have a preexisting condition under

the terms of the plan. Under the terms of the plan,

however, if a plan participant receives treatment or a

service for a condition within the 180 days prior to when

coverage began, the plan limits benefits. Armstrong did

not contest below, nor does she do so now, that the

testing she received was a “service” within the meaning

of the plan. Therefore, we accept that she received such

a service. See Ryder, 752 F.2d at 332. Likewise, the

parties do not dispute whether leukemia is a “condition”

within the meaning of the plan. 

The district court determined that sufficient

evidence supported a finding that Armstrong had leukemia

prior to the commencement of her coverage under the plan.

Because that inquiry is not relevant under the terms of

the plan, we need not consider the propriety of the
11

district court’s conclusion. Under the Aetna plan, a

“preexisting condition” is a condition for which services

or treatment were rendered within the 180-day period

preceding coverage regardless of whether the condition

manifested itself during that period. Armstrong received

a service for leukemia during the 180-day period, and

leukemia is a condition under the terms of the 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 resulted from Firestone being both the sole source of 2

funding for and the administrator of the ERISA plans at issue while in this case Aetna

12

III.

For the foregoing reasons, the decision of the

district court to grant Aetna’s motion for summary

judgment and deny Armstrong’s motion for summary judgment

is affirmed. 

BEAM, Circuit Judge, concurring and, in part, dissenting.

I concur in the result reached by the court. I

disagree, however, with the conclusions reached in Part

IIA of the opinion on the standard of review. Thus, in

part, I dissent.

The holding "that the circumstances of this case

require us to review Aetna's decision to deny benefits de

novo" is, essentially, obiter dictum. Ante at 5. This

is because under any standard of review the district

court's decision must be affirmed given the

interpretation we place on the words of the employer's

plan insured by Aetna. Accordingly, we are not at all

required to establish a review standard in this case and

we should not do so under these particular circumstances

since the issue appears to be a matter of first

impression in this circuit.

Even assuming that our decision calls for the

establishment of a standard of review, the de novo

standard adopted is directly contrary to Supreme Court

precedent established in Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101 (1989). The plan 2
is both the benefits insurer and the plan administrator. For our purposes in applying

Firestone Tire, this is a distinction without a difference. Indeed, since 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 in

this matter.

13

at issue here specifically gives Aetna broad discretion

to construe the terms of the plan. Absent any elements

of a "conflict of interest," any review of Aetna's acts

or decisions would be based upon an unconstrained "abuse

of discretion" standard. Id. at 115. "Of course, if a

benefit plan gives discretion to an administrator or

fiduciary who is operating under a conflict of interest

[as here], that conflict must be weighed as a 'facto[r]

in determining whether there is an abuse of discretion.'"

Id. (second alteration in original) (citation omitted).

It is difficult, if not impossible, to read this language

from Firestone Tire contrary to the "sliding scale"

approach--under which the reviewing court always applies

an abuse of discretion standard but decreases the amount

of discretion given to the administrator's decision in

proportion to the seriousness of the conflict--

established by the Fourth, Fifth, Seventh and Tenth

Circuits. See Chambers v. Family Health Plan Corp., 100

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

Hospitalization & Med. Servs., 3 F.3d 80, 87 (4th Cir.

1993); Wildbur 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).

I can find no other circuit that presently applies a

de novo review under the circumstances of this or any

similar case. In establishing this de novo standard, the

court asserts that it is "informed" by the reasoning of
14

the Eleventh Circuit in Brown v. Blue Cross & Blue

Shield, 898 F.2d 1556, 1561 (11th Cir. 1990). Ante at 5.

It is somewhat difficult to understand how the court has

processed information from Brown since the Eleventh

Circuit said "[w]e therefore hold that the abuse of

discretion, or arbitrary and capricious, standard applies

to cases such as this one, but the application of the

standard is shaped by the circumstances of the inherent

conflict of interest." Brown, 898 F.2d at 1563. Indeed,

the court also stated:

While de novo review is an attractive avenue for

controlling the exercise of discretion contrary

to the interests of the beneficiaries, the

application of this strict standard would deny

Blue Cross the benefit of the bargain it made in

the insurance contract.
15

Id. In short, Brown does not support the proposition for

which it is 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 establish a de

novo standard of review for this circuit in this case of

first impression.

 A true copy.

Attest.

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