UNITED STATES COURT OF APPEALS
TENTH CIRCUIT

SHARON PITMAN, wife of Gail Pitman, Deceased, Plaintiff-Appellee, v. BLUE CROSS AND BLUE SHIELD OF OKLAHOMA, individually and as Trade Name of GROUP HEALTH INSURANCE OF OKLAHOMA, INC., Defendant-Appellant. Nos. 98-5034 & 99-5197 (D.C. No. 92-CV-451-E) (N.D. Okla.)

ORDER Filed July 7, 2000

Before BALDOCK , PORFILIO , and EBEL , Circuit Judges.

This matter is before the court on appellant’s peti tion for rehearing filed June 5, 2000. The petition for rehearing is grante d for the sole purpose of deleting footnote eight. The petition is denied in all other respects. A revised opinion is attached to this order.
ENTERED FOR THE COURT Patrick Fisher, Clerk By: Keith Nelson Deputy Clerk*After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist the determination of this appeal. SeeFed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The cause therefore is ordered submitted without oral argument. 

## F I L E D United States Court of Appeals Tenth Circuit 

### JUL 7 2000 

### PATRICK FISHER Clerk PUBLISH UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

SHARON PITMAN, wife of Gail Pitman, Deceased, Plaintiff-Appellee, v. BLUE CROSS AND BLUE SHIELD OF OKLAHOMA, individually and as Trade Name of GROUP HEALTH INSURANCE OF OKLAHOMA, INC., Defendant-Appellant. Nos. 98-5034 & 99-5197

Appeal from the United States District Court for the Northern District of Oklahoma (D.C. No. 92-CV-451-E)

Submitted on the briefs: * Donald M. Bingham and Karen E. Langdon of Riggs, Ab ney, Neal, Turpen, Orbison & Lewis, Tulsa, Oklahoma, and Mark E. Schmi dtke, of Ebenstein & Schmidtke Consultants, Valparaiso, Indiana, for Def endant-Appellant. Sandy S. McMath of Sandy S. McMath & Associates, P. A., Little Rock, Arkansas, for Plaintiff-Appellee.- 2 -

Before BALDOCK , PORFILIO , and EBEL , Circuit Judges.

EBEL , Circuit Judge.

This appeal arises out of a dispute over the provis ions of an employee welfare benefits plan. Insurer Blue Cross & Blue S hield of Oklahoma (“Blue Cross”) appeals the district court’s grant of summary judgment in favor of one of its policyholders, Gail Pitman. Pitman claims thatBlue Cross, as both the insurer and administrator of a health benefits plan, breach ed its duty under the plan to pay for high-dose chemotherapy with autologous bone marrow transplant, (“HDC/ABMT”), a procedure used to treat a form of c ancer, multiple myeloma. Blue Cross contends that it has no obligation to pay for the procedure because the treatment is excluded under an amendment to Pitman’ s policy. We hold that Blue Cross operated under a conflict of interest; that t he policy unambiguously excluded the autologous bone marrow transplant; and that Blue Cross did not carry its burden of demonstrating that high-dose ch emotherapy fell within an exclusionary clause. We exercise jurisdiction unde r 28 U.S.C. § 1291 and affirm in part and reverse in part.1 Barbara Johnson testified that when she denied Pit man’s request for

benefits she did not have any knowledge of whether the employer sponsoring Pitman’s plan was self-funded or was indemnified byBlue Cross. In addition, she claims that although she thought HDC/ABMT was “prob ably . . . more than $10,000” she did not know how expensive it would be .” - 3 - BACKGROUND The parties and this controversy were before the Co urt in a prior appeal, and the facts are set out fully in the resulting op inion. See Pitman v. Blue Cross & Blue Shield of Oklahoma , 24 F.3d 118 (10th Cir. 1994) (“Pitman I ”). We include, therefore, only those facts necessary to r esolve the current appeal. Gail Pitman, a beneficiary under a medical insuranc e plan that Blue Cross both administers and insures, was diagnosed with mu ltiple myeloma in August 1990. To treat the disease, Mr. Pitman began a cou rse of standard-dose chemotherapy, the cost of which was covered under t he Blue Cross plan. The plan explicitly lists chemotherapy as a covered service. In August 1991, after tests revealed that the cancer was in remission, Mr . Pitman’s doctor recommended a treatment of high dose chemotherapy and autologou s bone marrow transplant (“HDC/ABMT”). On January 28, 1992, Mr. Pitman tele phoned Barbara Johnson, a benefits-verification representative for Blue Cro ss, to inquire about coverage under the plan for HDC/ABMT. Ms. Johnson denied coverage on the basis of a plan amendment which became effective on July 1, 19 91. 1 The amendment provides:2 Section 1132(a)(1)(B) states: “A civil action may be brought–by a

participant or beneficiary–to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U .S.C. § 1132(a)(1)(B).

3 In March 1992, Pitman was able to undergo HDC/ABMT due to the generosity of his friends and neighbors. However, while the appeal in his case (continued...) - 4 - 6) Preauthorization will be considered for an autol ogous bone marrow transplant (in which the patient is the dono r), with high-dose chemotherapy or radiation, only for the following c onditions: a) Stage III or IV Hodgkin’s disease which has come back after an initial complete remission, with no bone marrow inv olvement; b) Stage III or IV intermediate or high-grade non-H odgkin’s lymphoma which has come back after an initial compl ete remission, with no bone marrow involvement; c) Stage III or IV neuroblastoma, without bone marr ow involvement; d) Acute lymphocytic or non-lymphocytic leukemia wh ich has come back after an initial complete remission. 7) Preauthorization will be denied, and Benefits will not be provided , for autologous bone marrow transplants for any othe r cases, such as:

. . . e) multiple myeloma (italics in original). After being denied coverage, Pitman filed suit i n the district court in May 1992 under 29 U.S.C. § 1132(e)(1), see king a preliminary injunction to bar Blue Cross from denying the HDC/ABMT treatme nt and a declaratory judgment that the policy entitled him to “immediate certification for the benefit of bone marrow transplantation.” The district court g ranted summary judgment in favor of Blue Cross. Pitman appealed that decision to this Court. After construing the suit as one falling under 29 U.S.C. § 1132(a)(1)(B), 2 we reversed and remanded for further proceedings. 3 See Pitman I , 24 F.3d at 119.3 (...continued)

was pending, Pitman died. This court granted his w ife’s application for substitution. - 5 - Specifically, this Court determined that the distri ct court “erred by not considering the insurer’s apparent conflict of inte rest in determining whether deference should be given to the insurer’s interpre tation of coverage.” Id. On remand, the district court heard further evidenc e presented by both parties. On March 1, 1995, the district court gran ted summary judgment in favor of Pitman. Following Blue Cross’ motion to reconsi der the March 1995 order, the court held an evidentiary hearing on August 10, 199 5. At this hearing, Blue Cross presented evidence to the court that it is a “not-f or-profit mutual company owned by the members who participate in the company.” In addition, Blue Cross testified that the Oklahoma Insurance Commission re quires Blue Cross to keep a minimum amount of reserves, which approximates two months of claims expense and administrative expense. Furthermore, when prem iums are received from its members, those dollars are first applied to the pay ment of claims and then to overhead, which is also regulated by the Oklahoma I nsurance Commission. If there is a shortfall, then the company dips into th e reserves; if there is a surplus, that money goes into the reserves account. If for some reason the income greatly exceeds the outflow, the company would be required to lower its rates or increase the benefits to the members. If the company had la rge surpluses one year, it- 6 -

would not be able to pay big bonuses to its executi ves because the Department of Insurance regulates administrative expenses and req uires any excess to go into a

reserves account. On October 11, 1996 the district court entered find ings of fact and conclusions of law, concluding that Blue Cross had a conflict of interest, and that it had denied the requested benefits arbitrarily an d capriciously. Consequently, the court found that the amendment to the plan thatexcluded a bone marrow transplant for multiple myeloma was void. Blue Cro ss now appeals that decision and the attorney’s fee award granted to Pitman by t he district court in an August 1999 order.
DISCUSSION I. Standard of Review Summary judgment orders are reviewed de novo, using the same standards as applied by the district court. See Kimber v. Thiokol Corp. , 196 F.3d 1092, 1097 (10th Cir. 1999). Summary judgment is appropr iate “if the pleadings, depositions, answers to interrogatories, and admiss ions on file, together with the affidavits, if any, show that there is no genuine i ssue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c); see also Jones v. Kodak Med. Assistance Plan , 169 F.3d 1287, 1291 (10th Cir. 1999).- 7 -

In addition to the standards we use to evaluate the district court’s order, we must also address the appropriate standard with whi ch the court should review Blue Cross’s denial of benefits under the ERISA plan it administers. See Firestone Tire & Rubber Co. v. Bruch , 489 U.S. 101, 108-15 (1989). “Although ERISA gives a plan beneficiary the right to judicia l review of benefit denials, the statute did not establish the standard of review fo r such decisions.” Chambers v. Family Health Plan Corp. , 100 F.3d 818, 824-25 (10th Cir. 1996). In Firest one , the Supreme Court held that “a denial of benefits c hallenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Firestone , 489 U.S. at 115. In this case, the plan states that “[t]he Board of Trustees of Blue Cross and Blue Shield of Oklahoma is authorized to determine, and in its discretion, to alter the Benefits provided by this Contract.” Thus, the plan expressly gives Blue Cross as plan administrator the discretion to deter mine whether to deny a claimant insurance benefits under the plan. Therefore, beca use the plan grants Blue Cross discretion, “[a] court reviewing a challenge to a d enial of employee benefits . . . applies an ‘arbitrary and capricious’ standard to aplan administrator’s actions.” Charter Canyon Treatment Ctr. v. Pool Co. , 153 F.3d 1132, 1135 (10th Cir. 1998). However, if a plan administrator is operating unde r a conflict of interest,- 8 -

“the court may weigh that conflict as a factor in d etermining whether the plan administrator’s actions were arbitrary and capricious.” Id . “[T]he Tenth Circuit has adopted a sliding scale, decreasing the level o f deference in proportion to the severity of the conflict.” Jones , 169 F.3d at 1291. The conflict, then, is weighed as one factor in determining whether the plan admin istrator’s decision was arbitrary and capricious. See Firestone , 489 U.S. at 115; Jones , 169 F.3d at 1291. Pitman contends that Blue Cross was operating undera conflict of interest because it was both the plan administrator and the insurer. Blue Cross, however, asserts that there was no conflict of interest simp ly because it was both the insurer and the administrator, and even if such a conflict did exist, it did not impact the decision of the Customer Claims Representative, Bar bara Johnson. Thus, it contends no decrease in the level of deference is n ecessary. We agree with the district court that Blue Cross operated under a con flict of interest. In deciding whether a conflict of interest existed, this court should consider various, non-exhaustive factors including whether: (1) the plan is self-funded; (2) the company fundin g the plan appointed and compensated the plan administrator; ( 3) the plan administrator’s performance reviews or level of compensation were linked to the denial of benefits; and (4) the provi sion of benefits had a significant economic impact on the company admini stering the plan.
Jones , 169 F.3d at 1291; see also Kimber , 196 F.3d at 1098. Although this plan is not self-funded, Blue Cross is both the insurer andthe administrator of the plan.- 9 -

As one court has noted, “when an insurance company serves as ERISA fiduciary to a plan composed solely of a policy or contract i ssued by that company, it is exercising discretion over a situation for which itincurs direct, immediate expense as a result of benefit determinations favor able to plan participants.” Brown v. Blue Cross & Blue Shield of Alabama, Inc. , 898 F.2d 1556, 1561 (11th Cir. 1990) (internal quotations and alteration omitted); see also Doe v. Group Hospitalization & Med. Servs. , 3 F.3d 80, 86 (4th Cir. 1993). Blue Cross points out that it is a non-profit corporation, and, there fore, argues that it has no motivation to deny claims in order to increase its profits. Moreover, it contends that if there was ever a period where income vastly exceeded outgo, Blue Cross would be required to lower its premiums or increase its benefits. Although Blue Cross may be non-profit, it still has a financial i nterest in denying claims in order to remain economically viable as well as competitiv e within the insurance industry. See Lee v. Blue Cross/Blue Shield of Alabama , 10 F.3d 1547, 1552 (11th Cir. 1994) (finding that a lack of profit mot ive is not dispositive of a selfinterest dispute because “[e]ven without a profit m otive, Blue Cross’ desire to maintain competitive rates while providing optimum benefits would require it to reject marginal claims”). Moreover, the corporate officers have incentives to maintain an economically healthy and successful company in order to ensure the viability and competitiveness of the company for th e sake of their own job4 We recognize that this court recently addressed asimilar issue in Kimber

v. Thiokol Corp. , 196 F.3d 1092 (10th Cir. 1999). In Kimber , this court determined that there was no conflict of interest i n a self-funded plan in which an employee of the company administered the plan becau se the administrator/employee was not a corporate officer, held no stock in the company, and had no direct pecuniary interest in the conflic t. Id. at 1098. Blue Cross argues likewise that there is no conflict in this c ase because its claim adjuster, Ms. Johnson, simply applied the amendment excluding autologous bone marrow transplant for multiple myeloma without any knowled ge of the nature of the funding of Pitman’s plan–i.e., whether Blue Cross i ndemnified or insured the plan. We find that this case is distinguishable fr om Kimber . First, in Kimber , the decisions of the plan administrator were reviewed a nd advised by John Hancock Managed Care Group, which presumably did not have afinancial conflict of interest. Second, the transcript of the conversati on between Mr. Pitman and Ms. Johnson indicates she placed Mr. Pitman on hold at least twice, and Ms. Johnson’s deposition testimony suggests she may hav e talked to management during this time for advice. More importantly, unl ike the self-funded company in Kimberwhere the company’s profit is not derived solely f rom its administration of the health benefits plan, Blue Cross is in the b usiness of insurance. Thus, it can only remain economically viable through its ins urance transactions. By contrast, self-funded companies typically have othe r means of generating profit and income. Thus, in Blue Cross’ situation, as bot h insurer and administrator of the plan, there is an inherent conflict of interestbetween its discretion in paying claims and its need to stay financially sound. - 10 - stability. Thus, we find that there is a conflict of interest in this case. 4 Butsee Farley v. Arkansas Blue Cross & Blue Shield , 147 F.3d 774, 777 n.5 (8th Cir. 1998) (finding no “palpable” conflict of interest e ven though Blue Cross was both the administrator and insurer of a plan when it is a non-profit corporation). Under the sliding scale approach adopted by the Ten th Circuit, we decrease the level of deference owed in proportion to the se verity of the conflict. Jones ,5 The district court applied the “presumptively void ” test after concluding

that Blue Cross operated under a conflict of intere st. Under this test, the decision of an administrator is presumed to be void unless t he administrator can prove: “(1) under de novo review, the result reached was n evertheless ‘right’ or (2) the decision was not made to serve the administrator’s conflicting interest.” Chambers v. Family Health Plan Corp. , 100 F.3d 818 (10th Cir. 1996). This court rejected the presumptively void test in favor of th e sliding scale test in Chambers , 100 F.3d at 826-27. Thus, as discussed above, this court will treat the conflict as one factor in determining whether an abuse of discr etion occurred.

6 Blue Cross spends a significant portion of its bri ef arguing that it had the right to amend the plan under ERISA. This is a correct statement of the law, ( see Averhart v. US West Mgmt. Pension Plan , 46 F.3d 1480, 1488 (10th Cir. 1994) (“An employer can wear two hats: one as a fiduciary administering a pension plan and the other as the drafter of the plan’s terms. Therefore, because the functions are distinct, an employer does not act as a fiducia ry when it amends or otherwise sets the terms of a plan”) (quotations omitted) (ci tation omitted)), and Pitman conceded as much in his brief. Pitman, however, seems to argue that the application of the amendment to deny him benefits w as arbitrary and capricious, because he was already receiving chemotherapy underthe plan at the time the amendment was passed. This argument fails, however , because, as this Court recognized in Member Servs. Life Ins. Co. v. Americ an Nat’l Bank & Trust Co. , 130 F.3d 950 (10th Cir. 1997), welfare benefit plan s are “exempt from the (continued...) - 11 - 169 F.3d at 1291. 5 Thus, “[w]here the plan administrator operates un der a conflict of interest . . . the court may weigh thatconflict as a factor in determining whether the plan administrator’s action s were arbitrary and capricious.” Charter Canyon , 153 F.3d at 1135.

II. The Amendment Pitman next contends that although Blue Cross had t he right to amend the health plan, Blue Cross’ use of the amendment 6 to deny Pitman benefits was in6 (...continued)

statutory vesting requirements that ERISA imposes o n pension benefits. Accordingly, an employer may amend the terms of a w elfare benefit plan or terminate it entirely.” Id. at 954 (internal quotation omitted). This Court w ent on, however, to state that “benefits under a welfar e benefit plan may vest under the terms of the plan itself.” Id. (internal quotation omitted). To determine whether the benefits have vested, it is necessary t o apply contract principles. See id. According to Member Servs. , “coverage under a medical insurance policy or plan is normally triggered by one of two events. I f a policy insures against illness, coverage for all medical costs arising fro m a particular illness vests when the illness occurs. If a policy insures against expenses, coverage vests when the expenses are incurred.” Id. (internal quotation omitted); see also 10 Couch on Insurance 3d § 144:99 (1998) (distinguishing betwee n medical insurance policies that insure against illness and policies that insur e against expenses to determine whether coverage has vested). The Plan under which Pitman was covered insures against expenses. The plan states: “a Subscriber i s entitled to Benefits for Covered Services in the amounts specified in this S chedule of Benefits when the covered Services are rendered by a Participating Provider.” In addition, the pl an defines a benefit period as “the specified period o f time during which charges for Covered Services must be Incurred in order to be el igible for payment by the plan. A charge shall be considered Incurred on the date t he service or supply was provided to a Subscriber.” Thus Pitman has no clai m that his right to HDC/ABMT had vested. - 12 - violation of its fiduciary duties because it acted under a conflict of interest. Pitman further argues the district court correctly found that the language of the amendment did not clearly exclude HDC/ABMT. Theref ore, Pitman argues, the court was correct in refusing to read the amendmentto exclude HDC/ABMT because coverage for chemotherapy is explicitly gra nted elsewhere in the plan. Blue Cross, in response, argues that even under the less deferential standard applied when there is a conflict of interest, its d ecision to deny benefits was not arbitrary and capricious because the amendment unam biguously excludes7Blue Cross argues that in the original summary jud gment entered prior to

Pitman I , the district court expressly found that the amend ment was unambiguous, and this court in Pitman I never overturned this ruling. In Pitman I , this court did not review the findings of the district court, nor did we make an ultimate determination as to the correctness of the districtcourt findings. Instead, we remanded the case so that the district court could determine whether a conflict of interest existed and what standard of review should be applied in this case. See Pitman I , 24 F.3d at 119. Thus, this court has never made any binding determination on the ambiguity of the amendment. - 13 - autologous bone marrow transplants with high dose c hemotherapy for multiple myeloma. 7Moreover, the amendment was in effect when Mr. Pi tman requested authorization for the treatment. In assessing whe ther the amendment is ambiguous: “We are mindful that the objective in construing a health care

agreement, as with general contract terms, is to as certain and carry out the true intention of the parties. Howev er, we do so giving the language its common and ordinary meaning as a reasonable person in the position of the [plan] par ticipant , not the actual participant, would have understood the w ords to mean.” Blair v. Metropolitan Life Ins. Co. , 974 F.2d 1219, 1221 (10th Cir. 1992) (quoting McGee v. Equicor-Equitable HCA Corp. , 953 F.3d 1192, 1202 (10th Cir. 1992)). Autologous bone marrow transplant is expressly excl uded as a covered service in the plan and nowhere in the plan is it i ncluded as a covered service. The relevant language of the amendment is contained in paragraphs six and seven under the heading “Benefits”. Paragraph six states : “Preauthorization will be considered for an autologous bone marrow transplant(in which the patient is the- 14 -

donor), with high-dose chemotherapy or radiation, o nly for the following conditions: [multiple myeloma is not listed].” Par agraph seven states: “Preauthorization will be denied, and Benefits will not be provided, for autologous bone marrow transplants for any other ca ses, such as: . . . e) multiple myeloma.” Contrary to the district court findings, we conclude that this language unambiguously excludes autologous bone marrow trans plants. However, we find that high dose chemotherapy is no t excluded under the plan. A basic rule of insurance law provides that the insured has the burden of showing that a covered loss has occurred, while the insurer has the burden of showing that a loss falls within an exclusionary cl ause of the policy. See McGee , 953 F.2d at 1205; Blair , 974 F.2d at 1221; Jenkins v. Montgomery Indus. In c. , 77 F.3d 740, 743 (4th Cir. 1996); Fehring v. Universal Fidelity Life Ins. Co. , 721 P.2d 796, 799 (Okla. 1986) (holding that insurer fa iled to sustain burden of proving loss came within scope of exclusionary clau se). Blue Cross has failed to sustain its burden of showing that high-dose chemotherapy fell under any exclusion in the plan. Chemotherapy is expressly included as a covered service under the listing of benefits under the plan. Given this explicit in clusion of chemotherapy as a general covered service, it would take a very clearexclusion of a particular application of chemotherapy to remove that applicat ion as a covered service.- 15 -

Paragraph seven listed under the heading “Benefits” in the amendment excludes only autologous bone marrow transplants. Nowhere i n that paragraph is the associated high-dose chemotherapy excluded from cov erage. Paragraph six includes autologous bone marrow transplants with high-dose chemotherapy but only for certain conditions not present here. Neve rtheless, because paragraph six is an inclusive paragraph rather than an exclusive one, and because the reference to high-dose chemotherapy in paragraph six could be viewed as definitional language defining when autologous bone marrow trans plant services will be covered, this language does not narrow the explicitinclusion of chemotherapy elsewhere in the policy. Blue Cross has thus faile d to carry its burden of showing that the high-dose chemotherapy fell within an excl usionary clause of the plan. We therefore hold that Blue Cross was arbitrary and capricious in denying coverage for the high-dose chemotherapy portion of Pitman’s procedure. This is particularly true because “Blue Cross’ discretionary interpretation to the contrary is not entitled to the deference we might otherwise accord,” Doe , 3 F.3d at 89, for the reasons given in Part I above. However, the po licy unambiguously excluded the autologous bone marrow transplant, and thus Blu e Cross correctly declined to pay the costs associated with that portion of the p rocedure. We therefore affirm in part and reverse in part.- 16 -

III. Attorney Fees The district court awarded Pitman $64,500 in attorn ey’s fees under 29 U.S.C. § 1132(g)(1). The statute provides in perti nent part that “[i]n any action under this subchapter . . . by a participant, benef iciary, or fiduciary, the court in its discretion may allow a reasonable attorney’s fe e and costs of action to either party.” 29 U.S.C. § 1132(g)(1). Under this sectio n, “it is within the district court’s sound discretion to determine whether a party is entitled to attorney’s fees as the result of an action brought under ERISA.” G ordon v. United States Steel Corp. , 724 F.2d 106, 108 (10th Cir. 1983). Although the district court has already addressed this issue once and determined that Pitma n was entitled to attorney’s fees, we believe it is necessary to remand the issu e to the district court and have it review again the appropriateness of awarding attorn ey’s fees to Pitman in light of our decision to reverse in part and affirm in part. In remanding we do not mean to imply that an award of attorney’s fees would be an abuse of discretion where a plaintiff only partially prevails on her claim. Se e Gordon , 724 F.2d at 109 (listing the five factors a district court should consider i n determining whether to award attorney’s fees under section 1132(g)(1) and implic itly recognizing that the relative merits alone is not dispositive of the iss ue). However, because the situation has changed since the district court lastaddressed the issue, and it is within the district court’s discretion whether to award attorney’s fees, we remand.- 17 -

We therefore AFFIRM in part, REVERSE in part, and REMAND for consideration of attorney’s fees under 29 U.S.C. § 1132(g)(1).