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 petition for rehearing filed

June 5, 2000. The petition for rehearing is granted 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. See Fed. 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, Abney, Neal, Turpen,

Orbison & Lewis, Tulsa, Oklahoma, and Mark E. Schmidtke, of Ebenstein &

Schmidtke Consultants, Valparaiso, Indiana, for Defendant-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 provisions of an employee

welfare benefits plan. Insurer Blue Cross & Blue Shield of Oklahoma (“Blue

Cross”) appeals the district court’s grant of summary judgment in favor of one of

its policyholders, Gail Pitman. Pitman claims that Blue Cross, as both the insurer

and administrator of a health benefits plan, breached 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 cancer, 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 the policy unambiguously

excluded the autologous bone marrow transplant; and that Blue Cross did not

carry its burden of demonstrating that high-dose chemotherapy fell within an

exclusionary clause. We exercise jurisdiction under 28 U.S.C. § 1291 and affirm

in part and reverse in part.
1

 Barbara Johnson testified that when she denied Pitman’s request for

benefits she did not have any knowledge of whether the employer sponsoring

Pitman’s plan was self-funded or was indemnified by Blue Cross. In addition, she

claims that although she thought HDC/ABMT was “probably . . . more than

$10,000” she did not know how expensive it would be.” 

- 3 -

BACKGROUND

The parties and this controversy were before the Court in a prior appeal,

and the facts are set out fully in the resulting opinion. 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 resolve the current appeal.

Gail Pitman, a beneficiary under a medical insurance plan that Blue Cross

both administers and insures, was diagnosed with multiple myeloma in August

1990. To treat the disease, Mr. Pitman began a course of standard-dose

chemotherapy, the cost of which was covered under the 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 autologous bone marrow transplant

(“HDC/ABMT”). On January 28, 1992, Mr. Pitman telephoned Barbara Johnson,

a benefits-verification representative for Blue Cross, 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, 1991.1

 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...)

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6) Preauthorization will be considered for an autologous bone

marrow transplant (in which the patient is the donor), with high-dose

chemotherapy or radiation, only for the following conditions: 

a) Stage III or IV Hodgkin’s disease which has come back after an

initial complete remission, with no bone marrow involvement;

b) Stage III or IV intermediate or high-grade non-Hodgkin’s

lymphoma which has come back after an initial complete remission,

with no bone marrow involvement;

c) Stage III or IV neuroblastoma, without bone marrow involvement;

d) Acute lymphocytic or non-lymphocytic leukemia which 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 other cases, such as:

. . . 

e) multiple myeloma

(italics in original). After being denied coverage, Pitman filed suit in the district

court in May 1992 under 29 U.S.C. § 1132(e)(1), seeking a preliminary injunction

to bar Blue Cross from denying the HDC/ABMT treatment and a declaratory

judgment that the policy entitled him to “immediate certification for the benefit of

bone marrow transplantation.” The district court granted 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 wife’s application for

substitution.

- 5 -

Specifically, this Court determined that the district court “erred by not

considering the insurer’s apparent conflict of interest in determining whether

deference should be given to the insurer’s interpretation of coverage.” Id.

On remand, the district court heard further evidence presented by both

parties. On March 1, 1995, the district court granted summary judgment in favor

of Pitman. Following Blue Cross’ motion to reconsider the March 1995 order, the

court held an evidentiary hearing on August 10, 1995. At this hearing, Blue Cross

presented evidence to the court that it is a “not-for-profit mutual company owned

by the members who participate in the company.” In addition, Blue Cross

testified that the Oklahoma Insurance Commission requires Blue Cross to keep a

minimum amount of reserves, which approximates two months of claims expense

and administrative expense. Furthermore, when premiums are received from its

members, those dollars are first applied to the payment of claims and then to

overhead, which is also regulated by the Oklahoma Insurance Commission. If

there is a shortfall, then the company dips into the 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 large surpluses one year, it
- 6 -

would not be able to pay big bonuses to its executives because the Department of

Insurance regulates administrative expenses and requires any excess to go into a

reserves account.

On October 11, 1996 the district court entered findings of fact and

conclusions of law, concluding that Blue Cross had a conflict of interest, and that

it had denied the requested benefits arbitrarily and capriciously. Consequently,

the court found that the amendment to the plan that excluded a bone marrow

transplant for multiple myeloma was void. Blue Cross now appeals that decision

and the attorney’s fee award granted to Pitman by the 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 appropriate “if the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue 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 which 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 judicial review of benefit denials, the

statute did not establish the standard of review for such decisions.” Chambers v.

Family Health Plan Corp., 100 F.3d 818, 824-25 (10th Cir. 1996). In Firestone,

the Supreme Court held that “a denial of benefits challenged 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 determine whether to deny a claimant

insurance benefits under the plan. Therefore, because the plan grants Blue Cross

discretion, “[a] court reviewing a challenge to a denial of employee benefits . . .

applies an ‘arbitrary and capricious’ standard to a plan 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 under a conflict of interest,
- 8 -

“the court may weigh that conflict as a factor in determining whether the plan

administrator’s actions were arbitrary and capricious.” Id. “[T]he Tenth Circuit

has adopted a sliding scale, decreasing the level of 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 administrator’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 under a conflict of interest

because it was both the plan administrator and the insurer. Blue Cross, however,

asserts that there was no conflict of interest simply 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, Barbara Johnson. Thus, it

contends no decrease in the level of deference is necessary. We agree with the

district court that Blue Cross operated under a conflict 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 funding 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 provision of benefits had

a significant economic impact on the company administering 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 and the 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 issued by that company, it is

exercising discretion over a situation for which it incurs direct, immediate

expense as a result of benefit determinations favorable 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, therefore, 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 interest in denying claims in order

to remain economically viable as well as competitive 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 motive is not dispositive of a selfinterest dispute because “[e]ven without a profit motive, 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 the sake of their own job
4

 We recognize that this court recently addressed a similar 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 in a self-funded plan in which an

employee of the company administered the plan because the

administrator/employee was not a corporate officer, held no stock in the company,

and had no direct pecuniary interest in the conflict. Id. at 1098. Blue Cross

argues likewise that there is no conflict in this case because its claim adjuster,

Ms. Johnson, simply applied the amendment excluding autologous bone marrow

transplant for multiple myeloma without any knowledge of the nature of the

funding of Pitman’s plan–i.e., whether Blue Cross indemnified or insured the

plan. We find that this case is distinguishable from Kimber. First, in Kimber, the

decisions of the plan administrator were reviewed and advised by John Hancock

Managed Care Group, which presumably did not have a financial conflict of

interest. Second, the transcript of the conversation 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 have talked to management

during this time for advice. More importantly, unlike the self-funded company in

Kimber where the company’s profit is not derived solely from its administration

of the health benefits plan, Blue Cross is in the business of insurance. Thus, it

can only remain economically viable through its insurance transactions. By

contrast, self-funded companies typically have other means of generating profit

and income. Thus, in Blue Cross’ situation, as both insurer and administrator of

the plan, there is an inherent conflict of interest between 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

 But see

Farley v. Arkansas Blue Cross & Blue Shield, 147 F.3d 774, 777 n.5 (8th Cir.

1998) (finding no “palpable” conflict of interest even 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 Tenth Circuit, we decrease

the level of deference owed in proportion to the severity of the conflict. Jones,
5

 The district court applied the “presumptively void” test after concluding

that Blue Cross operated under a conflict of interest. Under this test, the decision

of an administrator is presumed to be void unless the administrator can prove:

“(1) under de novo review, the result reached was nevertheless ‘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 the 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 discretion occurred.

6

 Blue Cross spends a significant portion of its brief 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 fiduciary when it amends or otherwise

sets the terms of a plan”) (quotations omitted) (citation omitted)), and Pitman

conceded as much in his brief. Pitman, however, seems to argue that the

application of the amendment to deny him benefits was arbitrary and capricious,

because he was already receiving chemotherapy under the plan at the time the

amendment was passed. This argument fails, however, because, as this Court

recognized in Member Servs. Life Ins. Co. v. American Nat’l Bank & Trust Co.,

130 F.3d 950 (10th Cir. 1997), welfare benefit plans are “exempt from the

(continued...)

- 11 -

169 F.3d at 1291.5

 Thus, “[w]here the plan administrator operates under a

conflict of interest . . . the court may weigh that conflict as a factor in

determining whether the plan administrator’s actions were arbitrary and

capricious.” Charter Canyon, 153 F.3d at 1135. 

II. The Amendment

Pitman next contends that although Blue Cross had the right to amend the

health plan, Blue Cross’ use of the amendment6

 to deny Pitman benefits was in
6

(...continued)

statutory vesting requirements that ERISA imposes on pension benefits. 

Accordingly, an employer may amend the terms of a welfare benefit plan or

terminate it entirely.” Id. at 954 (internal quotation omitted). This Court went

on, however, to state that “benefits under a welfare 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 to 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. If a policy insures against

illness, coverage for all medical costs arising from 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 between medical insurance policies

that insure against illness and policies that insure against expenses to determine

whether coverage has vested). The Plan under which Pitman was covered insures

against expenses. The plan states: “a Subscriber is entitled to Benefits for

Covered Services in the amounts specified in this Schedule of Benefits when the

covered Services are rendered by a Participating Provider.” In addition, the plan

defines a benefit period as “the specified period of time during which charges for

Covered Services must be Incurred in order to be eligible for payment by the plan. 

A charge shall be considered Incurred on the date the service or supply was

provided to a Subscriber.” Thus Pitman has no claim 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. Therefore, Pitman argues, the

court was correct in refusing to read the amendment to exclude HDC/ABMT

because coverage for chemotherapy is explicitly granted 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 decision to deny benefits was not

arbitrary and capricious because the amendment unambiguously excludes
7

 Blue Cross argues that in the original summary judgment entered prior to

Pitman I, the district court expressly found that the amendment 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 district court 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 chemotherapy for multiple

myeloma.7 Moreover, the amendment was in effect when Mr. Pitman requested

authorization for the treatment. In assessing whether the amendment is

ambiguous:

“We are mindful that the objective in construing a health care

agreement, as with general contract terms, is to ascertain and

carry out the true intention of the parties. However, we do so

giving the language its common and ordinary meaning as a

reasonable person in the position of the [plan] participant, not

the actual participant, would have understood the words 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 excluded as a covered

service in the plan and nowhere in the plan is it included 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, only for the following

conditions: [multiple myeloma is not listed].” Paragraph seven states:

“Preauthorization will be denied, and Benefits will not be provided, for

autologous bone marrow transplants for any other cases, such as: . . . e) multiple

myeloma.” Contrary to the district court findings, we conclude that this language

unambiguously excludes autologous bone marrow transplants. 

 However, we find that high dose chemotherapy is not 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 clause of the policy. See McGee,

953 F.2d at 1205; Blair, 974 F.2d at 1221; Jenkins v. Montgomery Indus. Inc., 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 failed to sustain burden of

proving loss came within scope of exclusionary clause). 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 inclusion of chemotherapy as a

general covered service, it would take a very clear exclusion of a particular

application of chemotherapy to remove that application as a covered service. 
- 15 -

Paragraph seven listed under the heading “Benefits” in the amendment excludes

only autologous bone marrow transplants. Nowhere in that paragraph is the

associated high-dose chemotherapy excluded from coverage. Paragraph six

includes autologous bone marrow transplants with high-dose chemotherapy but

only for certain conditions not present here. Nevertheless, 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 transplant services will be

covered, this language does not narrow the explicit inclusion of chemotherapy

elsewhere in the policy. Blue Cross has thus failed to carry its burden of showing

that the high-dose chemotherapy fell within an exclusionary 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 policy unambiguously excluded

the autologous bone marrow transplant, and thus Blue Cross correctly declined to

pay the costs associated with that portion of the procedure. We therefore affirm

in part and reverse in part.
- 16 -

III. Attorney Fees

The district court awarded Pitman $64,500 in attorney’s fees under 29

U.S.C. § 1132(g)(1). The statute provides in pertinent part that “[i]n any action

under this subchapter . . . by a participant, beneficiary, or fiduciary, the court in

its discretion may allow a reasonable attorney’s fee and costs of action to either

party.” 29 U.S.C. § 1132(g)(1). Under this section, “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.” Gordon 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 Pitman was entitled to attorney’s

fees, we believe it is necessary to remand the issue to the district court and have it

review again the appropriateness of awarding attorney’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. See Gordon, 724 F.2d at 109 (listing

the five factors a district court should consider in determining whether to award

attorney’s fees under section 1132(g)(1) and implicitly recognizing that the

relative merits alone is not dispositive of the issue). However, because the

situation has changed since the district court last addressed 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).