United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 97-2055

___________ Beverly D. Woo, *
* Appellant, *
*
v. * Appeal from the United States
* District Court for the Deluxe Corp., Hartford Life Insurance * District of Minnesota. Co., doing business as ITT Hartford, * Inc., sued as Hartford Life * Insurance Co., *
* Appellees. *

_____________ *
* Scleroderma Federation, Scleroderma * Federation of Minnesota, Scleroderma * Research Foundation, United * Scleroderma Foundation, and * Thomas Medsger, Jr., M.D., *
* Amicus Curiae. *

___________ Submitted: November 19, 1997 Filed: May 26, 1998

___________ Before BEAM, HEANEY, and JOHN R. GIBSON, Circuit Judges.

___________Systemic scleroderma is a "disorder of the connective tissue characterized by 1 induration and thickening of the skin, by abnormalitie s . . . and by fibrotic degenerative changes in various body organs, including the heart, lungs, kidneys, and gastrointestinal tract." D orland's Illustrated Medical Dictionary 1495 (28th ed. 1994) "The condition is usually slowly progressive over many years, and death is usually due to renal o r cardiac failure or to sepsis." Stark v. Weinberger , 497 F.2d 1092, 1094 n.1 (7th Cir.
-2- BEAM, Circuit Judge.
Beverly Woo appeals the di strict court's grant of summary judgment to Hartford Life Insurance Company (Hartford) and Deluxe Corporation (Deluxe). Woo brought suit under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132(a)(1)(B), seeking judicia l review of Hartford's denial of her claim for long-term disability benefit s. Woo also contends that Deluxe breached its fiduciary duties under ERISA and breached a con tract to pay her short-term disability benefits. We affirm in part, reverse in part, and remand for entry of judgment in Woo's favor.

I. BACKGROUND

From Febru ary 1978 to November 1993, Woo worked at Deluxe where sh e received numerous promotions because of her exceptional performance. When sh e resigned from Deluxe, she was the Director of Product Research and Development

. Woo achieved professional success despite suffering from multiple sclerosis. From its onset in 1980, her multiple sclerosis remained generally stable and did not significantly interfere with her daily activities. When her multiple sclerosis did relapse, she would

recover t hrough medication and rest. She never informed Deluxe of her conditio n because she did not want her abilities questioned. She also kept her condition a secret from many of her close relatives, including her two children.
In the summer of 1993, Woo began to experience the severe symptoms of an other potentially debilitating and fatal disease, systemic scleroderma. Her symptoms 11974).
-3-

includedsevere fatigue, stiff joints, arthritis-like pain, and a loss of concentration and memory. She continued to work duri ng this period, but her duties became increasingly difficult to complete and her performance progressively deteriorated. For example , Woo fai led to complete a routine business action plan. Her failure to complete tha t project prompted a supervisor, who had previously viewed her as a solid and competent work er, to consider changing her job duties. Her condition also compelled her t o discontinue her normal practice of bringing work home at night.

In a n effort to conserve her energy, Woo significantly limited her non-wor k activities. For example, she moved her clothes and make up downstairs, where she took naps in the fam

ily room to avoid trips to her second-floor bedroom. Her colleagues at Deluxe also noticed these physical problems. She no long er joined the others for lunch, she had problems using the stairs, she had trouble conc entrating, she appeared tired and

emo tionally drained, she had difficulty completing her projects, and her gait ha d changed.
As these symptoms progressed, Woo visited various do ctors. The record reveals at least ten consultations with physicians between April and Novemb er of 1993. During thes e consultations, Woo complained of common scleroderma symptoms, including , difficult y swallowing, sensory problems, swelling, loss of strength, lack o f coordina tion, ear pain, stiff joints, and trouble walking. However, no diagnosis wa s made.

There is no record evidence that, prior to leaving Deluxe, Woo asked any of her doctor s whether she was disabled. Likewise, her doctors did not volunteer tha t determination.-4-

On November 5, 1993, Woo resigned from Deluxe. She did not reveal he r medic al problems during her exit interview, nor did she refer to her medical condition in her departure paperwork. Ron Von De Linde, the Deluxe plant manger who-5-

conducted her exit interview, indicated in his notes that she was leav ing to "pursue other opportuni ties." On a questionnaire, however, Woo wrote, "In good conscience, I find it inaccurate to call this a voluntary separation on my part."

On Februa ry 15, 1994, Woo was finally examined by a doctor experienced i n treati ng people with scleroderma. Dr. Gerald Mullin immediately diagnosed he r conditio n and stated that, based on his review of her medical records, she ha d scleroderma symptoms as early as the summer of 1993 and was disabled before leaving Delux e. After reviewing his prior notes, Woo's medical records, and Dr. Mullin' s records, Woo's treating neurologist, Dr. Randall Schapiro, also concluded that Wo o "was disabled from the combination of problems back in September of 1993."
Woo applied for Social Security disability benefits and benefits under the Deluxe Group Long-Term Disability Plan (LT DP). Woo never formally applied for short-term disabi lity benefits under the Weekly Salary Plan, which is contained in Deluxe' s empl oyee handbook. The Social Security Administration ultimately approved he r application for benefits. Hartford, administrator of the LTDP, denied her claim and two subsequent appeals stating that she was not disabled when she resigned from Deluxe.

On appeal, Woo first asserts th at the district court erroneously granted summary judgm ent on her ERISA claim against Hartford under 29 U.S.C. § 1132 (a)(1)(B) and he r alternative claim for breach of fiduciary duty against Deluxe under section 113 2 (a)(3). Woo additionally contends that she is entitled to costs and attorneys' fees on her ERISA claims. Finally, Woo asserts that the district court erroneously granted summary judgment on her contract claim against Deluxe.-6-

II. DISCUSSION

A. Long-Term Disability Benefits

Woo asserts that she is entitled to disability benefits under the LTDP, which is administered by Hartford and governed by ERISA. The distric t court held that Hartford did not abuse its discretion in concluding that Woo was not disabled when she resigned from Deluxe and granted Hartford's motion for summary judgment.

1. Standard of Review

We review a district court's grant of summary judgment de novo, viewing th e record in the light most favora ble to the nonmoving party. See Donaho v. FMC Corp. , 74 F.3d 894, 897 (8th Cir. 1996). Thus, we review de novo the district court' s determination of the appropriate standard of review.
ERISA provides a plan bene ficiary with the right to judicial review of a benefits determination. See 29 U.S.C. § 1132(a)(1)(B). Where a plan gives the administrator "discretionary authority to determine eligibility for benefits," we review th e ad ministrator's decision for an abuse of discretion. Firestone Tire & Rubber Co. v

. Bruch , 489 U .S. 101, 115 (1989). Woo does not dispute that the LTDP provide s Hartford with discretionary authority to determine benefit eligibility.

Woo asse rts that we should not review Hartford's decision under the traditional abuse of discreti on standard because of procedural irregularities and because Hartford has a confl ict of interest. To obtain a less deferential review, Woo must presen t material, probative evidence demonstrating that (1) a palpable conflict of interest or a serious pr ocedural irregularity existed, which (2) caused a serious breach of the pla n administrator's fiduciary duty to her. See Buttr am v. Central States, S.E. & S.W. Areas Hea lth & Welfare Fund , 76 F.3d 896, 900 (8th Cir. 1996). To satisfy the second partWe note that not every funding conflict of interest per se warrants heightened 2 review. For example, an insurer could limit a potential underwriting loss with a retrospective premium, thus decreasing the impact of the financial conflict.
-7- of this requirement, Woo must only show that the conflict or procedural irregularity has "some co nnection to the substantive decision reached." Id. at 901; see also Layes v

. Mead Corp. , 132 F.3d 1246, 1250 (8th Cir. 1998). Our inquiry thus turns to whether Woo's evidence satisfies this two-part gateway requirement. We find that it does.
Woo presented evid ence showing that Hartford has a financial conflict. Deluxe sponsors and funds the LTDP during the first two ye ars of a qualifying disability. After that two- year period, Hartford insures the plan for the remaining period of disability

. Ac cordingly, when Hartford, as plan administrator, denies benefits, it will receive a direct financial benefit as plan insurer, if the disability extends beyond two years

. More over, Hartford denied Woo's claim without seeking any independent medica l review. Under these facts, we find that Woo has shown a sufficient co nnection between Hartford's f

inancial conflict and the denial of her benefits to trigger a less deferentia l review. See Buttram , 76 F.3d at 900-01. 2

Woo add itionally presented evidence that Hartford merely had an in-hous e medical consultan t review Woo's claim for benefits. We interpret this as an allegation that Hartford has failed to use proper judgment or thoroughlyinvestigate her claim. See Restateme nt

(Second) of Trusts § 187 cmt. h (1959). Hartford argues that it had n o duty to have a scleroderma specialist review her claim because the contemporaneou s notes of the physicians that treated her pr ior to November 5, 1993, made no mention of disability.

Howeve r, Hartford was confronted with medical evidence of an uncommo n disease and the opinions of two treating physicians stating that, in retrospect, Woo had been disabled from her job before she resigned. We hold that, under these-8-

ci rcumstances, Hartford failed to use proper judgment by not having a scleroderm a expert review her claim. See Hightshue v. AIG Life Ins. Co. , 135 F.3d 1144, 1148 (7th Cir. 1998). This serious procedural irregularity also had a sufficient connection to the decision reached to trigger a less deferenti al review because Hartford's "actual decision was reached without reflection and judgment." Buttram , 76 F.3d at 901.
Having concluded that Woo has presented evi dence warranting a less deferential standard of review, we must next determine what standard to apply. The Suprem e Court has not specifically addressed this issue. In dicta, the Court has stated, "if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a 'facto[r] in determining whether there is an abuse of discretion.'" Firestone , 489 U.S. at 115 (quoting Restatemen t (Second) of Trusts § 187 cmt. d (1959)). Some courts have interpreted this language to mean that a reviewing court wil l always review for an abuse of discretion, but it will decrease the deference given to the administrator in proportion to the seriousness of the conflict of interest or procedural irregularity. See, e.g. , Chambers v. Family Health Plan Corp. , 100 F .3d 818, 825-27 (10th Cir. 1996) (adopting the "sliding scale" approach). Others p resume that the administrator's decision is an abuse of discretion unless th e administrator

can demonstrate that either (1) under de novo review, the correct result was reached, or (2) the decision was not made to serve the adminis trator's interest. See, e.g. , Brown v. Blue Cross & Blue Shield , 898 F.2d 1556, 1566-67 (11th Cir. 1990 ) (adopting the "presumptively void" approach).

Based on our review of Firestone , we adopt the "sliding scale" approach. This approach more clo sely comports with Firestone because it requires the courts to apply

an abuse of discretion analysis, taking into consideration the conflict or procedura l irregularity. The abuse of discretion standard is inherently flexible, which enable s reviewing co urts to simply adjust for the circumstances. See Chambers , 100 F.3d a t 827. Moreover, the "sliding scale" analysis also adheres to our decision in Armstrong v. Aetna Life Ins. Co. , 128 F.3d 1263, 1265 (8th Cir. 1997), where the egregiousI n

light of the district court's failure to apply a less deferential standard o f 3
re view, remand would ordinarily be appropriate. In this case, however, remand i s unnecessary because we find that th e record contains the evidence that Hartford relied upon in deny ing Woo's claim and that evidence not only provides insufficient support for Hartford's deci sion, but the record contains overwhelming contrary evidence. See Donaho v. FMC Corp. , 74 F.3d 894, 901 (8th Cir.1996) (reversing district court and awarding partial benefits).
-9- circumstances essen tially required the court to give no deference to the administrator's decision. We next review Hartford's decision to deny Woo's claim for benefits under this standard. 3

2. Hartford's Decision to Deny Benefits

Unde r the traditional abuse of discretion standard, the plan administrator' s decision to deny benefits will stand if a reasonable person could have reached a similar dec ision. See Donaho , 74 F.3d at 899-900. In determining reasonableness, we focus

on whether the decision is supported by substantial evidence, which is "more than a scintilla but less than a preponderance." Id. at 900 n.10 (ci tation and quotation omitted). Thus, applying the "sliding scale" approach, the evidence supporting the pla n administrator's decision must increase in proportion to the seriousness of the conflict or procedural irregularity. See Ellis v. Metropolitan Life Ins. Co. , 126 F.3d 228, 233 (4th Cir. 19 97). Here, we find Hartford's failure to use proper judgment, when combine d with the financial conflict, to be egregious conduct. We will t hus require that the record contain substantial evidence bordering on a preponderance to uphold Hartford' s decision.

Becaus e Woo did not submit her claim until March 4, 1995, Hartford did no t have the opportunity to conduct a medical examination during the insured period

. Consequently, Hartford based its decision on Woo's claim form, her medical records, the opinions of her doctors, the papers related to her resignation, the opinion of-10-

Ha rtford's in-house medical consultant, and affidavits from her co-workers at Deluxe. We have thoroughly reviewed the evidence and find it insufficient to support Hartford's determination that Woo was not disabled when she resigned.
The LTDP defines disability as being "prevented by accidental bodily injury or sickness from doing all the material and substantial duties of your own occupation. " According to Deluxe's job description manual, Woo's job required her to have a quantita tive ability to analyze market research data, strategic planning skills, stron g verbal and communication skills, organizat ional skills, and a "disciplined enthusiasm to balance the creative and practical aspects of the work."

Hartford's decisi on relies heavily on Woo's failure to mention her condition as a reason for leaving Deluxe. This failure does not support Har tford's position because the

re cord shows that Woo had never disclosed her multiple sclerosis to Deluxe and tha t she had routinely kept her health problems private. Hartford also relies on the fact that Woo's treating physicians never determined that she was disabled prior to resignin g fro m Deluxe. This evidence similarly provides little support for Hartford's decisio n becau se Woo never asked them to determine if she was disabled. This evidence i s further diluted by the retrospective disability determinatio ns provided by Dr. Mullin and Dr. Schapi ro. See Dodson v. Woodmen of the World Life Ins. Soc'y , 109 F.3d 436 , 439 (8th Cir. 1997) (giving more deference to the opinion of a treating physician)

. Mo reover, all of Woo's treating physicians connected the physical problems that sh e experienced during the insured period to her eventual diagnosis of scler oderma. Despite this medical evidence, Hartford denied her claim without having it reviewed by a n appropriate expert. See Gu nderson v. W.R. Grace & Co. , 874 F.2d 496, 499 (8th Cir. 1989).

For the foregoing reasons, we do not find sufficient support in the record fo r Hartford's determination that Woo was not disabled when she left Deluxe. WeIn light of this holding, we need not address Woo's fiduciary duty claim against 4 Deluxe.
-11- therefore reverse and remand to the district court with directions to enter a judgmen t awarding Woo long-term disability benefits. 4

B. Short-Term Disability Benefits under the Deluxe Weekly Salary Plan

We review de novo Woo's contention that the district court erred in grantin g Deluxe summary judgment on her state law claim for short-term disability benefits. See Vrban v. Deere & Co. , 129 F.3d 1008, 1009 (8th Cir. 1997). We find no error.

Woo contends that she is entitl ed to pay under the Weekly Salary Plan, which is contained in Deluxe's employee handbook. However, in order to obtain paid leave for

a non -occupational illness, the plan provides that, "[y]ou must notify your manage r promptly when you are absent because of illness or injury." The plan a lso provides that, "[m]anagers must approve or disapprove of all time off in their depart ments." Assuming that the employee handbook creates a binding contract, we interpr et it to require eligible employee s to notify their managers promptly of an absence caused by a non

occupational illness before Deluxe has an obligat ion to pay benefits. Here, Woo failed to notif y Deluxe that her absences were due to her illness until, at the earliest , September of 1994. Consequen tly, Deluxe had no obligation under the Weekly Salary Plan.

III. CONCLUSION
After reviewing Hartford's denial of Woo's claim for long-term disability benefits under a modified abuse of discretion standa rd, we find that the decision lacks sufficient support in the record. Accordingly, we reverse and remand to the district court with-12-

instructions to enter judgment in fa vor of Woo. We affirm the district court's judgment with respect to Woo's contract claim against Deluxe.

A true copy.

Attest:

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