Opinion ID: 683609
Heading Depth: 2
Heading Rank: 1

Heading: Standard of Review Used by the District Court

Text: 28 Blue Cross first takes issue with the district court's decision not to apply the deferential arbitrary and capricious standard of review. In deciding this case, the threshold question for the district court was the proper standard of review to apply to Blue Cross's denial of Lungarella's claim. The Supreme Court has held that, as a general matter, courts should review claims administrators' denials of ERISA benefits under a de novo standard. Firestone v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). In Firestone, the Court held that the arbitrary and capricious standard of review is often too lenient in that it would afford less protection to employees and their beneficiaries than they enjoyed before ERISA was enacted. Id. at 113-14, 109 S.Ct. at 956 (citations omitted). 29 The Firestone decision provided for the use of the arbitrary and capricious standard only in the specific case where the plan document explicitly vests the claims administrator with discretion to construe disputed or doubtful terms. Id. at 111, 109 S.Ct. at 954. However, deference in such situations is greatly diminished when the claims administrator is acting under a conflict of interest. Id. at 115, 109 S.Ct. at 957. This court has held that when a conflict of interest is apparent, the burden shifts to the fiduciary to prove that its interpretation of plan provisions committed to its discretion was not tainted by self-interest. Brown v. Blue Cross & Blue Shield of Alabama, Inc., 898 F.2d 1556, 1566 (11th Cir.1990) (citations omitted), cert. denied, 498 U.S. 1040, 111 S.Ct. 712, 112 L.Ed.2d 701 (1991). 30 In addition, this court recently delineated the analysis to be used in deciding cases like the present. See Lee v. Blue Cross/Blue Shield of Alabama, 10 F.3d 1547, 1549-52 (11th Cir.1994). First, a court must establish whether the claimant has proposed a reasonable interpretation of the plan under which he could be covered. Id. at 1550. If the plan grants the claims administrator discretion to interpret disputed provisions, however, the next step is to consider whether the claims administrator's interpretation was arbitrary and capricious. Id. at 1550. If the claimant has established a reasonable interpretation, then under contra proferentem, which requires ambiguities to be construed against the drafter of a document, the claimant's interpretation is taken as correct. Id. at 1551. 4 Where no conflict of interest is present, a claims administrator's wrong but reasonable interpretation will not be found arbitrary and capricious. Id. at 1550. However, if a conflict of interest is established, the burden shifts to the administrator to prove that his or her interpretation of the plan was not tainted by self-interest. Id. 31 In the present case, the district court heard the testimony of Holloway and spent a significant amount of time considering the possibility of a conflict of interest. The district court chose to discount Holloway's evaluation and subsequent testimony due to a number of conflicts. The first conflict noted by the district court was Blue Cross's desire to maintain its business relationship with the employer-insurer. Holloway's testimony established that Intergraph is Blue Cross's customer; that Intergraph pays Blue Cross fees for its services; and that Blue Cross likes to please its customers. RIII-74-39, 40. Holloway further testified that she understood that Intergraph could fire Blue Cross at any time for any reason. Id. at 44. The district court noted that each week Intergraph deposits $93,000 with Blue Cross and stated that this provided ample self-interest for Blue Cross to please Intergraph. 32 The second conflict found by the district court was Blue Cross's strong pecuniary interest in the narrow interpretation of the relevant provisions of the Plan. Holloway testified that it did not matter whether Blue Cross was the insurer or whether an employer is the actual insurer because if two different plans have exactly the same provision, she would interpret it the same way in both plans. RIII-74-47. Thus, Blue Cross's obligation to interpret contracts consistently means that the precedential effect of this decision would affect innumerable contracts that Blue Cross insures containing identical language. Accordingly, the district court found that Blue Cross is not an unbiased decision-maker when it interprets these provisions. 33 The third conflict found by the district court was that when the claims administrator rendered her administrative decision in this case, the claims administrator was fully aware that her employer had already engaged in two years of litigation in which it was fighting to deny this claim. This is evidenced by some procedural irregularities in Holloway's processing of the claim. Holloway's task was explained to her by a Blue Cross attorney from its in-house legal department who was intimately involved in advocating Blue Cross's position throughout this litigation. RIII-74, 54-55. This lawyer also assisted Holloway in editing her administrative opinion. RIV-74-287, 288. 34 Suffice it to say that our review of the record persuades us that there is ample evidence to support the district court's findings of a conflict of interest. We decline to overturn these findings because they are not clearly erroneous. See Pullman-Standard v. Swint, 456 U.S. 273, 287, 102 S.Ct. 1781, 1789, 72 L.Ed.2d 66 (1982). 35 Moreover, we are unimpressed with Blue Cross's argument on appeal; the mere fact that Blue Cross is compensated only for claims that it pays, as opposed to claims that it denies, like the one at issue here, cannot be used as an all-powerful talisman to ward off any possible conflict of interest charge. Certainly, in a case like this, in which the supposedly objective claims administrator is taking ex parte advice from the lawyer who is representing Blue Cross in front of her, Blue Cross's reliance on its fee arrangement with Intergraph as its sole response to the charge of conflict of interest is rightly discounted. 36 In sum, we hold that Blue Cross is not entitled to the deferential arbitrary and capricious standard of review. It is Blue Cross's burden to prove that its decision is not tainted by self-interest and Blue Cross has failed to meet its burden.