REVISED, August 12, 1998
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 97-10491
_____________________
ANITA SCHADLER,
Plaintiff-Appellant,
v.
ANTHEM LIFE INSURANCE COMPANY; ANTHEM BENEFIT SERVICES INC;
ACORDIA BENEFITS OF THE SOUTH, INC; ALLIED SIGNAL, INC;
ALLIED SIGNAL TECHNICAL SERVICES CORPORATION; ALLIED SIGNAL
TEAM/WHITE SANDS,
Defendants-Appellees.
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________________________________________________
July 17, 1998
Before KING and BARKSDALE, Circuit Judges, and DUPLANTIER,*
District Judge.
KING, Circuit Judge:
In this case under the Employee Retirement Income Security
Act, plaintiff-appellant Anita Schadler appeals the district
court’s determination that she is ineligible to receive benefits
under her husband’s accidental death and dismemberment policy
based upon an exclusion asserted by defendants-appellees for the
first time on appeal to the district court. Because we conclude
that the plan administrator failed to make the initial benefits
*
District Judge of the Eastern District of Louisiana,
sitting by designation.
determination as required by the plan, we vacate the judgment of
the district court and remand with instructions to remand to the
plan administrator to make the necessary benefits decision in the
first instance.
I. FACTUAL & PROCEDURAL BACKGROUND
Prior to May 1994, James T. Schadler (Mr. Schadler), the
late husband of plaintiff-appellant Anita Schadler (Mrs.
Schadler), worked as an engineer for Lockheed Corporation
(Lockheed) at the White Sands Test Facility in New Mexico. In
May 1994, defendant-appellee Allied Signal Team/White Sands
(Allied) replaced Lockheed as the contractor operating the White
Sands facility, and Mr. Schadler thereby became an employee of
Allied on May 3, 1994.
As part of his employment, Allied offered Mr. Schadler a
package of employee benefits (the Plan). One option included in
the Plan was a voluntary accidental death and dismemberment
policy (the VAD&D Policy). Defendant-appellee Anthem Insurance
Company (Anthem) underwrote and administered the VAD&D Policy and
defendant-appellee Acordia Benefits of the South, Inc. (Acordia)
served as its third-party administrator. The VAD&D Policy
provided that Mr. Schadler could enroll upon submitting the
appropriate paperwork and agreeing to make certain premium
payments.
On May 12, 1994, Mr. Schadler died as a result of a mixed-
drug intoxication. His autopsy revealed a recent needle puncture
that was not associated with resuscitative efforts, and a
2
toxicologic examination of his body fluids revealed “cocaine,
Desipramine, and markedly elevated levels of morphine.” Mr.
Schadler had a history of drug abuse.
Following Mr. Schadler’s death, Mrs. Schadler sought payment
under various policies included in the Plan, including the VAD&D
Policy. In a letter dated April 24, 1995, Anthem explained that
Mrs. Schadler was not entitled to recover under the VAD&D Policy
because it had never received an enrollment card from Mr.
Schadler and had not billed him for coverage under the VAD&D
Policy. Anthem therefore concluded that “no VAD&D policy was
ever issued to James L. Schadler.”1
Following Anthem’s determination that Mr. Schadler was not
covered by the VAD&D Policy, Mrs. Schadler timely filed this
action against defendants-appellees Anthem, Anthem Benefit
Services, Inc., Acordia, Allied, Allied Signal, Inc., and Allied
Signal Technical Services Corporation (collectively, Defendants)
pursuant to the Employee Retirement Income Security Act of 1974
(ERISA), 29 U.S.C. §§ 1001-1461.2 She contended in her complaint
1
Anthem also stated in the letter that Mrs. Schadler was
not entitled to recover under an optional life insurance policy
(the OLI Policy) or under a separate accidental death and
dismemberment policy that was funded by Mr. Schadler’s employer
(the AD&D Policy). Anthem denied coverage on the OLI Policy
because “no Anthem Voluntary Life insurance product was offered”
to Mr. Schadler. It denied payment on the AD&D policy on the
basis of a provision excluding recovery for deaths resulting from
“the taking of drugs or poisons . . . when done on a voluntary
basis” unless those drugs “are taken on the advice of a
physician.”
2
In her complaint, Mrs. Schadler also challenged the
denial of benefits under the OLI Policy and under the AD&D
Policy. The parties settled the dispute over the AD&D Policy
3
that Mr. Schadler had completed and returned the VAD&D Policy’s
enrollment card, and she argued that Anthem’s failure to receive
the enrollment card was due to an “inadvertent error, omission or
failure” on the part of Allied, for which the Plan indicated that
an employee may not be deprived of coverage.
On March 6, 1996, Defendants moved for summary judgment,
arguing that “no application or premium was ever received and no
coverage was ever in force for a VAD&D policy.” In the
alternative, Defendants argued for the first time that, even if
the VAD&D Policy had been in force, recovery was precluded by
several exclusions contained therein, which they described as
follows:3
- Intentionally self-inflicted injuries, or any attempt
thereof, while sane or insane.
- The taking of drugs or poisons or asphyxiation from
the inhaling of gas, when done on a voluntary basis.
(This does not apply to drugs that are taken on the
advice of a physician).
For reasons that remain unclear, in Defendants’ Supplemental
Motion for Summary Judgment they began to abandon their original
lack of coverage defense, stating that, “[r]egardless of whether
before trial. In her brief on appeal, Mrs. Schadler does not
contest the denial of coverage under the OLI Policy, and we
therefore do not address that claim here. See Brinkmann v.
Dallas County Deputy Sheriff Abner, 813 F.2d 744, 748 (5th Cir.
1987).
3
Defendants’ also contended that Mrs. Schadler was not
entitled to recover based on an exclusion for death or
dismemberment resulting from “committing or attempting to commit
an assault or felony.” However, they no longer assert this
exclusion as a basis for their denial of Mrs. Schadler’s claim
under the VAD&D Policy, and we therefore need not address it.
See Brinkmann, 813 F.2d at 748.
4
James Schadler properly enrolled for the benefits in dispute, it
is undisputed that the summary and plan at issue included
language specifically excluding benefits for intentionally self-
inflicted injury.” Moreover, Defendants’ Proposed Findings of
Fact and Conclusions of Law did not mention the lack of coverage
defense, stating only that Mr. Schadler’s death was excluded from
coverage based on the intentionally self-inflicted injury and
drug-use exclusions. In response, Mrs. Schadler argued that
Defendants could not rely on the drug-use exclusion because it
was not listed in the Summary Plan Description (SPD). She also
contended that Defendants should not be allowed to rely on the
intentionally self-inflicted injury exclusion because they did
not assert it until they moved for summary judgment in the
district court.
The district court denied Defendants’ motion for summary
judgment. Following a bench trial consisting of the admission of
depositions, affidavits, and other exhibits and of closing
arguments by counsel, the district court determined that circuit
precedent dictated that Defendants could not deny Mrs. Schadler
benefits based upon the drug-use exclusion because it was not
listed in the SPD. The court nevertheless found that she was
ineligible to receive benefits under the VAD&D Policy because Mr.
Schadler’s death was the result of illicit drug use, which the
court found constituted an intentionally self-inflicted injury
and was therefore excluded from coverage. Mrs. Schadler timely
appealed the judgment of the district court.
5
II. DISCUSSION
Mrs. Schadler argues that the district court erred in
finding that she was not entitled to benefits. She first
contends that ERISA and the regulations promulgated pursuant to
it dictate that Defendants should not have been allowed to assert
the intentionally self-inflicted injury exclusion for the first
time before the district court. Alternatively, Mrs. Schadler
asserts that even if Defendants are allowed to rely on the
intentionally self-inflicted injury exclusion, it does not
preclude her recovery because Mr. Schadler did not intend to
injure himself.
Defendants respond that they have asserted the same factual
basis for denying the claim throughout the process and that Mrs.
Schadler therefore was not prejudiced by their reliance on the
intentionally self-inflicted injury exclusion for the first time
before the district court. In addition, they argue that the
district court’s decision that the intentionally self-inflicted
injury exclusion precluded recovery is correct.4 Following a
4
Alternatively, Defendants argue that the district court
incorrectly determined that they were foreclosed from relying on
the drug-use exclusion. In Hansen v. Continental Insurance Co.,
940 F.2d 971 (5th Cir. 1991), we held that where the SPD and the
terms of the plan conflict, the SPD controls. Id. at 982.
However, we reserved for another day the issue of whether an
ERISA claimant must show reliance on the terms of the SPD in
order to benefit from the terms within it that conflict with the
plan. Id. at 983. Defendants now assert that this court should
follow the majority of other circuits and hold that in order for
the SPD to control when in conflict with terms contained within
the plan, the plaintiff must prove that she relied on the SPD.
However, Defendants failed to include this issue in the parties’
Joint Pre-Trial Order, and they now raise it for the first time
on appeal. “‘Once the [pretrial] order is entered, it controls
6
brief discussion of the law surrounding suits challenging denials
of benefits under ERISA, we address each of these arguments in
turn.
A.
As the Supreme Court has explained, “ERISA was enacted ‘to
promote the interests of employees and their beneficiaries in
employee benefit plans’ and ‘to protect contractually defined
benefits.’” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101,
113 (1989) (citations omitted) (quoting Shaw v. Delta Airlines,
Inc., 463 U.S. 85, 90 (1983) and Massachusetts Mutual Life Ins.
Co. v. Russell, 473 U.S. 134, 148 (1985), respectively).
Therefore,
ERISA sets certain minimum requirements for procedures
and notification when a plan administrator denies a
claim for benefits. In a nutshell, ERISA requires that
specific reasons for denial be communicated to the
claimant and that the claimant be afforded an
opportunity for “full and fair review” by the
administrator.
Halpin v. W.W. Grainger, Inc., 962 F.2d 685, 688 (7th Cir. 1992).
These procedures are set forth in § 1133 of ERISA and in the
Department of Labor regulations promulgated pursuant to that
section. Section 1133 provides:
the scope and course of the trial. Fed. R. Civ. P. 16. If a
claim or issue is omitted from the order, it is waived.’” Valley
Ranch Dev. Co. v. FDIC, 960 F.2d 550, 554 (5th Cir. 1992)
(alteration in original) (quoting Flannery v. Carroll, 676 F.2d
126, 129 (5th Cir. 1982)). Moreover, the fact that the district
court mentioned reliance in a footnote is not sufficient to
permit Defendants to argue it before this court because the
record reveals that it was not litigated below. Accordingly, we
conclude that Defendants have failed to preserve any challenge to
the district court’s determination that they are precluded from
relying on the drug-use exclusion to deny benefits in this case.
7
In accordance with regulations of the Secretary,
every employee benefit plan shall--
(1) provide adequate notice in writing to any
participant or beneficiary whose claim for
benefits under the plan has been denied, setting
forth the specific reasons for such denial,
written in a manner calculated to be understood by
the participant, and
(2) afford a reasonable opportunity to any
participant whose claim for benefits has been
denied for a full and fair review by the
appropriate named fiduciary of the decision
denying the claim.
29 U.S.C. § 1133. The Department of Labor Regulations further
elaborate on § 1133(1)’s notice requirement. Section 2560.503-
1(f) of Title 29 of the Code of Federal Regulations provides as
follows:
(f) Content of notice. A plan administrator or,
if paragraph (c) of this section is applicable, the
insurance company, insurance service, or other similar
organization, shall provide to every claimant who is
denied a claim for benefits written notice setting
forth in a manner calculated to be understood by the
claimant:
(1) The specific reason or reasons for the
denial;
(2) Specific reference to pertinent plan
provisions on which the denial is based;
(3) A description of any additional material or
information necessary for the claimant to perfect the
claim and an explanation of why such material or
information is necessary; and
(4) Appropriate information as to the steps to be
taken if the participant or beneficiary wishes to
submit his or her claim for review.
29 C.F.R. § 2560.503-1(f).
Because ERISA and the regulations promulgated pursuant to
it “‘were intended to help claimants process their claims
efficiently and fairly,’” Short v. Central States, Southeast &
Southwest Areas Pension Fund, 729 F.2d 567, 575 (8th Cir. 1984)
(quoting Richardson v. Central States, Southeast & Southwest
8
Areas Pension Fund, 645 F.2d 660, 665 (8th Cir. 1981)), the
“requirement that the [administrator] disclose the basis for its
decision is necessary so that plan beneficiaries ‘can adequately
prepare . . . for any further administrative review, as well as
an appeal to the federal courts,’” Matuszak v. Torrington Co.,
927 F.2d 320, 323 (7th Cir. 1991) (alteration in original)
(quoting Richardson, 645 F.2d at 665). See also Halpin, 962 F.2d
at 689 (“[T]hese regulations are designed to afford the
beneficiary an explanation of the denial of benefits that is
adequate to ensure meaningful review of that denial.”). Courts
therefore have held that ERISA and its regulations require that,
when a plan administrator denies a claim, it must “‘issue a
written opinion that includes specific reasons for the decision.
Baldfaced conclusions do not satisfy this requirement.’” Short,
729 F.2d at 575 (quoting Richardson, 645 F.2d at 665).
In determining whether to pay or deny benefits, a plan
administrator must make two general types of determinations:
“First, he must determine the facts underlying the claim for
benefits. . . . Second, he must then determine whether those
facts constitute a claim to be honored under the terms of the
plan.” Pierre v. Connecticut Gen. Life Ins. Co./Life Ins. Co. of
N. Am., 932 F.2d 1552, 1557 (5th Cir. 1991). The requirement
that the administrator must give reasons for its benefits
decision applies to these two types of determinations.
When a plan has denied benefits to a claimant, § 1132 of
ERISA provides that the claimant may bring a suit in federal
9
district court “to recover benefits due to him under the terms of
his plan.” 29 U.S.C. § 1132(a)(1)(b). In Firestone Tire &
Rubber Co. v. Bruch, the Supreme Court delineated the appropriate
standards of review of the plan administrator’s second decision--
i.e., its interpretation of the provisions of the plan. 489 U.S.
101, 108 (1989). Relying on principles of trust law, the 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.” Id. at 115; see also Sweatman v. Commercial Union
Ins. Co., 39 F.3d 594, 597-98 (5th Cir. 1994); Wildbur v. ARCO
Chem. Co., 974 F.2d 631, 636 (5th Cir.), modified on other
grounds, 979 F.2d 1013 (5th Cir. 1992). Where a plan does vest
the administrator with such discretionary authority, courts
review the decision under the more deferential abuse of
discretion standard.5 Barhan v. Ry-Ron, Inc., 121 F.3d 198, 201
5
Where the court must apply the abuse of discretion
standard to the administrator’s interpretation of the plan, we
have delineated a two-step inquiry for determining whether the
administrator’s decision will be affirmed.
The court must initially determine whether the
administrator’s interpretation of the plan is the
legally correct interpretation. If the administrator’s
interpretation of the plan is legally correct, then the
inquiry ends because no abuse of discretion could have
occurred. However, if the court determines that the
administrator’s determination is not legally correct,
then it must further determine whether the
administrator’s decision was an abuse of discretion.
Spacek v. Maritime Ass’n, ILA Pension Plan, 134 F.3d 283, 292-93
(5th Cir. 1998) (citation omitted) (citing Wildbur, 974 F.2d at
10
(5th Cir. 1997); Wildbur, 974 F.2d at 636. Finally, even when
the district court’s review of the administrator’s interpretation
of the provisions of the plan is limited by the use of a
deferential standard, we have held that the district court “is
not confined to the administrative record in determining whether,
under our analytical framework, [the] plan administrator abused
his discretion in making a benefit determination.”6 Wildbur, 974
F.2d at 639.
Bruch addressed only the second determination made by the
administrator, leaving open the question of what standard of
review should be applied to an administrator’s factual
determinations. See Bruch, 489 U.S. at 108 (noting that its
discussion was “limited to the appropriate standard of review in
§ 1132(a)(1)(B) actions challenging denials of benefits based on
plan interpretations” (emphasis added)); Pierre, 932 F.2d at 1557
(“Bruch addressed the proper standard of review that is to be
given to the plan administrator’s second determination. Bruch
did not speak to the first.”). As to the first determination--
the findings of fact--we have held that the administrator’s
decision should always be reviewed for an abuse of discretion.
Pierre, 932 F.2d at 1562; see also Southern Farm Bureau Life Ins.
Co. v. Moore, 993 F.2d 98, 101 (5th Cir. 1993). Moreover, the
637).
6
Other evidence that may be relevant to this
determination includes, for example, evidence indicating whether
the administrator’s interpretations of plan provisions have been
consistent. See Wildbur, 974 F.2d at 639 n.15.
11
reviewing court “should evaluate the administrator’s fact
findings regarding the eligibility of a claimant based on the
evidence before the administrator, assuming that both parties
were given an opportunity to present facts to the administrator.”
Wildbur, 974 F.2d at 639; see also Southern Farm Bureau, 993 F.2d
at 102.
In sum, ERISA and its regulations contemplate a system in
which the administrator makes a decision as to whether to grant
or deny benefits based on the factual scenario and based on its
interpretation of the relevant plan provisions. The
administrator then provides the claimant with notice of the
decision, including, among other things, the “specific reason or
reasons for the denial” and “[s]pecific reference to pertinent
plan provisions on which the denial is based.” 29 C.F.R.
§ 2560.503-1(f). If the administrator denies benefits, the
claimant may bring suit under § 1132. The district court will
then engage in a deferential review of the administrator’s
factual determinations, based on the record before the
administrator. Next, depending on whether the plan expressly
grants the administrator discretion in interpreting its terms,
the reviewing court will review the administrator’s
interpretation of the plan provisions either under a de novo or
an abuse of discretion standard. Thus, the end product of a
claims review process wherein § 1133 and its regulations have
been followed faithfully is a benefits decision that is
thoroughly informed by the relevant facts and the terms of the
12
plan and, if benefits are denied, includes an explanation of the
denial that is adequate to insure meaningful review of that
denial. Having laid out the proper procedures to be followed, we
now turn to an examination of how this process functioned in the
instant case.
B.
The Plan at issue in this case vests the administrator with
the discretion to interpret its terms.7 The administrator
determined that Mrs. Schadler was not entitled to recover because
the VAD&D Policy had never gone into effect and therefore had
never provided coverage for Mr. Schadler. Mrs. Schadler then
filed suit pursuant to § 1132, contending that the terms of the
Plan indicated that a beneficiary would not be penalized for his
employer’s failure to submit his enrollment documents properly.
Defendants moved for summary judgment, and they asserted for the
first time that even if the VAD&D Policy had been in effect as to
Mr. Schadler, coverage was precluded based on several exclusions
7
The Plan states: “Anthem Life Insurance Company
reserves the right to determine eligibility and construe the
terms of the Plan.” Although it does not include the term
“discretion,” this statement is adequate to vest the
administrator with the discretion to interpret the terms of the
Plan. See Wildbur, 974 F.2d at 637 (noting that the focus in
determining whether administrators have been granted discretion
to interpret the terms of the plan should be on “the breadth of
the administrators’ power--their ‘authority to determine
eligibility for benefits or to construe the terms of the plan’”
and not on an “incantation of the word ‘discretion’ or any other
‘magic word’” (quoting Block v. Pitney Bowes, Inc., 952 F.2d
1450, 1453 (D.C. Cir. 1992))).
13
contained in the VAD&D Policy, including one relating to
intentionally self-inflicted injury.8
Mrs. Schadler now argues that Defendants should be barred
from raising the intentionally self-inflicted injury exclusion
for the first time in the district court. Defendants respond
that the judgment of the district court should be affirmed
because they have relied on the same “factual basis” for their
denial of benefits throughout the process. For the reasons that
follow, we conclude that the case must be remanded to the
administrator so that it may exercise its discretion and
determine whether, under the circumstances of this case, the
intentionally self-inflicted injury exclusion prevents Mrs.
Schadler from recovering under the VAD&D Policy.
Mrs. Schadler argues that Defendants should not have been
allowed to assert the intentionally self-inflicted injury
exclusion for the first time before the district court because
ERISA and the regulations promulgated pursuant to it mandate that
when an employee benefit plan provides a claimant with notice
that her claim has been denied, it must specifically reference
the plan provision upon which the administrator relied in making
the decision to deny benefits. Mrs. Schadler contends that
because Defendants failed to specifically reference the
intentionally self-inflicted injury exclusion in their denial
8
The Plan’s intentionally self-inflicted injury
exclusion states: “No benefits will be paid for losses caused or
contributed to by: . . . (5) suicide, attempted suicide, or
intentionally self-inflicted injury, while sane or insane.”
14
letter, they have waived that exclusion and should have been
barred from raising it on appeal to the district court.9
We agree with Mrs. Schadler that, once the interpretation of
plan provisions becomes an issue, both the administrator and the
claimant should (1) adduce, at the earliest possible point in the
process, all possible reasons bearing on the granting or denial
of benefits under the plan and (2) develop the necessary factual
record so that those issues may be addressed and decided. Doing
so will ultimately further ERISA’s purpose of streamlining and
shortening the timeframe for disposing of claims. However,
whatever may be the case in other circumstances, we do not think
that a finding that Defendants have waived the intentionally
9
Relying on Hansen v. Western Greyhound Retirement Plan,
859 F.2d 779 (9th Cir. 1988), Defendants respond, and the
district court held, that no principle of estoppel precludes them
from changing the basis for their denial of benefits. Id. at 781
n.1. In Hansen, the Ninth Circuit held that “an employee benefit
fund may not be required by estoppel to make payments not
authorized by a written plan.” Id. at 781. In a footnote, the
court also noted that “[e]ven if Trust officials offered varying
explanations [for their denial of the plaintiff’s claim], their
confusion could not estop enforcement of the written plan
provisions.” Id. at 781 n.1. Hansen is inapposite to the case
at bar.
Hansen involved a claim for retirement benefits by a
plaintiff who, according to the written terms of the plan, was
ineligible to receive the benefits he sought. Id. at 781. The
Hansen claimant based his claim for equitable estoppel on his
reliance on a misrepresentation made to him by a plan official
regarding his eligibility. Id. In contrast, no one now disputes
that Mr. Schadler was eligible to receive benefits under the
terms of the Plan. Moreover, Mrs. Schadler advances no claim
that the Plan misled her husband as to his coverage, and, as she
points out, she is not asking the court to estop Defendants from
asserting the exclusion for equitable reasons. Rather, she
contends that because the Plan failed to assert the intentionally
self-inflicted injury exclusion in the first instance as a reason
for its denial of her claim, it has now waived that exclusion.
15
self-inflicted injury exclusion is warranted in the instant case.
This is not a situation in which the administrator asserted one
plan exclusion at the administrative level and trial counsel then
bolstered the administrator’s position before the district court
with other exclusions. Indeed, in denying the claim in the first
instance, the administrator advanced a non-frivolous argument
that the VAD&D Policy had never been in effect as to Mr.
Schadler. The administrator therefore was not called upon to
make any further benefits determinations or even to interpret the
terms of the Plan at all in concluding that Mr. Schadler was not
covered. See Vizcaino v. Microsoft Corp., 120 F.3d 1006, 1013
(9th Cir. 1997) (en banc) (remanding the case to the plan
administrator which had not interpreted the provision at issue in
the first instance because it had found for the defendants on
alternative grounds), cert. denied, 118 S. Ct. 899 (1998); id. at
1022 n.4 (O’Scannlain, J., concurring in part and dissenting in
part) (“[T]he Plan Administrator had no need to reach the
question of the meaning of [the plan provision at issue on
appeal] since it had already determined that the [plaintiffs]
were not entitled to benefits on several other grounds. I am not
persuaded that by failing to interpret expressly a provision in
the Plan the Administrator rendered the provision a nullity.”).
As a result, we are unwilling to conclude that the administrator
has, by determining that Mr. Schadler was not covered by the
VAD&D Policy, waived the right to interpret any particular
16
provisions of the VAD&D Policy once it has been shown that Mr.
Schadler was in fact covered.
Defendants respond to Mrs. Schadler’s waiver argument by
contending that she has suffered no prejudice as a result of
their assertion of the intentionally self-inflicted injury
exclusion for the first time before the district court because
they have at all times claimed that the basis for their denial of
coverage is the fact that Mr. Schadler died as a result of a
voluntary, self-administered drug overdose. They therefore argue
that the district court’s judgment should be affirmed. We
disagree.
First, although from the beginning Defendants claimed that
Mr. Schadler was not entitled to coverage under the AD&D Policy
(as distinguished from the VAD&D Policy at issue here) based on
the fact that he died as a result of a voluntary drug overdose,
they did not assert this with respect to the VAD&D Policy until
their motion for summary judgment. Prior to that point in the
claims process and the ensuing litigation, Defendants’ defense to
Mrs. Schadler’s claim under the VAD&D Policy was based entirely
on their argument that Mr. Schadler never effectively enrolled in
the VAD&D Policy and therefore was not entitled to coverage.
Therefore, Defendants’ claim that they have always asserted the
same “factual basis” in denying this claim is simply not true.
Second, even if Defendants had stated from the beginning that
their denial of coverage was based on the fact that Mr. Schadler
died from a voluntary drug overdose, that would not have
17
satisfied § 2560.503-1(f) which mandates that, in addition to
providing the factual reasons for the denial, the notice to the
claimant must also contain “[s]pecific reference to pertinent
plan provisions on which the denial is based.” 29 C.F.R.
§ 2560.503-1(f)(2).10
As we find that neither Mrs. Schadler’s nor Defendants’
arguments are compelling in the instant situation, we turn to our
own analysis of what the law requires in this case. ERISA and
Bruch indicate that the job of the district court is to review
the administrator’s fact-finding and its interpretation of an
employee benefit plan’s provisions. See Bruch, 489 U.S. at 111.
Indeed, the Supreme Court has instructed us that, when an
10
We note also that in many cases the factual development
that takes place at the administrative level will differ
depending on the plan provisions upon which the administrator
relies to deny benefits. In the case at bar, for example, the
no-coverage defense, the drug-use exclusion, and the
intentionally self-inflicted injury exclusion each requires the
development of different factual issues.
In order to address the application of the intentionally
self-inflicted injury exclusion to Mrs. Schadler’s claim, the
administrator must consider facts bearing upon (1) Mr. Schadler’s
state of mind and intent and (2) his subjective expectations in
taking the particular drugs at issue here. In addition, the
administrator must “ask whether a reasonable person, with
background and characteristics similar to the insured, would have
viewed the injury as highly likely to occur as a result of the
insured’s intentional conduct.” Wickman v. Northwestern Nat’l
Ins. Co., 908 F.2d 1077, 1088 (1st Cir. 1990); see also,
Santaella v. Metropolitan Life Ins. Co., 123 F.3d 456, 464-65
(7th Cir. 1997) (adopting the Wickman test); Todd v. AIG Life
Ins. Co., 47 F.3d 1448, 1456 (5th Cir. 1995) (same). As is
evident from this discussion, due to the specificity of the
factual inquiry demanded by each plan provision, it is imperative
that a claimant know at the administrative level which plan
provisions have been relied upon in denying the claim and be
given a full opportunity at that level to adduce all relevant
evidence.
18
employee benefit plan vests discretion in the administrator,
principles of trust law require that we leave the plan
administrator’s interpretation undisturbed if reasonable. See
id. In this case, however, the administrator never had occasion
to interpret the intentionally self-inflicted injury exclusion
upon which Defendants now rely to deny coverage because it
concluded at the outset that the VAD&D Policy never covered Mr.
Schadler.
Although we have not previously addressed an ERISA case
presenting a similar situation, several other courts have done so
and have unanimously concluded that a post hoc rationalization
for a decision to deny benefits is not equivalent to an
administrator’s exercise of its discretion. See, e.g., Vizcaino,
120 F.3d at 1013-15 (remanding a case for a decision by the
administrator where, for the first time at trial, the defendants
asserted an interpretation of a plan provision that had not been
considered in the administrator’s decision to deny benefits);
Gallo v. Amoco Corp., 102 F.3d 918, 923 (7th Cir. 1996) (“If the
justification that the plan administrator offers in court is
inconsistent with the reason that he gave the applicant, the
justification will be undermined.”), cert. denied, 117 S. Ct.
2532 (1997); Matuszak v. Torrington Co., 927 F.2d 320, 323 (7th
Cir. 1990) (“This Court would emasculate ERISA’s disclosure
requirement if it were to defer to reasons that the Board first
identified on appeal in the District Court, years after the
decision at issue. No plan can authorize such a result . . .
19
.”); Adelson v. GTE Corp., 790 F. Supp. 1265, 1273 (D. Md. 1992)
(refusing to apply a deferential standard of review to a
rationale for denying benefits that was not advanced by the
administrator and was only brought forth later by attorneys for
the plan on review by the district court). These courts reason
that “no plan can provide discretion to deny benefits for reasons
identified only years after the fact.” Matuszak, 927 F.2d at
322.
The district court, recognizing that the administrator did
not rely on the intentionally self-inflicted injury exclusion in
deciding to deny benefits, determined that it should therefore
apply a de novo standard of review and, in effect, made the
benefits decision itself. “Whether the district court employed
the correct standard of review to an administrator’s eligibility
determination/plan interpretation is a question of law.” Chevron
Chem. Co. v. Oil, Chem. & Atomic Workers Local Union, 47 F.3d
139, 142 (5th Cir. 1995). We do not think that the application
of de novo review is appropriate under the circumstances of this
case.
Because Defendants denied that coverage ever existed until
the matter was before the district court, the administrator never
had occasion to exercise any discretion to interpret the terms of
the Plan. For reasons that are unclear, Defendants now agree
that the VAD&D Policy was in effect as to Mr. Schadler, and they
now ask us to affirm the district court’s denial of coverage on
the basis of the intentionally self-inflicted injury exclusion.
20
However, “we should not allow ourselves to be seduced into making
a decision which belongs to the plan administrator in the first
instance.” Vizcaino, 120 F.3d at 1013. As the Ninth Circuit has
explained, “‘It is not the court’s function ab initio to apply
the correct standard to [the participant’s] claim. That
function, under the Plan, is reserved to the Plan
administrator.’” Saffle v. Sierra Pac. Power Co. Bargaining Unit
Long Term Disability Income Plan, 85 F.3d 455, 461 (9th Cir.
1996) (alteration in original) (quoting Henry v. The Home Ins.
Co., 907 F. Supp. 1392, 1398-99 (C.D. Cal. 1995)). We would
stand ERISA on its head if we countenanced bypassing the
procedures provided by the statute for making benefits decisions
in favor of making the initial benefits decision ourselves. We
therefore conclude that the district court erred in engaging in a
de novo review and making the factual and legal inquiry in the
first instance. Rather, when it became clear that Defendants
were no longer asserting that Mr. Schadler had not effectively
enrolled in the VAD&D Policy, the case should have been remanded
to the administrator for the development of a full factual record
and for the making of the decision on whether to grant or deny
benefits on the basis of the intentionally self-inflicted injury
exclusion in the first instance.11
11
In so holding, we do not intend to create a steadfast
rule that de novo review is never appropriate where a defendant
puts forth a reason for denying benefits for the first time at
trial. There may indeed be cases in which such review is
appropriate, but this is not one of them. For example, it may be
appropriate for a district court to undertake a de novo review of
the denial where the administrator, despite repeated
21
III. CONCLUSION
For the foregoing reasons, we VACATE the judgment of the
district court and REMAND the case to the district court with
instructions to REMAND to the Plan administrator for further
proceedings consistent with this opinion. Costs shall be borne
by Defendants.
opportunities to do so, refuses to make a ruling on an issue or
where the administrator so delays making a decision that such
delay amounts to a failure to decide the issue. See, e.g.,
Nelson v. EG&G Energy Measurements Group, Inc., 37 F.3d 1384,
1388-89 (9th Cir. 1994) (reviewing a denial of benefits de novo
where the entity vested with the discretion to interpret the
terms of the plan did not do so, despite repeated requests from
the plaintiffs). In this case, however, we face neither of those
situations, and we therefore need not decide when, if ever, de
novo review would be appropriate despite a plan’s grant of
discretion to its administrator.
22