Abatie v. Alta Health & Life Insurance

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

KARLA H. ABATIE, 
Plaintiff-Appellant,
v. No. 03-55601
ALTA HEALTH & LIFE INSURANCE
COMPANY, a Delaware corporation,  D.C. No.
CV-01-06699-JFW
f/k/a Anthem Home Life Insurance
OPINION
Company, f/k/a Home Life
Financial Assurance Company,
Defendant-Appellee.

Appeal from the United States District Court
for the Central District of California
John F. Walter, District Judge, Presiding

Argued and Submitted En Banc
March 23, 2006—San Francisco, California

Filed August 15, 2006

Before: Mary M. Schroeder, Chief Judge, and
Alex Kozinski, Diarmuid F. O’Scannlain,
Pamela Ann Rymer, Andrew J. Kleinfeld,
Barry G. Silverman, Susan P. Graber,
M. Margaret McKeown, Kim McLane Wardlaw,
William A. Fletcher, Ronald M. Gould, Richard A. Paez,
Johnnie B. Rawlinson, Jay S. Bybee, and
Consuelo M. Callahan, Circuit Judges.

Opinion by Judge Graber;
Concurrence by Judge Kleinfeld;
Concurrence by Judge Gould

9625
 ABATIE v. ALTA HEALTH & LIFE INS. 9629

COUNSEL

Daniel Feinberg, Lewis, Feinberg, Renaker & Jackson, Oak-
land, California; Craig Price, Griffith & Thornburgh, Santa
Barbara, California, for the plaintiff-appellant.

R. Daniel Lindahl, Bullivant Houser Bailey, Portland, Ore-
gon; Waldemar J. Pflepsen, Jr., Jorden Burt LLP, Washing-
ton, D.C., for the defendant-appellee.

Jay E. Sushelsky, AARP Foundation Litigation, Washington,
D.C.; John Will Ongman, Barnes & Thornburg, LLP, Wash-
ington, D.C., for the amici curiae.

OPINION

GRABER, Circuit Judge:

After Dr. Joseph Abatie died, his widow—Plaintiff Karla
H. Abatie—sought life insurance benefits from Alta Health &
9630 ABATIE v. ALTA HEALTH & LIFE INS.
Life Insurance Company under an employee welfare benefit
plan regulated by the Employee Retirement Income Security
Act of 1974 (“ERISA”). Alta, which was both the administra-
tor and the funding source of the plan, denied benefits. Plain-
tiff then brought this action. The district court upheld Alta’s
decision. Plaintiff’s appeal questioned the standard of review
that the district court had used to review her claim.

We took this case en banc1 to reconsider our approach to
ERISA cases in which a plan administrator denies benefits
and (1) the wording of the plan confers discretion on the plan
administrator and (2) the plan administrator has a conflict of
interest. In answering that question, we have returned to first
principles, the Supreme Court’s opinion in Firestone Tire &
Rubber Co. v. Bruch, 489 U.S. 101 (1989). We conclude that
our earlier opinion in Atwood v. Newmont Gold Co., 45 F.3d
1317 (9th Cir. 1995), misinterpreted Firestone. We now
establish a more comprehensive approach to ERISA cases in
which a conflict of interest exists. As we will explain below,
abuse of discretion review, tempered by skepticism commen-
surate with the plan administrator’s conflict of interest,
applies here.

In addition, this case requires us to consider how a court is
to review an ERISA plan administrator’s decision when the
procedure that produced the decision did not follow all statu-
tory requirements. For the reasons that we will develop, we
conclude that when a decision by an administrator utterly fails
to follow applicable procedures, the administrator is not, in
fact, exercising discretionary powers under the plan, and its
decision should be subject to de novo review. Lesser irregu-
larities, like the one in this case, do not remove the decision
from abuse of discretion review, but rather should be factored
into the calculus of whether the administrator abused its dis-
cretion.
1
Abatie v. Alta Health & Life Ins. Co., 421 F.3d 1053 (9th Cir. 2005),
reh’g en banc granted, 437 F.3d 860 (9th Cir. 2006).
 ABATIE v. ALTA HEALTH & LIFE INS. 9631
I. FACTUAL AND PROCEDURAL BACKGROUND

Dr. Abatie worked for the Santa Barbara Medical Founda-
tion Clinic from 1971 until November 1992, when he took a
medical leave of absence after developing non-Hodgkin’s
lymphoma. The Clinic sponsored for its employees an
employee welfare benefit plan, which provided for disability
benefits, and an unfunded life insurance plan. Only life insur-
ance is at issue in this appeal.

Shortly after taking leave from the Clinic, Dr. Abatie
applied for and received disability benefits. Dr. Abatie never
returned to work and, beginning in 1993, received permanent
disability benefits. From September 1998 until April 2000,
Dr. Abatie experienced a partial remission but, in June 2000,
he died. After his death, Plaintiff filed a claim for life insur-
ance benefits.

The life insurance policy under the plan was originally
issued by Home Life Financial Assurance Company. Alta is
the successor in interest to Home Life’s rights and responsi-
bilities. The policy requires that a beneficiary work full-time
for the employer in order for insurance coverage to start. The
policy also provides that coverage ends when employment
ends, unless otherwise provided for by the policy.

The policy specifies two ways in which an employee can
continue to receive life insurance coverage after ending
employment. First, the insured may continue to pay premi-
ums. Dr. Abatie did not do that.

Second, if an insured becomes totally disabled while still
covered by the policy, the insured may request what is com-
monly referred to as a “waiver of premium application.” If a
waiver is granted, the insured continues to receive life insur-
ance coverage without paying premiums and without work-
ing. The policy defines total disability as being “not able to
work at all at any job or business for pay or profit due to
9632 ABATIE v. ALTA HEALTH & LIFE INS.
injury or sickness.” In order to be eligible for a waiver, the
insured must provide the insurer with “proof of . . . total dis-
ability within 12 months after the date [of] becom[ing] totally
disabled.” The policy further provides that, even after a
waiver of premium application is granted, coverage will end
if the insured is “no longer totally disabled” or fails to provide
“proof of continued disability.”

Several months after Dr. Abatie’s death, the Clinic wrote to
Alta requesting payment of life insurance benefits to Plaintiff.
The Clinic’s insurance broker sent a letter to Alta noting that,
“due to administrative error, the waiver of premium applica-
tion was not filed.” Despite that error, the Clinic sought “re-
troactive” qualification of Dr. Abatie for insurance coverage.

In March 2001, Alta denied the claim for life insurance
benefits. It did so because it concluded that Dr. Abatie had not
submitted proof of his total disability within 12 months of
becoming totally disabled. Alta noted that the Clinic admitted
that Dr. Abatie had never filed a waiver of premium applica-
tion. Accordingly, Alta concluded, Dr. Abatie was not cov-
ered by the life insurance plan when he died.

Plaintiff filed suit against Alta in California state court.
Alta removed the case to federal court pursuant to 28 U.S.C.
§ 1441(a).

The parties conducted discovery, supplementing the admin-
istrative record. As part of that discovery, the Clinic produced
documents that suggested, contrary to its previous admission,
that it had filed a waiver of premium application on behalf of
Dr. Abatie, which Alta’s predecessor in interest, Home Life,
had approved. Specifically, the Clinic produced an internal
document stating, Dr. Abatie’s “[p]remiums waiver requested
in January, 1994. Should be receiving confirmation any day.”
A handwritten note next to that entry says, “waiver was
granted 2/94.” And a separate note to the file asserts that Dr.
Abatie’s “life insurance premium is waived.”
 ABATIE v. ALTA HEALTH & LIFE INS. 9633
In conjunction with the Clinic’s discovery of those docu-
ments, Plaintiff took depositions to shed more light on
whether the waiver of premium application was in fact sub-
mitted to and approved by Alta’s predecessor. One Clinic
employee, Melissa Peter, testified in deposition that she was
responsible for those notes and that she had sought and
obtained a waiver for Dr. Abatie. However, she did not
remember the circumstances under which she wrote the notes
and acknowledged that it was customary to obtain official
confirmation of a waiver of premium—a document not found
in the Clinic’s files. Similarly, Alta’s files contained no docu-
mentation showing that Dr. Abatie had applied for a waiver
of premium, and he was not listed on the roster of employees
granted waivers that Alta acquired from its predecessor,
Home Life. But a Home Life “Renewal Census Report” dated
May 8, 1997, listed Joseph D. Abatie as having life insurance
coverage of $500,000 under Policy No. G40612, with an
effective date of August 1, 1992.

In view of this additional evidence, the parties agreed to
allow Alta to conduct an additional review and render a final
determination of the claim instead of proceeding directly to
trial.2 On review, Alta again denied Plaintiff’s claim for life
insurance benefits. Alta concluded that there was insufficient
evidence to prove that the Clinic had submitted a waiver of
premium application for Dr. Abatie. It reasoned that the
2
Plaintiff sued, rather than appealing the initial adverse determination to
Alta itself. The ERISA statutes do not require exhaustion of administrative
remedies before a claimant can bring an action in court, but our cases sug-
gest that a claimant must exhaust administrative remedies first. See Amato
v. Bernard, 618 F.2d 559, 566-68 (9th Cir. 1980) (holding that, although
the statutes do not specify an exhaustion requirement, the legislative his-
tory and text of the statutes show that Congress intended to grant the
courts authority to apply an exhaustion requirement in ERISA cases).
Exhaustion is not an issue here, because both parties agreed to supplement
the administrative record and to give Alta a second chance to review the
evidence and to make a new final determination about Plaintiff’s claim for
benefits.
9634 ABATIE v. ALTA HEALTH & LIFE INS.
Clinic earlier admitted that it had failed to send the applica-
tion (albeit inadvertently), that neither the Clinic nor Alta had
a record in its files that Dr. Abatie filed a waiver of premium
application, and that the Clinic had unsubstantiated handwrit-
ten notes, but no formal documentation that an application
had been submitted and approved.

In addition, Alta stated for the first time that it was denying
coverage because there was insufficient evidence in the record
that Dr. Abatie had remained totally disabled from the time he
left work until his death, as required under the policy. In par-
ticular, Alta questioned whether Dr. Abatie had remained
totally disabled from September 1998 through April 2000—
the time of his partial remission.

The parties then resumed litigation in court. The district
court conducted a bench trial. In response to the new rationale
provided by Alta for denying benefits, Plaintiff presented a
declaration from Dr. Abatie’s treating physician. The declara-
tion, created after Alta’s final determination, stated that Dr.
Abatie was totally disabled and could not have engaged in any
work from September 1998 through April 2000, as a result of
numerous complications from lymphoma and anemia.

Following the trial, the court ruled that Alta did not abuse
its discretion by denying Plaintiff’s claim. The district court
declined to decide whether, in fact, the Clinic had submitted
a waiver of premium application to the plan administrator; the
court simply recited some of the conflicting evidence and
concluded that Alta had not abused its discretion. The district
court also refused to consider the declaration from Dr. Aba-
tie’s treating physician in coming to its determination. Plain-
tiff timely appealed.

II. STANDARDS OF REVIEW

The main question before us in this case is what standard
of review the district court should apply in examining a plan
 ABATIE v. ALTA HEALTH & LIFE INS. 9635
administrator’s decision to deny ERISA benefits when the
administrator labors under a conflict of interest or when the
process is irregular, a question that will occupy the remainder
of the opinion. But the question of how we review the district
court’s decision, in turn, is well established. We review de
novo a district court’s choice and application of the standard
of review to decisions by fiduciaries in ERISA cases. Lang v.
Long-Term Disability Plan of Sponsor Applied Remote Tech.,
Inc., 125 F.3d 794, 797 (9th Cir. 1997). We review for clear
error the underlying findings of fact. Friedrich v. Intel Corp.,
181 F.3d 1105, 1109 (9th Cir. 1999).

III. DISCUSSION

A. What standard of review should the district court apply
when an ERISA plan participant questions an adverse
decision by the plan administrator based on a disputed
interpretation of the administrative record?

When Congress enacted ERISA, it did not specify the stan-
dard of review that courts should apply when a plan partici-
pant challenges a denial of benefits. Instead, Congress
expected federal courts to develop a body of common law to
govern those claims and to determine the appropriate stan-
dards of review. See Franchise Tax Bd. v. Constr. Laborers
Vacation Trust, 463 U.S. 1, 24 n.26 (1983) (“ERISA’s legisla-
tive history indicates that, in light of the Act’s virtually
unique pre-emption provision, see § 514, 29 U.S.C. § 1144, ‘a
body of Federal substantive law will be developed by the
courts to deal with issues involving rights and obligations
under private welfare and pension plans.’ ” (quoting 120
Cong. Rec. 29942 (1974) (remarks of Sen. Javits))); Scott v.
Gulf Oil Corp., 754 F.2d 1499, 1502 (9th Cir. 1985) (noting,
similarly, that Congress intended the courts to develop a body
of federal common law to deal with ERISA cases).

Since ERISA’s inception in 1974, Congress has not altered
the statute to provide for a standard of review. Federal courts,
therefore, have continued to fill the gap.
9636 ABATIE v. ALTA HEALTH & LIFE INS.
In 1989, the Supreme Court addressed the standard of
review that courts must apply in reviewing ERISA cases in
which plan administrators have denied benefits. Firestone,
489 U.S. 101. Indeed, Firestone is the Court’s only opinion
directly clarifying the nature of court review in an ERISA
case. Therefore, to determine whether the standard of review
changes when a plan confers discretion but its administrator
operates under a conflict of interest, we look first to the Fire-
stone decision itself.

1. The Firestone Decision — Analyzing the Terms of the
Plan

In Firestone, former employees requested severance bene-
fits after Firestone sold to another company the plastics plants
in which they worked. 489 U.S. at 105-06. Firestone, acting
as both the administrator and the funding source of the appli-
cable ERISA plan, denied the requests for benefits. Id. at 107.
The former employees sued, and their case reached the
Supreme Court, which remanded for further proceedings. Id.
at 118.

[1] The Court concluded, among other things, that general
trust principles apply when considering how district courts
should review ERISA denial of benefits cases, because the
plan administrator stands in a fiduciary relationship to the
plan participants. Id. at 110-11. To assess the applicable stan-
dard of review, the starting point is the wording of the plan.
Id. at 111.

[2] When a plan does not confer discretion on the adminis-
trator “to determine eligibility for benefits or to construe the
terms of the plan,” a court must review the denial of benefits
de novo “regardless of whether the plan at issue is funded or
unfunded and regardless of whether the administrator or fidu-
ciary is operating under a possible or actual conflict of inter-
est.” Id. at 115. De novo is the default standard of review. Id.;
Kearney v. Standard Ins. Co., 175 F.3d 1084, 1089 (9th Cir.
 ABATIE v. ALTA HEALTH & LIFE INS. 9637
1999) (en banc). If de novo review applies, no further prelimi-
nary analytical steps are required. The court simply proceeds
to evaluate whether the plan administrator correctly or incor-
rectly denied benefits, without reference to whether the
administrator operated under a conflict of interest.

[3] But if the plan does confer discretionary authority as a
matter of contractual agreement, then the standard of review
shifts to abuse of discretion. Firestone, 489 U.S. at 115. We
have held that, for a plan to alter the standard of review from
the default of de novo to the more lenient abuse of discretion,
the plan must unambiguously provide discretion to the admin-
istrator. Kearney, 175 F.3d at 1090. The essential first step of
the analysis, then, is to examine whether the terms of the
ERISA plan unambiguously grant discretion to the adminis-
trator. Accordingly, we first turn to the text of the plan.

[4] The plan at issue here provides:

The responsibility for full and final determinations
of eligibility for benefits; interpretation of terms;
determinations of claims; and appeals of claims
denied in whole or in part under the HFLAC Group
[Home Life] policy rests exclusively with HFLAC.

(Emphasis added.) Under the applicable precedents, that pro-
vision is sufficient to confer discretion on Alta, the plan
administrator and successor in interest to Home Life, even
though the word “discretion” does not appear.

There are no “magic” words that conjure up discretion on
the part of the plan administrator. See Sandy v. Reliance Stan-
dard Life Ins. Co., 222 F.3d 1202, 1207 (9th Cir. 2000) (not-
ing that “there is no magic to the words ‘discretion’ or
‘authority’ ”). The Supreme Court has suggested that a plan
grants discretion if the administrator has the “power to con-
strue disputed or doubtful terms” in the plan. Firestone, 489
U.S. at 111; see also id. at 115 (noting that if a plan grants an
9638 ABATIE v. ALTA HEALTH & LIFE INS.
administrator the right to determine eligibility for benefits or
to “construe the terms of the plan,” it has discretionary
authority), and id. at 111 (stating that Firestone cannot take
advantage of the principles of discretion “for there is no evi-
dence that under Firestone’s termination pay plan the admin-
istrator has the power to construe uncertain terms or that
eligibility determinations are to be given deference”).

Moreover, we have repeatedly held that similar plan
wording—granting the power to interpret plan terms and to
make final benefits determinations—confers discretion on the
plan administrator. See, e.g., Bergt v. Ret. Plan for Pilots
Employed by Markair, Inc., 293 F.3d 1139, 1142 (9th Cir.
2002) (holding that a plan conferred discretion because its
terms granted the administrator the “power” and “duty” to
“interpret the plan and to resolve ambiguities, inconsistencies
and omissions” and to “decide on questions concerning the
plan and the eligibility of any Employee” (internal quotation
marks omitted)); Grosz-Salomon v. Paul Revere Life Ins. Co.,
237 F.3d 1154, 1159 (9th Cir. 2001) (holding that a plan pro-
viding that the administrator “has the full, final, conclusive
and binding power to construe and interpret the policy under
the plan . . . [and] to make claims determinations” grants dis-
cretion (internal quotation marks omitted)).

Many of our sister circuits have come to a similar conclu-
sion. A number of cases hold that when the words give a plan
administrator the authority to interpret the plan’s terms and to
make final benefits determinations, discretion is unambigu-
ously vested in the administrator. See, e.g., McElroy v. Smith-
Kline Beecham Health & Welfare Benefits Trust Plan for U.S.
Employees, 340 F.3d 139, 141 (3d Cir. 2003) (holding that the
following text conferred discretion: The administrator “re-
serves the absolute right to interpret” plan provisions and “to
make determinations of facts and eligibility for benefits, and
to decide any dispute that may arise.”); Shields v. Reader’s
Digest Ass’n, 331 F.3d 536, 541 n.6 (6th Cir. 2003) (holding
that discretion was granted when the plan provided the admin-
 ABATIE v. ALTA HEALTH & LIFE INS. 9639
istrator had “complete control” over the administration of the
Plan, and “the power to construe” the Plan and “determine all
questions” that arise under it); Twomey v. Delta Airlines
Pilots Pension Plan, 328 F.3d 27, 31 (1st Cir. 2003) (conclud-
ing that discretion was granted by the following wording:
“[T]he Administrative Committee shall have such duties and
powers as may be necessary to discharge its responsibilities
under the Plan, including . . . decid[ing] all questions of eligi-
bility of any Employee to participate in the Plan or to receive
benefits under it, its interpretation thereof in good faith to be
final and conclusive”) (second and third alterations in origi-
nal); Duhon v. Texaco, Inc., 15 F.3d 1302, 1305 (5th Cir.
1994) (holding that this sentence granted discretion: “The
decisions of the Plan Administrator shall be final and conclu-
sive with respect to every question which may arise relating
to either the interpretation or administration of this Plan.”).

We have held that ERISA plans are insufficient to confer
discretionary authority on the administrator when they do not
grant any power to construe the terms of the plan. For exam-
ple, in our recent decision in Ingram v. Martin Marietta Long
Term Disability Income Plan, 244 F.3d 1109, 1112-13 (9th
Cir. 2001), we concluded that the plan merely identified the
carrier as the entity that was to pay benefits and administer
the plan. There, the plan provided that “[t]he carrier solely is
responsible for providing the benefits under this Plan”; “[t]he
carrier will make all decisions on claims”; and “the review
and payment or denial of claims and the provision of full and
fair review of claim denial pursuant to [ERISA] shall be
vested in the carrier.” Id. at 1112. Because those provisions
merely identified the plan administrator’s tasks, but bestowed
no power to interpret the plan, we applied de novo review. Id.
at 1113.3
3
The court in Ingram suggested that it would be “easy enough” for a
plan to confer discretion unambiguously just by using the word “discre-
tion” or a synonym. 244 F.3d at 1113-14. Nevertheless, Ingram did not
hold that the failure to include the very term “discretion” required applica-
9640 ABATIE v. ALTA HEALTH & LIFE INS.
[5] Here, by contrast, the plan bestows on the administrator
the responsibility to interpret the terms of the plan and to
determine eligibility for benefits. It goes further by giving the
administrator “full and final” authority and cautions that this
authority “rests exclusively” with the plan administrator.
“Discretion” means, as commonly understood, simply “the
power or right to decide or act according to one’s own judg-
ment.” Random House Unabridged Dictionary 411 (1969).
By giving the plan administrator “full and final” authority,
and vesting such authority “exclusively” in the administrator,
this policy clearly gave to the plan administrator the power to
decide according to its own judgment. Under Firestone, the
common meaning of “discretion,”4 our own precedents, and
the persuasive precedents of other circuits, this provision is
sufficient to vest discretion in the plan administrator. Accord-
ingly, under Firestone, de novo review does not apply; abuse
of discretion review does.

tion of a de novo standard; instead, the court analyzed the policy in detail,
id. at 1112-13, just as we do here.
We also note that the insurance policy in dispute in this case was
drafted in 1992, nine years before we published Ingram. Under the law of
our circuit as of 1992, a plan would be held to confer discretion if it “in-
clude[d] even one important discretionary element.” Bogue v. Ampex
Corp., 976 F.2d 1319, 1325 (9th Cir. 1992); see also Eley v. Boeing Co.,
945 F.2d 276, 278 & n.2 (9th Cir. 1991) (holding that a plan conferred dis-
cretion so long as it gave the company the power to determine eligibility
for benefits). The drafters of the policy in question, had they studied appli-
cable Ninth Circuit cases, would not have doubted that the policy con-
ferred discretion.
4
Judge Kleinfeld’s concurrence contends that the key provision of the
plan is ambiguous because, in the absence of the very word “discretion,”
a reasonable person could read the provision not to grant discretion. We
disagree. If a college told its students that “the responsibility for full and
final determinations of grades, interpretation of course requirements,
determinations of credits, and appeals of grades or credits, rests exclu-
sively with the college,” no reasonable student would doubt that the col-
lege has the power and right to use its judgment in good faith and to make
conclusive decisions, free from de novo reconsideration by an outside
body such as a court.
 ABATIE v. ALTA HEALTH & LIFE INS. 9641
2. Abuse of Discretion Review in the Face of a Conflict of
Interest

Firestone appears to provide for only two alternatives.
When a plan confers discretion, abuse of discretion review
applies; when it does not, de novo review applies. 489 U.S.
at 115.

Abuse of discretion review applies to a discretion-granting
plan even if the administrator has a conflict of interest.5 But
Firestone also makes clear that the existence of a conflict of
interest is relevant to how a court conducts abuse of discretion
review. In discussing abuse of discretion review, the Supreme
Court cautioned that, “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 deter-
mining whether there is an abuse of discretion.’ Restatement
(Second) of Trusts § 187, Comment d (1959).” Firestone, 489
U.S. at 115. More recently, the Court has noted that a conflict
of interest in an ERISA case can affect judicial review. See
Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 384 n.15
(2002) (stating that, under Firestone, abuse of discretion
review should “home in on any conflict of interest on the
fiduciary’s part” and that “[i]t is a fair question just how def-
erential the review can be when the judicial eye is peeled for
conflict of interest”).

We have held that an insurer that acts as both the plan
administrator and the funding source for benefits operates
under what may be termed a structural conflict of interest. See
Tremain v. Bell Indus., Inc., 196 F.3d 970, 976 (9th Cir. 1999)
(noting that a conflict of interest exists when an insurer both
5
The Court did not catalogue the full range of types of conflicts of inter-
est, but it suggested that a conflict exists when a plan administrator (which
acts as a fiduciary toward the plan participants, who are beneficiaries) is
also the sole source of funding for an unfunded plan; this was Firestone’s
situation. Firestone, 489 U.S. at 105, 115.
9642 ABATIE v. ALTA HEALTH & LIFE INS.
administers and funds an ERISA plan). On the one hand, such
an administrator is responsible for administering the plan so
that those who deserve benefits receive them. On the other
hand, such an administrator has an incentive to pay as little in
benefits as possible to plan participants because the less
money the insurer pays out, the more money it retains in its
own coffers. See Doe v. Group Hosp. & Med. Servs., 3 F.3d
80, 86 (4th Cir. 1993) (noting that “to the extent that [the
administrator] has discretion to avoid paying claims, it
thereby promotes the potential for its own profit”); Brown v.
Blue Cross & Blue Shield of Ala., Inc., 898 F.2d 1556, 1561
(11th Cir. 1990) (similarly noting that an administrator’s role
as a fiduciary role lies in conflict with its role as a profit-
making entity). As the Supreme Court indicated in Firestone,
such an inherent conflict of interest, even if merely formal
and unaccompanied by indicia of bad faith or self-dealing,
ought to have some effect on judicial review. The question is,
what effect?

a. The Atwood Test

[6] This is not the first time that we have considered what
standard of review to apply in ERISA conflict of interest
cases. A little over 11 years ago, in Atwood, we held that the
existence of a structural conflict of interest did not necessarily
alter the standard of review. 45 F.3d at 1322-23. We required
a plan participant to present “material, probative evidence,
beyond the mere fact of the apparent conflict, tending to show
that the fiduciary’s self-interest caused a breach of the admin-
istrator’s fiduciary obligations to the beneficiary.” Id. at 1323.
If the participant did so, the burden then shifted to the admin-
istrator to prove that the conflict of interest did not affect its
decision to deny benefits. If the plan could not carry that bur-
den, we held that the court would give no deference to the
administrator’s decision to deny benefits, but would instead
review the decision de novo. Id. We have followed Atwood in
a number of cases, with varying degrees of success in sorting
out the burden-shifting analysis. See, e.g., Hensley v. Nw. Per-
 ABATIE v. ALTA HEALTH & LIFE INS. 9643
manente P.C. Ret. Plan & Trust, 258 F.3d 986, 994-95 & n.5
(9th Cir. 2001) (noting that district courts have found incon-
sistencies in the Ninth Circuit’s approach to conflict of inter-
est cases); Pinto v. Reliance Standard Life Ins. Co., 214 F.3d
377, 385 (3d Cir. 2000) (observing that Ninth Circuit prece-
dent in conflict of interest cases is unclear).

[7] Atwood’s failure to follow Supreme Court precedent,
and its placement of an unreasonable burden on ERISA plain-
tiffs, requires that we overrule it. Atwood goes wrong in three
ways. First and foremost, it does not adhere to the dichotomy
explicitly laid out in Firestone: Plans granting discretion to
the administrator receive abuse of discretion review for their
decisions denying benefits, while plans that do not confer dis-
cretion on the administrator have their decisions reviewed de
novo. Atwood’s back-and-forth burden shifting disobeys the
Supreme Court’s guidance.

Second, and relatedly, Atwood ignores the Supreme Court’s
requirement that a court weigh as a “factor” in abuse of dis-
cretion review the conflict of interest that inheres when a plan
administrator also acts as its fiduciary. Firestone, 489 U.S. at
113. The Court’s articulated approach, abuse of discretion
review that is informed by the presence of a conflict of inter-
est, was not created arbitrarily. The Court recognized in Fire-
stone that “ERISA abounds with the language and
terminology of trust law,” 489 U.S. at 110, and the Court
therefore looked to trust law in formulating the proper stan-
dard of review. The ERISA fiduciary is invested with the
responsibilities typical of a trustee, see 29 U.S.C. § 1104, and
the abuse of discretion standard for ERISA plan administra-
tors follows directly from the review given to the discretion-
ary actions of trustees, see Firestone, 489 U.S. at 111-12;
Restatement (Second) of Trusts § 187 (1959).

As comment d to the Restatement makes clear, key factors
in determining whether or not a trustee has abused discretion
include “the motives of the trustee in exercising or refraining
9644 ABATIE v. ALTA HEALTH & LIFE INS.
from exercising [a power granted to the trustee]; [and] the
existence or nonexistence of an interest in the trustee conflict-
ing with that of the beneficiaries.” Id. § 187 cmt. d. Our
approach under Atwood fails to consider the motives and
interests of a conflicted ERISA fiduciary in denying claims to
protect its own financial interests whenever the conflict of
interest is not significant enough to require de novo review.
For those cases, Atwood grants the deference due under trust
law but skips the careful review that trust law demands of
actions taken by obviously conflicted parties. At the same
time, Atwood gives no deference at all to significantly con-
flicted administrators even when the plan grants them discre-
tion, again contrary to trust principles and to Firestone.

Third, Atwood places on plan participants the burden of
producing evidence of the plan administrator’s motives, evi-
dence that an ERISA plan participant is much less likely to
possess than is the administrator. See Pinto, 214 F.3d at 389
(noting the inequity of requiring direct evidence of a conflict
of interest to appear in the administrator’s decision). In the
absence of such “smoking gun” evidence, Atwood grants
administrators highly deferential review. That approach
wrongly aligns incentives. Instead of being encouraged affir-
matively to demonstrate their impartiality and the reasonable-
ness of their decisions, plan administrators are rewarded for
suppressing dissent and denying claims with as little explana-
tion as possible.

In view of those problems, we overrule Atwood in its
entirety and, instead, adopt an approach that, we believe,
more accurately reflects the Supreme Court’s instructions in
Firestone.

b. Firestone Approach

[8] We read Firestone to require abuse of discretion review
whenever an ERISA plan grants discretion to the plan admin-
istrator, but a review informed by the nature, extent, and
 ABATIE v. ALTA HEALTH & LIFE INS. 9645
effect on the decision-making process of any conflict of inter-
est that may appear in the record. This standard applies to the
kind of inherent conflict that exists when a plan administrator
both administers the plan and funds it, as well as to other
forms of conflict.

Our approach is substantially similar to that adopted by
several other circuits, but with a conscious rejection of their
“sliding scale” metaphor. See Stup v. Unum Life Ins. Co. of
Am., 390 F.3d 301, 307 (4th Cir. 2004) (applying a sliding-
scale abuse of discretion review in conflict of interest cases;
a court must apply less deference “ ‘to the degree necessary
to neutralize any untoward influence resulting from the con-
flict’ ” (quoting Doe, 3 F.3d at 87)); Fought v. Unum Life Ins.
Co. of Am., 379 F.3d 997, 1004 (10th Cir. 2004) (per curiam)
(adopting sliding-scale abuse of discretion review, in which
“ ‘the court must decrease the level of deference given to the
conflicted administrator’s decision in proportion to the seri-
ousness of the conflict’ ” (quoting Chambers v. Family Health
Plan Corp., 100 F.3d 818, 825 (10th Cir. 1996))), cert.
denied, 544 U.S. 1026 (2005); Pinto, 214 F.3d at 379
(expressly adopting the sliding-scale approach, which “inten-
sif[ies] the degree of scrutiny to match the degree of the con-
flict”); Vega v. Nat’l Life Ins. Servs., Inc., 188 F.3d 287, 297
(5th Cir. 1999) (en banc) (reaffirming that the court applies a
sliding scale so that “[t]he greater the evidence of conflict on
the part of the administrator, the less deferential [the] abuse
of discretion standard will be”); Woo v. Deluxe Corp., 144
F.3d 1157, 1161 (8th Cir. 1998) (adopting the sliding-scale
approach, which requires a decrease in the deference given to
an ERISA plan administrator’s decision in proportion to the
gravity of the conflict of interest).6
6
Other circuits have developed different approaches to determine the
applicable standard of review in ERISA benefits denial cases. See, e.g.,
Rud v. Liberty Life Assurance Co., 438 F.3d 772, 777 (7th Cir. 2006)
(holding that a structural conflict of interest, without more, does not affect
the standard of review and requiring the claimant to prove that the alleged
9646 ABATIE v. ALTA HEALTH & LIFE INS.
Insofar as those cases recognize that weighing a conflict of
interest as a factor in abuse of discretion review requires a
case-by-case balance, we agree. A district court, when faced
with all the facts and circumstances, must decide in each case
how much or how little to credit the plan administrator’s rea-
son for denying insurance coverage. An egregious conflict
may weigh more heavily (that is, may cause the court to find
an abuse of discretion more readily) than a minor, technical
conflict might. But in any given case, all the facts and circum-
stances must be considered and nothing “slides,” so we find
the metaphor unnecessary and potentially confusing.

A straightforward abuse of discretion analysis allows a
court to tailor its review to all the circumstances before it. See
Woo, 144 F.3d at 1161 (“The abuse of discretion standard is
inherently flexible, which enables reviewing courts to simply
adjust for the circumstances.”). The level of skepticism with
which a court views a conflicted administrator’s decision may

conflict affected the administrator’s decision); Wright v. R.R. Donnelley &
Sons Co. Group Benefits Plan, 402 F.3d 67, 74 (1st Cir. 2005) (holding
that an inherent conflict of interest does not necessarily affect the abuse
of discretion standard, and placing the burden on the claimant to demon-
strate that a conflict exists); HCA Health Servs., Inc. v. Employers Health
Ins. Co., 240 F.3d 982, 993-94 (11th Cir. 2001) (applying de novo review,
initially, to decide whether the claim was wrongly decided, and if an
inherent conflict of interest exists, requiring the administrator to prove that
its interpretation was not tainted by self-interest); Sullivan v. LTV Aero-
space & Def. Co., 82 F.3d 1251, 1255-56 (2d Cir. 1996) (requiring a
claimant to show that a conflict of interest affected the reasonableness of
the administrator’s decision; if the claimant carries that burden then de
novo review applies). At least one circuit has declined to establish a stan-
dard of review in conflict of interest cases. See Wagener v. SBC Pension
Benefit Plan—Non Bargained Program, 407 F.3d 395, 402 (D.C. Cir.
2005) (declining to establish the standard of review appropriate in conflict
of interest cases because, in the case at hand, under any standard of
review, the administrator’s actions were unreasonable). For a detailed
analysis of Firestone’s progeny and the various circuits’ approaches to this
issue, see Kathryn J. Kennedy, Judicial Standards of Review in ERISA
Benefit Claim Cases, 50 Am. U. L. Rev. 1083 (2001).
 ABATIE v. ALTA HEALTH & LIFE INS. 9647
be low if a structural conflict of interest is unaccompanied, for
example, by any evidence of malice, of self-dealing, or of a
parsimonious claims-granting history. A court may weigh a
conflict more heavily if, for example, the administrator pro-
vides inconsistent reasons for denial, Lang, 125 F.3d at 799;
fails adequately to investigate a claim or ask the plaintiff for
necessary evidence, Booton v. Lockheed Med. Benefit Plan,
110 F.3d 1461, 1463-64 (9th Cir. 1997); fails to credit a
claimant’s reliable evidence, Black & Decker Disability Plan
v. Nord, 538 U.S. 822, 834 (2003); or has repeatedly denied
benefits to deserving participants by interpreting plan terms
incorrectly or by making decisions against the weight of evi-
dence in the record.

We recognize that abuse of discretion review, with any
“conflict . . . weighed as a factor,” Firestone, 489 U.S. at 115,
is indefinite. We believe, however, that trial courts are famil-
iar with the process of weighing a conflict of interest. For
example, in a bench trial the court must decide how much
weight to give to a witness’ testimony in the face of some evi-
dence of bias. What the district court is doing in an ERISA
benefits denial case is making something akin to a credibility
determination about the insurance company’s or plan admin-
istrator’s reason for denying coverage under a particular plan
and a particular set of medical and other records. We believe
that district courts are well equipped to consider the particu-
lars of a conflict of interest, along with all the other facts and
circumstances, to determine whether an abuse of discretion
has occurred.

The careful, case-by-case approach that we adopt also alle-
viates the unreasonable burden Atwood placed on ERISA
plaintiffs. Under Atwood, we would consider the influence of
the plan administrator’s conflict only if the plaintiff brought
forth evidence of a “serious conflict of interest,” triggering de
novo review. Gatti v. Reliance Standard Life Ins. Co., 415
F.3d 978, 985 (9th Cir. 2005) (as amended). If the plaintiff
could not make that threshold showing, we would uphold an
9648 ABATIE v. ALTA HEALTH & LIFE INS.
administrator’s decision so long as it was “grounded on any
reasonable basis.” Jordan v. Northrop Grumman Corp. Wel-
fare Benefit Plan, 370 F.3d 869, 875 (9th Cir. 2004) (internal
quotation marks omitted). Going forward, plaintiffs will have
the benefit of an abuse of discretion review that always con-
siders the inherent conflict when a plan administrator is also
the fiduciary, even in the absence of “smoking gun” evidence
of conflict. Moreover, a conflicted administrator, facing closer
scrutiny, may find it advisable to bring forth affirmative evi-
dence that any conflict did not influence its decisionmaking
process, evidence that would be helpful to determining
whether or not it has abused its discretion.7

3. Evidence That a Court May Consider

When a plan participant sues a plan administrator, chal-
lenging its decision to deny benefits, what evidence may a
court consider in determining how deferentially to review the
decision to deny the claim? The answer depends on whether
review is de novo (because the plan failed to confer discretion
on the administrator) or for abuse of discretion (because the
plan unambiguously conferred discretion).

Many circuits limit a district court to the administrative
record when the court is reviewing a case on the merits for an
abuse of discretion; consideration of new evidence is permit-
ted only in conjunction with de novo review of a denial of
benefits. See Urbania v. Cent. States, Se. & Sw. Areas Pen-
sion Fund, 421 F.3d 580, 586 (7th Cir. 2005) (noting that
“[d]eferential review of an administrative decision means
review on the administrative record” (internal quotation
7
For example, the administrator might demonstrate that it used truly
independent medical examiners or a neutral, independent review process;
that its employees do not have incentives to deny claims; that its interpre-
tations of the plan have been consistent among patients; or that it has mini-
mized any potential financial gain through structure of its business (for
example, through a retroactive payment system).
 ABATIE v. ALTA HEALTH & LIFE INS. 9649
marks omitted)); Kosiba, 384 F.3d at 67 n.5 (noting that, “in
general, the record for arbitrary-and-capricious review of
ERISA benefits denial is the record made before the plan
administrator”); Fought, 379 F.3d at 1003 (noting that courts
are limited to the administrative record when reviewing for
abuse of discretion); Zervos v. Verizon N.Y., Inc., 252 F.3d
163, 173 (2d Cir. 2001) (noting that when review is for abuse
of discretion, the record consists of the administrative record);
Elliott v. Sara Lee Corp., 190 F.3d 601, 608 & n.6 (4th Cir.
1999) (noting that on de novo review, a court may consider
extra-judicial evidence, but stating that abuse of discretion
review must be based on the evidence before the administra-
tor); Vega, 188 F.3d at 300 (restricting review to the adminis-
trative record when the court is considering the
administrator’s factual determinations for abuse of discre-
tion); Buckley v. Metro. Life, 115 F.3d 936, 941 & n.2 (11th
Cir. 1997) (per curiam) (holding that extra-record evidence,
presented to the district court on review for abuse of discre-
tion, was irrelevant).

Indeed, we have adhered to a similar rule. See Jebian v.
Hewlett-Packard Co. Employee Benefits Org. Income Prot.
Plan, 349 F.3d 1098, 1110 (9th Cir. 2003) (“While under an
abuse of discretion standard our review is limited to the
record before the plan administrator, this limitation does not
apply to de novo review.” (citation omitted)); Kearney, 175
F.3d at 1090-91 (holding that the standard of review informs
the amount of evidence that a district court may consider);
Mongeluzo v. Baxter Travenol Long Term Disability Benefit
Plan, 46 F.3d 938, 944 (9th Cir. 1995) (holding that the dis-
trict court has discretion to allow evidence that was not before
the plan administrator “only when circumstances clearly
establish that additional evidence is necessary to conduct an
adequate de novo review” (internal quotation marks omitted)).

A subtler question arises when a court must decide how
much weight to give a conflict of interest under the abuse of
discretion standard. In making that determination, the court
9650 ABATIE v. ALTA HEALTH & LIFE INS.
may consider evidence outside the record. We have held that
the court may consider evidence beyond that contained in the
administrative record that was before the plan administrator,
to determine whether a conflict of interest exists that would
affect the appropriate level of judicial scrutiny. See Tremain,
196 F.3d at 976-77 (holding that a court may consider extra-
record evidence to determine whether the administrator was
plagued by a conflict of interest); see also Kosiba v. Merck &
Co., 384 F.3d 58, 67 n.5 (3d Cir. 2004) (holding that a district
court may supplement the record in order to decide whether
a conflict of interest exists), cert. denied, 544 U.S. 1044
(2005).

[9] Today, we continue to recognize that, in general, a dis-
trict court may review only the administrative record when
considering whether the plan administrator abused its discre-
tion, but may admit additional evidence on de novo review.
That principle is consistent with Tremain, 196 F.3d at 976-79,
which permits extrinsic evidence on the question of a conflict
of interest. The district court may, in its discretion, consider
evidence outside the administrative record to decide the
nature, extent, and effect on the decision-making process of
any conflict of interest; the decision on the merits, though,
must rest on the administrative record once the conflict (if
any) has been established, by extrinsic evidence or otherwise.
See Doe v. Travelers Ins. Co., 167 F.3d 53, 57 (1st Cir. 1999)
(holding that, when deciding what record a court should use
to decide whether the administrator’s decision was reason-
able, “[i]t is not clear that any single answer covers all of the
variations in ERISA cases; the ‘record’ may depend on what
has been decided, by whom, based on what kind of informa-
tion, and also on the standard of review and the relief
sought”).

B. What standard of review should the district court apply
when the administrator fails to follow procedural
requirements?

In the preceding sections, we have discussed how courts
review a challenged denial of ERISA benefits when a plan
 ABATIE v. ALTA HEALTH & LIFE INS. 9651
participant disagrees with the administrator’s interpretation of
the record or with its application of the plan’s terms to the
facts. Different concerns arise when the administrator fails to
adhere to the procedural dictates of ERISA and the plan. We
must consider those issues in this case because of the plan
administrator’s last-minute reliance on a new ground for
denial of benefits, which afforded Plaintiff no opportunity to
present relevant evidence in advance of the administrator’s
final decision.

1. Procedural Violations Amounting to Failure to Exer-
cise Discretion

Under ERISA, plan administrators must follow certain
practices when processing and deciding plan participants’
claims. For example, administrators must adhere to various
procedures for giving notice, reporting, and claims process-
ing. See 29 U.S.C. § 1021(a) (disclosure to all plan partici-
pants); id. § 1021(b) (reporting requirements); id. § 1133
(claims procedures); 29 C.F.R. § 2560.503-1 (same).

We have recently held that an administrator’s failure to
comply with such procedural requirements ordinarily does not
alter the standard of review. See Gatti, 415 F.3d at 985 (hold-
ing that an administrator who violates procedural require-
ments under ERISA usually will not be subject to a different
standard of judicial review). There are, however, some situa-
tions in which procedural irregularities are so substantial as to
alter the standard of review.

In Gatti, we held that “procedural violations of ERISA do
not alter the standard of review [from abuse of discretion
review to de novo review] unless the violations are so flagrant
as to alter the substantive relationship between the employer
and employee, thereby causing the beneficiary substantive
harm.” Id. We cited Blau v. Del Monte Corp., 748 F.2d 1348
(9th Cir. 1984), abrogation on other grounds recognized by
Dytrt v. Mountain State Tel. & Tel. Co., 921 F.2d 889, 894
9652 ABATIE v. ALTA HEALTH & LIFE INS.
n.4 (9th Cir. 1990), as an example of this kind of egregious
act. Gatti, 415 F.3d at 984 85.8 In Blau, the administrator had
kept the policy details secret from the employees, offered
them no claims procedure, and did not provide them in writ-
ing the relevant plan information; in other words, the adminis-
trator “failed to comply with virtually every applicable
mandate of ERISA.” 748 F.2d at 1353.

When an administrator engages in wholesale and flagrant
violations of the procedural requirements of ERISA, and thus
acts in utter disregard of the underlying purpose of the plan
as well, we review de novo the administrator’s decision to
deny benefits. We do so because, under Firestone, a plan
administrator’s decision is entitled to deference only when the
administrator exercises discretion that the plan grants as a
matter of contract. 489 U.S. at 111. Firestone directs, consis-
tent with trust law principles, that “a deferential standard of
review [is] appropriate when a trustee exercises discretionary
powers.” Id. (emphasis added). Because an administrator can-
not contract around the procedural requirements of ERISA,
decisions taken in wholesale violation of ERISA procedures
do not fall within an administrator’s discretionary authority.

In general, we review de novo a claim for benefits when an
administrator fails to exercise discretion. See Jebian, 349 F.3d
at 1106 (holding that an administrator failed to exercise its
discretion when it did not make a benefits decision within the
60 days specified by the terms of the plan and the applicable
regulation, so that the ultimate decision rendered was “unde-
serving of deference”). Other circuits have also held that
review is de novo when the plan administrator fails to exer-
cise discretion. See Nichols v. Prudential Ins. Co. of Am., 406
F.3d 98, 109 (2d Cir. 2005) (holding that a “deemed denied”
8
Blau pre-dated Firestone, so its analysis of the extant “arbitrary and
capricious” standard of judicial review is irrelevant. But Blau illustrates
the type of procedural noncompliance that, under our post-Firestone cases,
allows for more stringent judicial review. Gatti, 415 F.3d at 985.
 ABATIE v. ALTA HEALTH & LIFE INS. 9653
claim, in which the administrator did not issue a decision
within the time required by the regulations, constituted “inac-
tion,” which was not an exercise of discretion and which
therefore was entitled to no deference; de novo review
applied); Gilbertson v. Allied Signal, Inc., 328 F.3d 625, 632
(10th Cir. 2003) (noting that “[d]eference to the administra-
tor’s expertise is inapplicable where the administrator has
failed to apply his expertise to a particular decision”); Gritzer
v. CBS, Inc., 275 F.3d 291, 296 (3d Cir. 2002) (“Where a
trustee fails to act or to exercise his or her discretion, de novo
review is appropriate because the trustee has forfeited the
privilege to apply his or her discretion . . . .”). Similarly, when
a plan administrator’s actions fall so far outside the strictures
of ERISA that it cannot be said that the administrator exer-
cised the discretion that ERISA and the ERISA plan grant, no
deference is warranted.

This case does not, however, fall into that rare class of
cases. Instead, we face the more ordinary situation in which
a plan administrator has exercised discretion but, in doing so,
has made procedural errors. We turn, finally, to a discussion
of how we are to consider such procedural errors in reviewing
a denial of benefits.

2. Procedural Violations in the Course of Exercising
Discretion

As noted, a procedural irregularity in processing an ERISA
claim does not usually justify de novo review. See Gatti, 415
F.3d at 985 (concluding that the district court had erred by
allowing “de novo review any time a benefits administrator
violates the procedural requirements in ERISA’s regulations,
no matter how small or inconsequential the violation”). That
generalization does not mean, however, that procedural irreg-
ularities are irrelevant to the court’s analysis.

[10] A procedural irregularity, like a conflict of interest, is
a matter to be weighed in deciding whether an administrator’s
9654 ABATIE v. ALTA HEALTH & LIFE INS.
decision was an abuse of discretion. See Fought, 379 F.3d at
1006 (concluding that an inherent conflict of interest, a
proven conflict of interest, or a serious procedural irregularity
reduces the deference owed to an administrator’s decision to
deny benefits); Woo, 144 F.3d at 1160 (noting that a conflict
of interest or a procedural irregularity can heighten judicial
scrutiny). When an administrator can show that it has engaged
in an “ ‘ongoing, good faith exchange of information between
the administrator and the claimant,’ ” the court should give
the administrator’s decision broad deference notwithstanding
a minor irregularity. Jebian, 349 F.3d at 1107 (quoting Gil-
bertson, 328 F.3d at 635); see also Robinson v. Aetna Life Ins.
Co., 443 F.3d 389, 392-93 (5th Cir. 2006) (applying a sub-
stantial compliance standard to alleged procedural violations
under ERISA). A more serious procedural irregularity may
weigh more heavily.

3. Evidence That a Court May Consider

[11] When a plan administrator has failed to follow a pro-
cedural requirement of ERISA, the court may have to con-
sider evidence outside the administrative record. For example,
if the administrator did not provide a full and fair hearing, as
required by ERISA, 29 U.S.C. § 1133(2), the court must be in
a position to assess the effect of that failure and, before it can
do so, must permit the participant to present additional evi-
dence. We follow the Sixth Circuit in holding that, when an
administrator has engaged in a procedural irregularity that has
affected the administrative review, the district court should
“reconsider [the denial of benefits] after [the plan participant]
has been given the opportunity to submit additional evi-
dence.” VanderKlok v. Provident Life & Accident Ins. Co.,
956 F.2d 610, 617 (6th Cir. 1992).

As we noted earlier, if the plan administrator’s procedural
defalcations are flagrant, de novo review applies. And as we
also noted, when de novo review applies, the court is not lim-
 ABATIE v. ALTA HEALTH & LIFE INS. 9655
ited to the administrative record and may take additional evi-
dence.

[12] Even when procedural irregularities are smaller,
though, and abuse of discretion review applies, the court may
take additional evidence when the irregularities have pre-
vented full development of the administrative record. In that
way the court may, in essence, recreate what the administra-
tive record would have been had the procedure been correct.

C. The district court erred in analyzing Plaintiff’s claim

Finally, we must consider whether the district court in the
present case erred under the principles that we have estab-
lished. We conclude that the court erred in three respects in
analyzing Plaintiff’s claim.

First, the court failed to examine the nature, extent, and
effect on the decision-making process of Alta’s conflict of
interest in assessing whether Alta had abused its discretion;
and the court followed Atwood’s burden-shifting regime. Of
course, this error is understandable because the court did not
have the benefit of this opinion, which recasts the terms of the
exercise. See Jebian, 349 F.3d at 1110 & n.10 (concluding
that a remand to the district court was necessary, even if no
new evidence were to be admitted, because the court had to
review the evidence under a different standard of review,
placing it in a different role than it had occupied originally).

Second, the district court erred by failing to make all
required findings of fact. The court conducted a bench trial,
but failed to make findings of fact on all contested issues. See
Fed. R. Civ. P. 52(a); see also Unt v. Aerospace Corp., 765
F.2d 1440, 1444 (9th Cir. 1985) (holding that factual findings
made by a judge after a bench trial “must be explicit enough
to give the appellate court a clear understanding of the basis
of the trial court’s decision, and to enable it to determine the
ground on which the trial court reached its decision” (internal
9656 ABATIE v. ALTA HEALTH & LIFE INS.
quotation marks omitted)). Specifically, the district court
declined to decide whether or not a waiver of premium appli-
cation was submitted to Alta’s predecessor on behalf of Dr.
Abatie. Instead, the court reviewed the evidence both support-
ing and undermining Plaintiff’s claim that a waiver applica-
tion had been submitted. The court appeared to conclude
simply that the administrator did not abuse its discretion
because there was evidence on both sides of the issue.

Were the court to find that a waiver application in fact had
been submitted to Alta’s predecessor on Dr. Abatie’s behalf,
then it is likely that the administrator abused its discretion
when it denied the claim. On the other hand, if the court were
to find that neither Dr. Abatie nor the Clinic submitted a
waiver application, then the administrator likely did not abuse
its discretion when it relied on this reason to deny the claim.

Third, the district court neglected to consider the proce-
dural irregularities that occurred when Alta processed Plain-
tiff’s claim. Alta originally denied Plaintiff’s claim for life
insurance benefits because it concluded that no waiver of pre-
mium application had been submitted on behalf of Dr. Abatie.
Later, in its final denial of Plaintiff’s claim, Alta continued to
rely on that reason, but also added a second reason—that
Plaintiff had provided insufficient evidence to show that Dr.
Abatie had remained totally disabled from the time he left
work at the Clinic until his death.

[13] An administrator must provide a plan participant with
adequate notice of the reasons for denial, 29 U.S.C.
§ 1133(1), and must provide a “full and fair review” of the
participant’s claim, id. § 1133(2); see also 29 C.F.R.
§ 2560.503-1(g)(1), (h)(2). When an administrator tacks on a
new reason for denying benefits in a final decision, thereby
precluding the plan participant from responding to that ratio-
nale for denial at the administrative level, the administrator
violates ERISA’s procedures.9 “[S]ection 1133 requires an
9
In Lang v. Long-Term Disability Plan of Sponsor Applied Remote
Technology, Inc., 125 F.3d 794, 798-99 (9th Cir. 1997), we held that the
 ABATIE v. ALTA HEALTH & LIFE INS. 9657
administrator to provide review of the specific ground for an
adverse benefits decision.” Robinson, 443 F.3d at 393. By
requiring that an administrator notify a claimant of the rea-
sons for the administrator’s decisions, the statute suggests that
the specific reasons provided must be reviewed at the admin-
istrative level. Id. Moreover, a review of the reasons provided
by the administrator allows for a full and fair review of the
denial decision, also required under ERISA. Id. Accordingly,
an administrator that adds, in its final decision, a new reason
for denial, a maneuver that has the effect of insulating the
rationale from review, contravenes the purpose of ERISA.
This procedural violation must be weighed by the district
court in deciding whether Alta abused its discretion.

[13] In this case, Plaintiff presented additional evidence—
a declaration from Dr. Abatie’s treating doctor—to prove that
Dr. Abatie had remained totally disabled continuously from
the date he left work until the date he died. The district court
declined to consider that evidence. Under our analysis today,
the district court erred by refusing to consider the additional
evidence, if the court does not first find that Plaintiff’s claim
is doomed by a failure to request a waiver of premiums.

IV. CONCLUSION

REVERSED and REMANDED for further proceedings
consistent with this opinion.

court should review de novo the decision of a plan administrator that gave
one reason in its initial denial, but changed reasons in its final denial. Lang
used the Atwood analysis and held that the administrator’s last-minute
switch in the reason for denial suggested serious self-dealing. Id. Although
a change in reasoning can suggest a conflict of interest, it also can be cate-
gorized as a procedural irregularity where, as here, the plan participant is
foreclosed from presenting any response to the new reason.
9658 ABATIE v. ALTA HEALTH & LIFE INS.
KLEINFELD, Circuit Judge, with whom RAWLINSON, Cir-
cuit Judge, joins, concurring in the judgment:

I concur in the judgment, but not the reasoning.

In my view, the plan does not confer discretion. The district
court should have reviewed whether the premium waiver for
disability applied to Dr. Abatie de novo. That is the default
standard of review under ERISA.1

The ERISA plan at issue in this case does not say that the
trustee has “discretion” to construe its terms and determine
whether a person is entitled to plan benefits. The majority
concedes that the plan does not confer discretion in so many
words, but says that no “magic words” are necessary. Our en
banc decision in Kearney v. Standard Ins. Co.2 held that we
require the administrator be “unambiguous” in retaining dis-
cretion. Ingram v. Martin Marietta3 applies Kearney, explain-
ing that we “examine the text of [the] plan to determine
whether it “unambiguously” states that [the administrator] has
‘discretionary authority’ in making benefits decisions.”4 The
majority claims to reaffirm the holdings of Kearney and
Ingram that the plan must “unambiguously” confer discretion,5
yet it finds discretion in the face of ambiguity.

This plan says that the “responsibility” for “full and final”
benefits determinations rests “exclusively” upon the insurance
company. Is the “responsibility” to make a decision the same
thing as discretion? Maybe, maybe not. One reading of the
plan language is that it says who makes benefits determina-
1
Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989).
2
Kearney v. Standard Ins. Co., 175 F.3d 1084, 1090 (9th Cir. 1999) (en
banc).
3
Ingram v. Martin Marietta, 244 F.3d 1109, 1112 (9th Cir. 2001).
4
Id. at 1112.
5
See Majority Op. at 9637.
 ABATIE v. ALTA HEALTH & LIFE INS. 9659
tions, not how they are to be made.6 If two readings are rea-
sonable, then the language is ambiguous and the plan does not
“unambiguously” confer discretion.7

The majority does not really say why we should construe
a plan to confer discretion on the trustees where the plan does
not plainly say so. Calling a plain language requirement
“magic words” expresses a feeling, not an argument. The
majority’s analogy to a college’s grading policy is inapposite.
People normally expect that their college grades will be deter-
mined somewhat subjectively by their professors but they do
not expect that their insurance company will subjectively
determine whether to pay their bills when they get sick. So we
are left with no reason not to require the plan to say “discre-
tion” if that is what it means.

There are good reasons for requiring plain talk in this, as
in so many things. “Discretion” is not just a means by which
courts can easily get rid of complicated ERISA cases. What
it means in practical affairs is that, if the administrator could
reasonably decide either way, then it can decide against the
claimant and there is no recourse. That means a lot of people
who ought to get life insurance proceeds, disability benefits,
or medical expense coverage will not get the coverage they
should and, under a sounder reading of the evidence, would.

The power to deny claims that could reasonably be
resolved either way is very significant, so we ought to require
plans to say so explicitly when they reserve discretion. And
saying so is easy. ERISA plans are not written like contracts
between two lay people trying to find the words for a vague
6
See Ingram, 244 F.3d at 1112-13 (“An allocation of decision-making
authority to [the administrator] is not, without more, a grant of discretion-
ary authority in making those decisions.”).
7
See Kearney, 175 F.3d at 1190 (“Only by excluding alternative read-
ings as unreasonable could we conclude that the conferral of discretion is
unambiguous.”).
9660 ABATIE v. ALTA HEALTH & LIFE INS.
arrangement, like a hair salon proprietor and a person to
whom she leases a chair. Lawyers write these policies using
form books, case law research, and extensive consultation.
They can use the word “retain discretion” as easily as they
can use the “magic words” traditionally used in deeds, if they
mean them.

If the administrator does not say that it “retains discretion,”
there is probably a good marketing reason why not. A busi-
ness might not want to buy a plan that gives the administrator
discretion to deny coverage whenever it is arguable. Its
employees could be left high and dry, and those employees
include the executives who determine which group policies to
buy. It is easier to sell insurance on the promise that the insur-
ance company will pay the doctor bills than if the promise is
only that the insurance company will take a look at it and
decide whether to exercise its discretion to pay the bill. Forc-
ing the administrator to say that it “retains discretion” gives
the purchasers of group plans and their employees fair notice
of how much protection they have.

And an administrator might choose weasel words to evade
regulation yet retain discretion for purposes of claims litiga-
tion. States regulate insurance policies, and the National
Association of Insurance Commissioners has adopted a model
act8 saying that no health or disability insurance policy “may
contain a provision purporting to reserve discretion.”9 Some
states have adopted the scheme10 and, while California has
8
See Model Act 42 “Prohibition on the Use of Discretionary Clauses
Model Act,” NAIC 42-1 (2006).
9
See id. at § 4(A) (“No policy, contract, certificate or agreement offered
or issued in this state by a health carrier to provide, deliver, arrange for,
pay for or reimburse any of the costs of health care services may contain
a provision purporting to reserve discretion to the health carrier to inter-
pret the terms of the contract, or to provide standards of interpretation or
review that are inconsistent with the laws of this state.”).
10
See, e.g., Me. Rev. Stat. Ann. tit. 24-A§ 4303(11).
 ABATIE v. ALTA HEALTH & LIFE INS. 9661
not, its Department of Insurance has issued an opinion to the
same effect.11 So the practical effect of today’s majority opin-
ion is that a group insurer may avoid regulatory problems by
using ambiguous terms rather than “magic words,” but still
enjoy the discretionary standard of review in court.

Two questions control whether the premium waiver applies
in this case: (1) whether the company timely applied for the
waiver of premiums on account of disability, and (2) whether
Dr. Abatie was disabled for the entire time between when he
quit working and when he died. If the premium waiver
applies, then Dr. Abatie’s widow is entitled to $331,500 in
life insurance under the group policy. If the waiver does not
apply, she is not entitled.

In this case, a reasonable adjudicator could probably go
either way on whether Dr. Abatie was disabled for the entire
time after he stopped working, and on whether his insurer
received the form required for a premium waiver. But if
review is de novo, Dr. Abatie’s widow has established genu-
ine issues of fact. The absence of the form in the insurance
company records in this case is weaker evidence than usual,
because the policy has bounced to three different insurers.
The records therefore may not have maintained their integrity
and searchability through all those changes. I agree that the
district court should make findings of fact based on the evi-
dence to determine whether the company received the form
and whether Dr. Abatie was continuously disabled up to his
death. As with any de novo determination, the question for the
district court should not be whether the insurance company
went about its determination the right way, but rather whether
11
See Letter Opinion per CIC § 12921.9: Discretionary Clauses (Febru-
ary 26, 2004), available at http://www.insurance.ca.gov/0200-industry/
0300-insurers/ 0200-bulletins/bulletin-notices-commiss-Opinion/upload/
Opinion-February-26-2004.pdf (last visited July 11, 2006); see also Mitch-
ell v. Aetna Life Ins. Co., 359 F. Supp. 2d 880, 888-89 (C.D. Cal. 2005)
(describing opinion).
9662 ABATIE v. ALTA HEALTH & LIFE INS.
the form was sent in and whether Dr. Abatie was disabled for
the requisite period.

The majority’s elaborate construct for resolving cases with
apparent conflicts of interest is not practical and adds unpre-
dictability to group insurance determinations. Unpredictability
in group insurance determinations is a very bad thing. It
means that more health care and disability money has to be
spent on claims processing instead of health care and disabil-
ity payments. And it means that people fighting over amounts
too small to justify hiring a lawyer will get close questions
resolved against them.

Further, it is impossible as a practical matter to identify
conflicts of interest in the manner the majority suggests. It is
often difficult even for the insurance company to figure out
what its interest is, let alone for someone else to do it. Claim
supervisors differ sharply in their philosophies and, when
marketing people are thrown into the mix, the company often
finds identifying its own interest to be a conundrum. A so-
called independent administrator may have much more of an
incentive to decide against claimants than an insurance com-
pany spending “its own money.” Independent administrators
may want to show how tough they are on claims to better
market their services to self-insured employers. An insurance
company may have an incentive to be more liberal than is
appropriate because its experience-based premiums amount to
a cost-plus contract, such that the more it spends, the more it
makes. An employer that controls the administration of its
group plans may have incentives to slant its decisions in favor
of coverage in close cases. Even though that will be money
out of its pocket, the employer may want to make working
there attractive by means of a reputation for good medical
coverage. Or it may seek to discourage unionization by pro-
viding benefits more liberally than union plans. Or the
employer may insist upon liberal administration out of altru-
ism. Or because the risk management department chief has a
sick child. We in the court system will never know whether
 ABATIE v. ALTA HEALTH & LIFE INS. 9663
there is a conflict of interest in the sense addressed by the
majority opinion.

Courts have fallen into the unfortunate habit in ERISA
cases of focusing entirely on the standard of review. We treat
abuse of discretion review as though it means the claimant
loses, which is not necessarily so. And we treat de novo
review as though it means the claimant wins, which is also not
necessarily so. The focus should be on whether the claimant
is entitled to the claimed benefits. Today’s decision adds
uncertainty.

GOULD, Circuit Judge, concurring in part and concurring in
the judgment:

I concur in all of Judge Graber’s opinion, except Part
III.A.2.b., and concur in the judgment. I agree with the crux
of the analysis that we should overrule Atwood, and that our
review under Firestone should be for abuse of discretion, tak-
ing into account any conflict of interest. Rather than adopt yet
another approach to this problem, however, I would follow
those of our sister circuits that have adopted a “sliding scale”
assessment: The degree of deference given an administrator’s
decision should be reduced when the administrator has a con-
flict of interest, and the greater the conflict, the less the defer-
ence to be given. See Stup v. Unum Life Ins. Co. of Am., 390
F.3d 301, 307 (4th Cir. 2004); Fought v. Unum Life Ins. Co.
of Am., 379 F.3d 997, 1004 (10th Cir. 2004) (per curiam);
Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 390-
93 (3d Cir. 2000); Vega v. Nat’l Life Ins. Servs., Inc., 188
F.3d 287, 297 (5th Cir. 1999) (en banc); Woo v. Deluxe Corp.,
144 F.3d 1157, 1161-62 (8th Cir. 1998).