[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
FILED
______________________
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 03-14386
June 16, 2004
______________________ THOMAS K. KAHN
CLERK
D.C. Docket No. 01-02358-CV-B-S
MARCIA WILLIAMS,
Plaintiff-Appellant,
versus
BELLSOUTH TELECOMMUNICATIONS, INC.,
Defendant-Appellee.
______________________
Appeal from the United States District Court
for the Northern District of Alabama
______________________
(June 16, 2004)
Before EDMONDSON, Chief Judge, HULL, Circuit Judge, and EDENFIELD*,
District Judge.
EDENFIELD, District Judge:
*
Honorable B. Avant Edenfield, United States District Judge for the Southern District of Georgia,
sitting by designation.
I. Background
Claiming debilitating depression, appellant Marcia Williams applied for
benefits under her employer’s (BellSouth Telecommunications, Inc.’s) disability plan.
Unconvinced that her impairments completely prevented her from working, Kemper
Risk Management Services, Inc. (Kemper) -- the company BellSouth hired to
administer claims1-- denied the claim because she did not meet the plan’s disability
definition.2
Invoking Employee Retirement Income Security Act (ERISA) jurisdiction, 29
U.S.C. §§ 1001, et seq., Williams challenged that decision in district court. Applying
the arbitrary and capricious review standard, the district court found that available
medical evidence supported Kemper’s non-disability determination, so it granted
BellSouth summary judgment. Williams appeals, contending that: (1) the district
court applied the wrong standard of review and (2) even under the arbitrary and
capricious standard, the denial of benefits was improper.
1
Kemper is a company independent of BellSouth. Prior to its contract for Kemper’s services,
BellSouth processed its own claims.
2
BellSouth’s plan defines “Disability” as “a medical condition which makes a Participant unable
to perform any type of work as a result of physical or mental illness or an accidental injury.”
2
II. Analysis
A. Standard of Review on Appeal
We review the district court's ruling de novo, applying the same legal standards
that governed the district court’s disposition. Carter v. Galloway, 352 F.3d 1346,
1349 (11th Cir. 2003); Nat’l Fire Ins. Co. of Hartford v. Fortune Const. Co., 320 F.3d
1260, 1267 (11th Cir. 2003).
B. ERISA Review Standard
ERISA provides no standard for reviewing decisions of plan administrators or
fiduciaries. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 (1989); Shaw
v. Connecticut Gen. Life Ins. Co., 353 F.3d 1276, 1282 (11th Cir. 2003); Marecek v.
BellSouth Telecomms., Inc., 49 F.3d 702, 705 (11th Cir. 1995). But Firestone
established three distinct standards for reviewing administrators' plan decisions: "(1)
de novo where the plan does not grant the administrator discretion [i.e., does not
exercise discretion in deciding claims;] (2) arbitrary and capricious [where] the plan
grants the administrator [such] discretion; and (3) heightened arbitrary and capricious
where [the plan grants the administrator such discretion but] ... [he has] ... a conflict
of interest."3 HCA Health Servs. of Georgia., Inc. v. Employers Health Ins. Co., 240
3
Firestone actually addressed the standard for judicial review of an administrator’s plan
interpretations (i.e., its interpretation of what plan provisions mean), whereas here we are dealing
with a plan administrator’s factual determinations (i.e., that Williams was in fact not disabled under
3
F.3d 982, 993 (11th Cir. 2001) (quoting Buckley v. Metro. Life, 115 F.3d 936, 939
(11th Cir. 1997)); Shaw, 353 F.3d. at 1282.
Williams contends that, because BellSouth both funded and administered the
disability benefits plan,4 a conflict of interest existed, so the district court erred by not
reviewing the denial of benefits using the “heightened” arbitrary and capricious
standard.
We note that in most cases where a company both administers and funds a plan,
a conflict of interest arises, thus triggering heightened arbitrary and capricious
review. See Brown v. Blue Cross and Blue Shield of Alabama, Inc., 898 F.2d 1556,
1562 (11th Cir. 1990); Yochum v. Barnett Banks, Inc. Severance Pay Plan, 234 F.3d
541, 544 (11th Cir. 2000); Levinson v. Reliance Standard Ins. Co., 245 F.3d 1321,
1325-26 (11th Cir. 2001) (Where administrator of benefits plan governed by ERISA
pays out to participants out of its own assets, a conflict of interest exists between its
the plan because she was not completely unable to work). Courts, however, read Firestone broadly,
applying its three levels of review to both plan interpretations and factual determinations. Shaw, 353
F.3d at 1284-85; Torres v. Pittston Co., 346 F.3d 1324 (11th Cir. 2003); Paramore v. Delta Air
Lines, Inc., 129 F.3d 1446, 1451 (11th Cir. 1997) ("[W]e consistently have upheld application of the
abuse of discretion standard of review to determinations involving both plan interpretations and
factual findings under ERISA"). Sometimes courts complicate this area by employing a third term,
“plan adjudication,” which can encompass plan interpretation, a factual determination, or both. For
clarity, we avoid use of the term “adjudication” here.
4
BellSouth’s disability plan is not a trust or otherwise self funded. Rather, any benefits are paid
directly out of BellSouth’s operating expenses. It is therefore, not in BellSouth’s financial interest
to approve disability benefit claims.
4
fiduciary rule and its profit-making role, and accordingly, a heightened arbitrary and
capricious standard applies in reviewing administrator’s discretionary denial of
benefits under the plan).
But here BellSouth -- though it retained the role of “plan administrator”--
employed Kemper as its “claim administrator.” Kemper processed and decided
claims that BellSouth would pay out. See Smathers v. Multi-Tool, Inc., 298 F.3d 191,
197 n. 10 (3rd Cir. 2002) (distinguishing “plan administrator,” the employer
providing the plan, and “claim administrator,” the company retained to decide
claims). Or, as BellSouth explained in its disability plan description, it
delegated to Kemper ... the duty to administer all claims for plan benefits
for [BellSouth] plan participants. Kemper is the named fiduciary under
the plan with complete authority to review all denied claims for benefits
in exercising such fiduciary responsibilities....
By doing this, BellSouth contends, it eliminated the conflict of interest (and thus the
need for the heightened arbitrary and capricious review) because Kemper, a
disinterested party, decided what claims BellSouth would pay.
The question for us, then, is whether a plan administrator (BellSouth) can avoid
the heightened arbitrary and capricious standard applicable to conflict of interest
cases by delegating its claim processing duties to a third party (Kemper).
To answer that we turn to Buce v. Allianz Life Ins. Co., 247 F.3d 1133, 1141
5
(11th Cir. 2001) There, we held the heightened arbitrary and capricious standard
applied where a plan administrator, despite delegating its claim processing duties to
a third party, exercised the “ultimate authority to determine for itself whether
payments should be made out of its own assets.” Whether heightened arbitrary and
capricious review applies, then, depends on whether the plan administrator (i.e., the
party with the conflict of interest) retains control, or the ability to control the ultimate
disposition of the claim.
Buce illuminates the dividing line between conflicted plans (where the
administrator retains the ability to ultimately control whether to pay out on a claim)
and non-conflicted plans (where the administrator does not). Williams argues that
BellSouth retained such control because Kemper was actually BellSouth’s common
law agent, as opposed to an independently acting contractor. But we need not venture
down that state-law path because the “Buce rule” (if the plan-payout funding source
retains ultimate control over the pay-out decision, the “heightened” review standard
applies) adequately covers all the relevant bases here.
Turning to the BellSouth/Kemper contract, we note that it plainly spells out the
scope of Kemper’s independence and discretion and, more importantly, the extent of
BellSouth’s retained control. In the “Extent of Kemper’s Authority” section, two
provisions explain Kemper’s and BellSouth’s relative authorities under the contract.
6
One provision states that “Kemper shall adjudicate all Plan claims and appeals in
accordance with written claim review procedures provided by [BellSouth].”
Williams argues that this gives BellSouth control over how Kemper disposes
of claims, and thus it is no different than BellSouth processing the claims itself since
Kemper is using the same guidelines and procedures that BellSouth employed before
delegating its claims duties to Kemper. But there is a difference between giving
general instructions applicable to the adjudication of all claims and having actual
control over the disposition of specific claims. Buce requires application of the
heightened arbitrary and capricious standard only with the latter.
Plus, it is difficult to imagine a situation in which a principal employing
another to do a job would give no instructions at all. BellSouth’s “claim review
procedure” is no more than general instructions for Kemper to apply in adjudicating
all claims. It did not give BellSouth the ability to directly affect the disposition of
specific claims. Thus, the general instructions by themselves do not place the
BellSouth-Kemper arrangement over Buce’s dividing line.
But the BellSouth-Kemper contract also provides that, “[w]here specific
instructions as to a particular matter have been given [by BellSouth], Kemper is
charged with strict compliance with such instructions, no matter how broad its
general powers may otherwise have been.” This provision, plainly construed, grants
7
BellSouth the power to give Kemper specific instructions as to specific claims, which
Kemper then must unquestioningly follow.
Furthermore, nothing appears to limit BellSouth’s ability to give any
instruction it wants, including the instruction to grant or deny a claim.5 This means
that BellSouth has the same ability as the administrator in Buce to control any aspect
of the disposition of claims it chooses.
Yet, there is a notable distinction. While the administrator in Buce expressly
claimed the power to dispose of specific claims for itself, BellSouth has only
expressly claimed the right to tell Kemper how to dispose of claims. Technically,
then, BellSouth escapes Buce’s reasoning, since it does not have the ability to deny
claims itself.
Still, that technical distinction does not change the ultimate truth -- BellSouth
nevertheless holds the ultimate power to do with claims as it wants; it just has to tell
Kemper when to do it. As such, the conflict between BellSouth’s fiduciary and
profit-making interest, which triggers the heightened standard of review, remains.
See Buce, 247 F.3d at 1141.
5
Williams points out that in the past, BellSouth has exercised this power by giving Kemper the
specific instruction to deny a claim. BellSouth disputes that fact, claiming that it only did so upon
court order. We need not resolve this issue because BellSouth, under the contract itself, in fact
retained the ability to control all aspects of claims dispositions.
8
This does not mean that, to avoid the heightened standard, there must be no
contact at all. Some contact and interaction, the district court correctly noted, “is
incidental to the contractual relationship” and thus a “certain amount of contact
between the plan administrator ... and the claims administrator ... is necessary and
appropriate.” But where the plan administrator’s abdication of its claims processing
duty is only superficial (i.e., it retains the ultimate power to affect the disposition of
specific claims), the heightened arbitrary and capricious standard of review should
still apply.
It follows that the district court should have applied the heightened, rather than
the “regular” arbitrary and capricious standard.
C. Application
That the district court applied the wrong standard, however, does not
necessarily entitle Williams to relief. She must still show that such error prejudiced
her, see F.R.Civ.P.61, and thus would have prevailed under heightened arbitrary and
capricious standard. This she failed to do. We addressed essentially this same
situation in Levinson, 245 F.3d at 1325-27.
As was the case here, the Levinson employer (Reliance) both funded and
administered its disability plan, thus creating a conflict of interest between its
fiduciary and profit-making interest. Id. at 1326. Accordingly, we found the
9
heightened arbitrary and capricious review standard to apply. Id.
But the distinctions between the heightened arbitrary and capricious, arbitrary
and capricious, and de novo standards of review have become difficult to discern over
time. Given the semantic imprecision that has seeped into this area, we first pause to
clarify these concepts before attempting to apply them.
De novo review, which we employ in reviewing “no-discretion” plan
decisions, offers the highest scrutiny (and thus the least judicial deference) to the
administrator’s decision. In fact, we accord no deference there, since, no
judgment/discretion was exercised in making the determination (i.e., there is no
discretion to which we would defer).
In contrast, where the administrator has discretion (i.e., applies his own
judgment) in making plan decisions, we review under the arbitrary and capricious
standard (which is substantively the same as the “abuse of discretion” standard, Shaw,
353 F.3d at 1284-85 n. 6). We use it to avoid judicial second guessing/intrusion by
according the most judicial deference (and thus, the least judicial scrutiny).
Finally, where the administrator has discretion but exercises it under a conflict
of interest, we apply “heightened arbitrary and capricious” review. There we apply
a level of deference (and conversely, scrutiny) somewhere between what is applied
under the de novo and “regular” arbitrary and capricious standards.
10
In HCA, we incorporated these varying levels of judicial review in a multi-step
approach. For clarity, we recapitulate that approach (240 F.3d at 993-95) in a simpler
version here, for use in judicially reviewing virtually all ERISA-plan benefit denials:6
(1) Apply the de novo standard to determine whether the claim
administrator’s benefits-denial decision is “wrong” (i.e., the court
disagrees with the administrator’s decision);7 if it is not, then end the
inquiry and affirm the decision.
(2) If the administrator’s decision in fact is “de novo wrong,”8 then
determine whether he was vested with discretion in reviewing claims;
if not, end judicial inquiry and reverse the decision.
(3) If the administrator’s decision is “de novo wrong” and he was vested
with discretion in reviewing claims, then determine whether
“reasonable” grounds9 supported it (hence, review his decision under the
more deferential arbitrary and capricious standard).
(4) If no reasonable grounds exist, then end the inquiry and reverse the
administrator’s decision; if reasonable grounds do exist, then determine
if he operated under a conflict of interest.
6
We thus mean both benefits denials based on plan interpretations as well on factual
determinations, since many, if not most determinations will involve “issues of both plan
interpretation and fact,” Shaw, 353 F.3d at 1285, and we will otherwise wait to be confronted by
principled exception to say otherwise here.
7
See HCA, 240 F.3d at 993 n. 23.
8
We have also used the phrase “‘wrong’ from the perspective of de novo review,” Brown, 898
F.2d at 1566 n. 12; see also HCA, 240 F.3d at 993, and we mean the same here.
9
See HCA, 240 F.3d at 994 (even if the court finds the claimant’s determination reasonable, that
“does not trump the claims administrator’s wrong interpretation ... because the plan documents
explicitly grant [him] discretion to interpret the plan”).
11
(5) If there is no conflict, then end the inquiry and affirm the decision.
(6) If there is a conflict of interest, then apply heightened arbitrary and
capricious review to the decision to affirm or deny it.
We described “heightened arbitrary and capricious review” supra as
somewhere between the de novo and “mere” arbitrary and capricious standards. But
where is that “somewhere”? Supreme Court decisions have not explained it. See
Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 390-94 (3rd Cir. 2000).
“[C]ircuit courts agree that a conflict of interest triggers a less deferential standard of
review... [but] .... differ over how this lesser degree of deference alters their review
process." Chambers v. Family Health Plan Corp., 100 F.3d 818, 825 (10th Cir.1996).
Our circuit, at least in plan interpretation cases (unlike this, a factual
determination case), has incorporated a two step, burden-shifting, approach:
(1) The claimant shows that the administrator of a discretion-vesting
plan is conflicted.
(2) The administrator then proves that his plan interpretation was not
tainted by self-interest.
See Brown, 898 F.2d at 1566.
A wrong but apparently reasonable interpretation is arbitrary and capricious if
it advances the conflicting interest of the administrator at the expense of the claimant.
Id. at 1566-67. But, if the administrator can demonstrate a routine practice or give
12
other plausible justifications -- such as benefitting the interests of other beneficiaries
-- judicial deference to it may be granted, since "[e]ven a conflicted [administrator]
should receive deference when [he] demonstrates that [he] is exercising discretion
among choices which reasonably may be considered to be in the interests of the
participants and beneficiaries.” Id. at 1568.
In both Shaw and Levinson, two factual-determination cases, we did not
say whether Brown’s “heightened arbitrary and capricious,” burden-shifting approach
should be applied to factual determination cases like this. In Levinson, we mentioned
the “heightened” standard because a conflict existed there, 215 F.3d at 1326, but we
later (after determining that the administrator’s decisions were “de novo wrong”)
concluded that the administrator had no reasonable basis for its decisions, so they did
not even survive the more (judicially) deferential “arbitrary and capricious” standard.
Hence, there was no need to apply the “heightened” arbitrary and capricious
standard, though we somewhat clouded the discussion there by referencing the
administrator’s “self-interest” in our concluding passage on that score. Id. at 1327.
We also had no occasion to so conclude in Shaw. As we will now show, we
find the same to be the case here (hence, we leave the issue to another day, but proffer
13
the above framework to assist future determinations).10
Turning back to the instant case, we note that Kemper reviewed the medical
records of several doctors, including Williams’s own doctor, Dr. Michael Holt, in
making its benefits-denial decision. None indicated that Williams was completely
incapable of working.
Kemper also had Williams examined by an independent medical examiner
(IME), Dr. Charles Whestall. She indicated to Whestall that she was engaging
normally in the significant activities of daily living, including caring for two young
children and a granddaughter, cooking all meals, performing housework, tending to
finances, and attending religious services. And instead of claiming that she could not
work at all, she said that she would like to change to a less stressful job. Whestall
concluded from her testing that her stress was “not overwhelming her capacity for
coping.”
Accordingly, we cannot say that Kemper’s no-disability determination was de
novo wrong under the terms of BellSouth’s disability plan. Unlike the plan
administrator in Levinson, Kemper thoroughly gathered and reviewed medical
evidence concerning Williams’s condition, including that of an IME.
10
Much discussion on the subject is found in Thomas v. SmithKline Beecham Corp., 297 F.Supp.2d
773, 788-89 (E.D.Pa. 2003).
14
Also, there was more than sufficient medical evidence to contradict Williams’s
claim that she was unable to perform “any kind of work” as required for disability
benefits under the BellSouth Plan. Because no grounds exist to disturb Kemper’s
determination under the de novo review standard, we need not review it under the
more deferential (“mere” or “heightened” arbitrary and capricious) standard, much
less reach the parties’ remaining arguments.
III. Conclusion
Although the district court erred in applying the wrong standard, it reached the
right result, so we AFFIRM its judgment. See Watkins v. Bowden, 105 F.3d 1344,
1353 n. 17 (11th Cir. 1997) (appellate court may affirm district court on any ground,
even one not considered); accord Mann v. Haigh, 120 F.3d 34, 36 (4th Cir. 1997)
(“we may affirm the judgment of the district court on any basis that the record fairly
supports”).
15
EDMONDSON, Chief Judge, concurs in the result.
16