Filed: Sep. 08, 1999
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Summary: REVISED SEPTEMBER 7, 1999 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 97-20645 _ VILMA LISSETTE VEGA; JOSE VEGA, Plaintiffs-Appellants, versus NATIONAL LIFE INSURANCE SERVICES, INC.; ET AL., Defendants, PAN-AMERICAN LIFE INSURANCE COMPANY, Defendant-Appellee. _ Appeal from the United States District Court for the Southern District of Texas, Houston _ September 1, 1999 Before REYNALDO G. GARZA, POLITZ, JOLLY, HIGGINBOTHAM, DAVIS, JONES, SMITH, DUHÉ, WIENER, BARKSDALE, EMILIO
Summary: REVISED SEPTEMBER 7, 1999 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 97-20645 _ VILMA LISSETTE VEGA; JOSE VEGA, Plaintiffs-Appellants, versus NATIONAL LIFE INSURANCE SERVICES, INC.; ET AL., Defendants, PAN-AMERICAN LIFE INSURANCE COMPANY, Defendant-Appellee. _ Appeal from the United States District Court for the Southern District of Texas, Houston _ September 1, 1999 Before REYNALDO G. GARZA, POLITZ, JOLLY, HIGGINBOTHAM, DAVIS, JONES, SMITH, DUHÉ, WIENER, BARKSDALE, EMILIO ..
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REVISED SEPTEMBER 7, 1999
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 97-20645
_____________________
VILMA LISSETTE VEGA; JOSE VEGA,
Plaintiffs-Appellants,
versus
NATIONAL LIFE INSURANCE
SERVICES, INC.; ET AL.,
Defendants,
PAN-AMERICAN LIFE INSURANCE
COMPANY,
Defendant-Appellee.
_________________________________________________________________
Appeal from the United States District Court for the
Southern District of Texas, Houston
_________________________________________________________________
September 1, 1999
Before REYNALDO G. GARZA, POLITZ, JOLLY, HIGGINBOTHAM, DAVIS,
JONES, SMITH, DUHÉ, WIENER, BARKSDALE, EMILIO M. GARZA, DeMOSS,
BENAVIDES, STEWART, PARKER, and DENNIS, Circuit Judges.1
E. GRADY JOLLY, Circuit Judge:
This case involves a denial of health benefits claimed by Jose
Vega and his wife, Vilma Vega, under a health benefits plan they
established for themselves and the employees of their business, the
Corona Paint & Body Shop, Inc. (“Corona”). The Vegas sued the
insurance companies responsible for insuring and maintaining the
plan, Pan-American Life Insurance Co. (“Pan-American”) and National
1
Chief Judge King is recused.
Life Insurance Services, Inc. (“National Life”)--a subsidiary of
Pan-American. The district court granted summary judgment for the
insurance companies, relying in part on its holding that it could
not consider additional evidence submitted by the Vegas to the
district court when that evidence was not available to the plan
administrator at the time it reached its decision. On appeal, a
panel reversed the district court, holding that the district court
erred in not considering the evidence presented by the Vegas.
We heard this case en banc to address three issues. First,
the Vegas argue that we do not have jurisdiction under the Employee
Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq.,
because the Vegas, as the sole owners of Corona, were not employees
as that term is defined by the statute and related Department of
Labor regulations. This issue has divided the Circuits and we
recognize the need to clarify the scope of ERISA in this context.
We hold today that where a husband and wife are sole owners of a
corporation that has created an employee benefits plan covered by
ERISA, and the husband and wife are also enrolled under the plan as
employees of the corporation, they are employees for ERISA purposes
and so our courts have jurisdiction under ERISA to review a denial
of their claims.
The second issue we address is the panel’s approach to
reviewing a decision of an administrator operating under a conflict
of interest, which in this case is that the corporation deciding
the claim will have to pay the claim. Although in the past we have
2
repeatedly stated that the district court may not engage in
additional fact finding, the panel here sought to carve out an
exception for conflicted administrators. The panel held that, when
the administrator has a conflict of interest in denying a claim, it
must meet a duty to conduct a good faith, reasonable investigation.
In determining whether the administrator has met this duty, the
panel elected to consider evidence that it believed such an
investigation would have uncovered. We hold today that no such
specific and uniform duty exists. We further hold that evidence
may not be admitted in the district court that is not in the
administrative record when that evidence is offered to allow the
district court to resolve a disputed issue of material fact
regarding the claim--i.e., a fact the administrator relies on to
resolve the merits of the claim.
Finally, we turn to the merit of the summary judgment ruling
by the district court. Even though the district court correctly
refused to consider the additional evidence proffered by the Vegas,
the district court nonetheless erred in upholding the
administrator’s denial of the claim. After reviewing the
administrative record, we find no rational basis is contained
therein for denying the Vegas’ claim and therefore conclude that
National Life abused its discretion.
I
The Vegas are the sole owners of Corona, a corporation
structured as a Subchapter S corporation under the Internal Revenue
3
Code. On March 20, 1995, Mr. Vega, on behalf of Corona, applied
for an employer-sponsored group medical plan with Pan-American.
Pan-American issued the policy, which covered Mr. Vega as an
employee and his wife as a dependent. Under the plan, Pan-American
was the insurer and National Life, a subsidiary of Pan-American,
acted as the claims administrator of the plan. The plan granted
National Life discretion in deciding claims.
In filling out the form for his wife, Mr. Vega denied that she
had received any advice, consultation, or test for any medical
condition (other than a recovered bladder infection) during the
previous six months. Less than two months after Pan-American
approved coverage for Mrs. Vega, she saw Dr. Bueso, who recommended
surgery for posterior repair of the vagina. Mrs. Vega underwent
the surgery and processed her claim for coverage under the plan.
In reviewing the medical records related to the claim,
National Life discovered a notation by Mrs. Vega’s gynecologist,
Dr. Galvan, dated October 5, 1994, that stated “posterior repair.”
A representative of National Life then called Dr. Galvan’s office
and asked about the notation. National Life kept phone logs of two
phone calls related to the inquiry. In the first phone call, the
representative spoke to an assistant of Dr. Galvan’s, Ramone, who
told the representative that she would ask Dr. Galvan and call
back. The second log states:
S/W Ramone
Last 2 entries were from phone conversations
4
Last pc was when patient called Dr. Galvan back and Ms.
Vega had some questions regarding a surgical procedure.
Dr. Galvan answered her questions about the procedure and
wrote note in pt chart because they talked about it.
Was she anticipating surgery? He (Dr. Galvan) said
she had questions and he answered them. Doesn’t recall
what prompted conversation.
On the basis of this information, National Life decided to deny
Vega’s claim.
National Life sent a letter to the Vegas explaining to them
that it was denying the Vegas’ claim. The letter stated:
During processing of your claims we learned that the
information contained on your GEC regarding your health
history was not accurate. Specifically, medical records
received and reviewed from Dr. Pineda and Dr. Galvan
indicate that your response to question number 3 was
incorrect. Dr. Galvan’s medical records indicate that on
September 29, 1994 he consulted Ms. Vega for a check up
and relaxation of tissue with breast tenderness. The
records further state that on October 5, 1994, he
recommended a posterior repair. Dr. Pineda’s records
indicate that on May 10, 1995 Ms. Vega obtained a
consultation complaining of galactorrhea and a cytology
was recommended. Had you advised us of Ms. Vega’s
medical history as you were obligated to do, coverage
would have been denied at initial underwriting.2
The letter went on to state:
The URB [Underwriting Review Board] remains willing to
review and consider any additional information you may
have which you feel would impact on our decision to
rescind coverage. If you wish to appeal this decision,
2
Question number 3 from the Group Enrollment Card (“GEC”) was
“Are you or any of your dependents currently pregnant?” It is
apparent that National Life meant to reference question number 1:
“Have you or your dependents had any consultation, advice, tests,
treatment or medication for any medical condition(s) during the
past 6 months?”
Although Pan-American continues to claim that the Vegas made
misrepresentations other than the omission regarding posterior
repair, Pan-American does not seem to currently argue that any of
the other misrepresentations was material.
5
please do so in writing and send it to the attention of
the Underwriting Review Board at the company address
listed below.
The Vegas did not submit a request for review of the decision3
but instead hired an attorney who sent a letter on their behalf
indicating that if Pan-American did not pay the claim, the Vegas
would sue. Pan-American sent a reply indicating that it was
prepared to go to court.
Shortly thereafter, the Vegas filed suit in state court
alleging state law causes of action. Pan-American removed the
action to federal court and each side sought summary judgment. In
the pleadings filed in district court, the Vegas attempted to
introduce testimony from Mrs. Vega’s physicians (Dr. Galvan and Dr.
Bueso) contradicting Pan-American’s claim that, at the time the
Vegas enrolled in the plan, Mrs. Vega contemplated posterior repair
surgery. Pan-American then attempted to introduce expert testimony
supporting its conclusion as a fair reading of the medical records.
The district court granted summary judgment to Pan-American
after concluding that ERISA applied to the dispute and that
Pan-American had not abused its discretion in denying the medical
claim and rescinding coverage. The district court concluded that
it could not consider the testimony introduced by the Vegas as it
3
In their briefs, the Vegas argue that their doctors attempted
to contact National Life to explain to National Life that it had
misunderstood Mrs. Vega’s medical history. There does not appear
to be any actual evidence to support the Vegas’ claims. The
affidavits of the doctors, for example, never mention that they
contacted National Life.
6
was not available to the plan administrator. On appeal, the panel
held that such testimony could be considered, as there was evidence
that Pan-American had violated its duty to conduct a “reasonable,
good faith investigation of the claim.” In reaching this
conclusion, the panel relied heavily on the affidavits prepared by
Dr. Galvan and Dr. Bueso. Vega v. National Life Ins. Services,
Inc., 145 F.3d 673, 678-79 & 680-81 (5th Cir. 1998) (quoting full
text of affidavits and treating testimony as relevant evidence for
summary judgment purposes), reh’g en banc granted and vacated,
167
F.3d 197 (5th Cir. 1999).
II
The first issue we must address is whether the federal courts
have jurisdiction under ERISA to hear this appeal. The Vegas
contend that the trial court and the panel erred in concluding that
ERISA covers this dispute. According to the Vegas, their status as
sole shareholders of Corona renders Mrs. Vega neither a participant
nor a beneficiary for ERISA purposes, so ERISA does not govern
their claims. They urge that their suit belongs in state court.
ERISA preempts all state claims that “relate to any employee
benefit plan.” 29 U.S.C. § 1144(a).4 In order for ERISA to govern
4
There are two kinds of preemption under ERISA. There is
complete preemption--where there is federal jurisdiction because
ERISA contains specific enforcement provisions for the claim, see
29 U.S.C. § 1132, and thus occupies the entire field. Then there
is conflict preemption--where the cause of action is preempted by
29 U.S.C. § 1144, but there is no federal jurisdiction because the
cause of action is outside the scope of ERISA’s civil enforcement
provisions and is therefore governed by the well pleaded complaint
rule. In that case, preemption is a defense to be raised in the
7
the Vegas’ claims, two criteria must be met: (1) an employee
benefit plan must exist, and (2) Mrs. Vega must have standing to
sue as a participant or beneficiary of that employee benefit plan.
See Madonia v. Blue Cross & Blue Shield of Virginia, 11 F.3d 444,
446 (4th Cir. 1993); Apffel v. Blue Cross Blue Shield of Texas,
972
F. Supp. 396, 398 (S.D. Tex. 1997).
The ERISA statute defines “employee welfare benefit plan” as:
any plan, fund, or program . . . established or
maintained by an employer . . . to the extent that such
a plan, fund, or program was established or is maintained
for the purpose of providing for its participants or
their beneficiaries, through the purchase of insurance or
otherwise, (A) medical, surgical, or hospital care or
benefits . . . .
29 U.S.C. § 1002(1). The panel stopped at the initial step--
finding that there was an ERISA plan--and determined that ERISA
governed the Vegas’ lawsuit. The first step is the easy part,
however. In fact, the Vegas agree that an ERISA plan exists to the
extent that the plan is established or maintained for the purpose
of providing benefits to employees who are plan participants and
their beneficiaries.
The Vegas’ argument is that the plan as it regards Mrs. Vega
is not an ERISA plan because she is not a participant or
beneficiary. That is, to have standing to bring a suit under
state court, but is no basis for removal jurisdiction. See Giles
v. NYLCare Health Plans, Inc., 172 F.3d 332, 336-37 (5th Cir.
1999). In this case, the cause of action is completely preempted
because 29 U.S.C. § 1132 provides an enforcement mechanism for
claims to be brought “(1) by a participant or beneficiary--. . .(B)
to recover benefits due to him under the terms of his plan.”
8
ERISA, a person must be either a “participant” or a “beneficiary”
of an ERISA plan, see Weaver v. Employers Underwriters, Inc., 13
F.3d 172, 177 (5th Cir. 1994), and Mrs. Vega argues that her status
as a co-owner precludes her from having standing to assert claims
under ERISA. Thus, determining whether Mrs. Vega is a participant
or beneficiary is key, and the panel did not reach the issue.
To be considered a “participant” of the plan, a claimant must
be an “employee or former employee of an employer . . . who is or
may become eligible to receive a benefit . . . .” 29 U.S.C.
§ 1002(7). Unhelpfully, ERISA defines “employee” as “any
individual employed by an employer.” Id. § 1002(6). A beneficiary
is defined as “a person designated by a participant, or by the
terms of an employee benefit plan, who is or may become entitled to
a benefit thereunder.” 29 U.S.C. § 1002(8).5
Because Mrs. Vega is listed under the policy as her husband’s
dependent, her claims are governed by ERISA only if her husband
qualifies as an employee under ERISA. Because Mr. Vega is a
co-owner, we must decide whether a shareholder of a Texas
corporation is precluded from qualifying as an employee for ERISA
purposes.
The Circuits are not in accord as to whether an individual
partner, sole proprietor, or shareholder may be a “participant” in
5
Pan-American argues that Mrs. Vega is a plan beneficiary
because the plan application and subscription agreement states that
“present full-time employees” and their “dependents” are eligible
for benefits. This argument assumes, however, that Mr. Vega is, in
fact, an employee of the company for purposes of ERISA.
9
an ERISA plan established for the business’s employees. Compare
Fugarino v. Hartford Life & Accident Ins. Co., 969 F.2d 178, 185-86
(6th Cir. 1992)(holding that ERISA did not apply to insurance
coverage of a sole proprietor and his family even though the group
insurance policy purchased by the sole proprietor established an
ERISA plan with respect to the sole proprietor’s employees);
Kwatcher v. Massachusetts Serv. Employees Pension Fund,
879 F.2d
957, 959-60 (1st Cir. 1989)(holding that the sole shareholder of a
corporation was not an “employee” within the meaning of ERISA and,
therefore, could not participate in an ERISA plan); Brech v.
Prudential Ins. Co. of America,
845 F. Supp. 829, 832-33 (M.D. Ala.
1993)(holding that on account of his position as an employer, the
sole proprietor of a company was not a participant of an employee
benefit plan he had established with the purchase of a group
insurance policy for himself and his employee sons, and ERISA
therefore did not preempt his state law claims); and Kelly v. Blue
Cross & Blue Shield of Rhode Island,
814 F. Supp. 220, 226-29
(D.R.I. 1993)(holding that the sole shareholder and chairman of the
board of the employer corporation was not a participant or
beneficiary with respect to a health insurance policy purchased for
the sole shareholder and the company’s employees) with Madonia v.
Blue Cross & Blue Shield of Virginia,
11 F.3d 444, 449-50 (4th Cir.
1993)(holding that a physician’s status as the corporation’s sole
shareholder did not bar him from being an “employee” under ERISA’s
definition of the term).
10
The cases holding that owners cannot also count as employees
for purposes of ERISA base their conclusion on their interpretation
of the ERISA statute, relevant regulations, and legislative
history. First, pointing to the definitions given in 29 U.S.C.
§ 1002, the cases assert that Congress “meant to divorce owner-
employees from plan participation.” See Kwatcher, 879 F.2d at 959.
An “employee” is “any individual employed by an employer.” 29
U.S.C. § 1002(6). The statute defines the term “employer” as “any
person acting directly as an employer, or indirectly in the
interest of an employer . . . .” Id. § 1002(5). While these
definitions are not particularly helpful substantively, they do
reveal, according to these cases, that an employee and an employer
are different beings--they cannot be the same person for ERISA
purposes. These cases further reason that, as a matter of
“economic reality,” an owner should be considered an employer
rather than an employee because he “dominates the actions of the
corporate entity.” Kwatcher, 879 F.2d at 960.
Furthermore, Department of Labor regulations related to
defining when a plan is covered by ERISA provide that:
An individual and his or her spouse shall not be deemed
to be employees with respect to a trade or business,
whether incorporated or unincorporated, which is wholly
owned by the individual or by the individual and his or
her spouse . . . .
29 C.F.R. § 2510.3-3(c)(1)(1992). Various courts have concluded
that this regulation, clarifying the definition, is reasonable and
controlling. See Meredith v. Time Ins. Co., 980 F.2d 352, 357 (5th
11
Cir. 1993); Kelly, 814 F. Supp. at 227. The Fifth Circuit has held
that the owner of a business cannot, for purposes of ERISA,
simultaneously be an employer and an employee. See Meredith, 980
F.2d at 358 (holding that an insurance plan covering only a sole
proprietor and her spouse was not an ERISA employee welfare benefit
plan because the plan did not benefit employees).
Finally, these cases posit that the purpose of ERISA suggests
that an employer’s policy is not part of an ERISA plan because
Congress intended, in passing ERISA, to provide protection for
employees, not employers. See Kwatcher, 879 F.2d at 960 (stating
that “ERISA’s framers were concerned that employers would exploit,
misuse, or loot the huge reserves of funds collected for employee
benefit plans”); Kelly, 814 F. Supp. at 228. These cases contend
that Congress’ intent to exclude owners from ERISA coverage is
revealed in the statute’s “anti-inurement” provision:
[T]he assets of a plan shall never inure to the benefit
of any employer and shall be held for exclusive purposes
of providing benefits to participants in the plan and
their beneficiaries and defraying reasonable expenses of
administering the plan.
29 U.S.C. § 1103(c)(1).6
6
The cases relying on that passage to support an exclusion of
owners as employees are off the mark. This provision refers to the
congressional determination that funds contributed by the employer
(and, obviously, by the employees, if any) must never revert to the
employer; it does not relate to plan benefits being paid with funds
or assets of the plan to cover a legitimate pension or health
benefit claim by an employee who happens to be a stockholder or
even the sole shareholder of a corporation.
12
Madonia, a Fourth Circuit case, reached a different
conclusion. Madonia considered the status of a physician who was
the director, president, and sole shareholder of MNA, the
corporation that he founded. MNA had an employee welfare benefit
plan established for the corporation’s employees. The court held
that the doctor qualified as an “employee” of MNA under ERISA’s
definition of the term--“employee” is “any individual employed by
an employer,” 29 U.S.C. § 1002(6)--because he was an “individual”
and he was “employed by” the corporation. See Madonia, 11 F.3d at
448.
The court also looked beyond the definition and followed the
Supreme Court’s mandate in Nationwide Mut. Ins. Co. v. Darden, 503
U.S. 318 (1992), that it should employ “‘a common-law [agency] test
for determining who qualifies as an ‘employee’ under ERISA. . . .’”
Madonia, 11 F.3d at 448-49 (quoting Darden, 503 U.S. at 323).
Darden, in which the Court grappled with the question of whether an
individual qualified as an employee or an independent contractor,
directed that, because the statutory definition of “employee” was
“circular and explain[ed] nothing,” courts should use a common-law
test for determining who qualifies as an employee under ERISA. 503
U.S. at 323. And, because the common-law test contains “no
shorthand formula or magic phrase that can be applied to find the
answer . . .[,] all of the incidents of the [employment]
relationship must be assessed and weighed with no one factor being
13
decisive.” Id. at 324 (quoting NLRB v. United Ins. Co. of America,
390 U.S. 254, 258 (1968)).
In discerning common-law principles in Madonia, the court
looked to relevant Virginia law, which recognized that a
“corporation is a legal entity separate and distinct from its
shareholders” and that the corporate form may be disregarded only
in extraordinary circumstances. Madonia, 11 F.3d at 449. In
accordance with this principle, the court held that MNA’s corporate
identity was the “employer,” and Dr. Madonia’s separate identity
was MNA’s “employee.” See id. The court specifically
distinguished its case from cases dealing with sole proprietors of
unincorporated businesses that, by definition, have no separate
legal existence. See id. at n.2 (noting that “[t]he question of a
sole proprietorship is not one that is before us”).
Madonia also addressed 29 C.F.R. § 2510.3-3(c)(1), the DOL
regulation that provides that an owner of a business is not to be
considered an employee. The court insisted that the introductory
clause of the regulation, “[f]or purposes of this section,” refers
to 29 C.F.R. § 2510.3-3, which deals exclusively with the
determination of the existence of an employee benefit plan.
Therefore, according to the court, the regulation’s exclusion of
business owners from the definition of “employee” is “limited to
its self-proclaimed purpose of clarifying when a plan is covered by
ERISA and does not modify the statutory definition of employee for
all purposes.” Madonia, 11 F.3d at 449 (quoting Dodd v. John
14
Hancock Mut. Life Ins. Co., 688 F. Supp. 564, 571 (E.D. Cal.
1988)). In other words, “[t]he regulation does not govern the
issue of whether someone is a ‘participant’ in an ERISA plan, once
the existence of that plan has been established,” id. at 449-50;
instead, because the regulations provide that the plan must involve
at least one employee, 29 C.F.R. § 2510.3-3(c)(1) simply insures
that owners are not counted as employees to satisfy the “employee”
requirement. The court thought that its result made “perfect
sense” because “it would be anomalous to have those persons
benefitting from [the employee benefit plan] governed by two
disparate sets of legal obligations.” Id. at 450. The court also
believed that its result promoted Congress’ objective of achieving
uniformity through the enactment of ERISA because it fostered
consistency in the law governing employee benefits. See id.
We are persuaded by the reasoning in Madonia and interpret the
regulations to define employee only for purposes of determining the
existence of an ERISA plan. Under this approach, Corona’s employee
benefit plan is an ERISA plan because it does not solely cover the
Vegas, co-owners of the company; rather, it includes their
employees, and Corona employs at least one other person besides the
Vegas. Mr. Vega’s status as a co-owner does not automatically
foreclose ERISA coverage. Instead, whether Mrs. Vega has standing
to bring ERISA claims under the plan depends on whether common-law
principles define her husband as an “employee” or an “employer.”
15
As in Madonia, the entity in this case is a corporation.
Texas courts recognize the basic proposition that a corporation is
a legal entity separate and distinct from its shareholders. See
Western Horizontal Drilling, Inc. v. Jonnet Energy Corp., 11 F.3d
65, 67 (5th Cir. 1994). Also like Virginia law in Madonia, Texas
law permits disregard of the corporate form only in very limited
circumstances. See id. Thus, we hold that Corona’s corporate form
was the “employer,” Mr. Vega was an “employee,” and Mrs. Vega was
her husband’s beneficiary--in short, ERISA applies to this case, so
this court has jurisdiction. As long as a Texas business
corporation maintains a plan and at least one employee participant
(other than a shareholder or a spouse of the shareholder), an
employee shareholder and his beneficiaries may be participants in
the plan with standing to bring claims under ERISA.7
III
We turn now to the panel’s assessment of the district court’s
summary judgment ruling. On appeal, the panel agreed that ERISA
applied to the case, but it reversed and remanded, concluding that
Pan-American abused its discretion in denying Mrs. Vega’s claim and
rescinding her coverage. The panel based this conclusion on
Pan-American’s failure to conduct a reasonable, good faith
investigation of the facts surrounding the Vegas’ claim. In doing
7
This circuit’s decision in Meredith does not upset this
result. Meredith held that a plan must have employees besides the
owners to qualify as an ERISA plan. See 980 F.2d at 358. The
instant plan involves at least one other employee, so it is
consistent with Meredith.
16
so, the panel relied on the additional evidence presented by the
Vegas in district court.
Although we have dealt with cases involving similar fact
patterns, we have never before explicitly imposed a duty like the
one imposed by the panel here. In reaching its decision, the
panel relied on the existence of a conflict of interest between
National Life’s role as the administrator and Pan-American’s role
as the insurer.8 We therefore first address the role that a
conflict of interest plays in our analysis. We then turn to the
merits of imposing such a duty on the plan administrator,
concluding that such an imposition is inappropriate. Finally, we
reaffirm our long-standing rule that when performing the appellate
duties of reviewing decisions of an ERISA plan administrator, the
district court may not engage in fact-finding.
A
ERISA provides the federal courts with jurisdiction to review
determinations made by employee benefit plans, including health
care plans. 29 U.S.C. § 1132(a)(1)(B). Generally, there are two
ways employee benefit plans may be created: (1) the employer funds
the program and either contracts with a third party who administers
8
As explained above, Pan-American is the insurer and therefore
pays out money for each successful claim made against the plan.
National Life, in its role as claims administrator, decides which
claims succeed. Because National Life is a subsidiary of Pan
American and is controlled by Pan-American, its interests must be
considered to be aligned with those of Pan-American. It is
therefore arguably the case that National Life has a disincentive
to grant claims that Pan-American will have to pay.
17
the plan or provides for administration by a trustee, individual,
committee, or the like; or (2) the employer contracts with a third
party that both insures and administers the plan. In the latter
situation, the administrator of the plan is self-interested, i.e.,
the administrator potentially benefits from every denied claim.9
Section 1132(a)(1)(B) does not provide any guidance regarding
the standard of review to be employed by the federal courts. In
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), the
Supreme Court addressed this issue holding:
[A] denial of benefits challenged under § 1132(a)(1)(B)
is to be reviewed under a de novo standard unless the
benefit plan gives the administrator or fiduciary
discretionary authority to determine eligibility for
benefits or to construe the terms of the plan. . . . Of
course, if a benefit plan gives discretion to an
administrator or fiduciary who is operating under a
conflict of interest, that conflict must be weighed as a
“facto[r] in determining whether there is an abuse of
discretion."
Id. at 115 (citation omitted).
9
We say “potentially” because an insurance company may well
encounter drawbacks from unreasonably denying meritorious claims.
The company’s reputation may suffer as a result and others may be
less willing to enter into contracts where the company has
discretion to decide claims. The argument that Pan-American has
acted out of self-interest is essentially that Pan-American has
acted opportunistically by engaging in activity that is acceptable
under the terms of the agreement (exercising its discretion to deny
claims) but contrary to the purpose of the agreement. The issue of
whether a party is apt to engage in opportunism is one that
preoccupies contract law and for which there are no easy answers.
See, e.g., Richard A. Posner, Economic Analysis of Law 101-04,
369-70 (5th ed., 1998). We do not believe that the reputational
and contractual costs incurred by Pan-American denying a claim
should be ignored.
18
Under Bruch, therefore, when an administrator has
discretionary authority with respect to the decision at issue, the
standard of review should be one of abuse of discretion. However,
the proceeding by which an administrator denies a claim tends not
to be as well defined as, for example, adjudicatory hearings under
the APA. The issues are often further complicated by the relative
sophistication of the parties. An employer may have an incentive
to choose a less expensive benefit plan for his employees, even
though that plan grants a self-interested administrator discretion
to resolve claims. When an employee files such a claim, the
administrator has a financial incentive to deny the claim and often
can find a reason to do so. The employee, on the other hand, is
often not a sophisticated negotiator and therefore may not best
present his case to the administrator.
In the interim, since Bruch, our Circuit has struggled with
the appropriate standard of review for determinations by a self-
interested administrator with discretionary authority. See, Salley
v E.I. DuPont de Nemours & Co. 966 F.2d 1011 (5th Cir. 1992)
(holding that a conflict of interest required the court to more
closely examine the denial of health care benefits under the plan);
Duhon v. Texaco, Inc.,
15 F.3d 1302, 1306 (5th Cir. 1994) (holding
that court must “weigh this possible conflict as a factor in our
determination of whether the plan administrator abused his
discretion, instead of . . . altering the applicable standard of
review”); Sweatman v. Commercial Union Insurance Co.,
39 F.3d 594,
19
599 (1994) (holding that conflict does not change the standard of
review, but should be weighed in determining whether administrator
abused his discretion); Wildbur v. ARCO Chem. Co., 974 F.2d 631,
638-42 (5th Cir. 1992)(“We note that the arbitrary and capricious
standard may be a range, not a point. There may be in effect a
sliding scale of judicial review of trustees' decisions--more
penetrating the greater is the suspicion of partiality, less
penetrating the smaller that suspicion is . . . .").
Other Circuits have also struggled with the role a conflict of
interest should play in determining whether an administrator has
abused its discretion. The Tenth Circuit, in Chambers v. Family
Health Plan Corp., 100 F.3d 818, 824-27 (10th Cir. 1996), catalogs
the various approaches under two categories: the “sliding scale”
standard and the “presumptively void” standard.
Under the “sliding scale” standard, the court always applies
the abuse of discretion standard, but gives less deference to the
administrator in proportion to the administrator’s apparent
conflict. An example of this approach is the Fourth Circuit
decision in Doe v. Group Hospitalization & Medical Services, 3 F.3d
80 (4th Cir. 1993):
We hold that when a fiduciary exercises discretion in
interpreting a disputed term of the contract where one
interpretation will further the financial interests of
the fiduciary, we will not act as deferentially as would
otherwise be appropriate. Rather, we will review the
merits of the interpretation to determine whether it is
consistent with an exercise of discretion by a fiduciary
acting free of the interests that conflict with those of
the beneficiaries. In short, the fiduciary decision will
be entitled to some deference, but this deference will be
20
lessened to the degree necessary to neutralize any
untoward influence resulting from the conflict.
Id. at 86; see also Chambers, 100 F.3d at 826 (holding “that the
sliding scale approach more closely adheres to the Supreme Court's
instruction to treat a conflict of interest as a ‘facto[r] in
determining whether there is an abuse of discretion’”); Sullivan v.
LTV Aerospace & Defense Co., 82 F.3d 1251, 1255 (2d Cir. 1996);
Taft v. Equitable Life Assurance Soc’y,
9 F.3d 1469, 1474 (9th Cir.
1993); Van Boxel v. Journal Co. Employees' Pension Trust,
836 F.2d
1048, 1052-53 (7th Cir. 1987).
Under the presumptively void standard, once a claimant has
demonstrated that the administrator acted out of self-interest, the
administrator then has the burden of establishing that its action
was nevertheless in the plan’s interest. An example of the
application of this approach is the Eleventh Circuit’s decision in
Brown v. Blue Cross & Blue Shield of Alabama, Inc., 898 F.2d 1556
(11th Cir. 1990):
[W]hen a plan beneficiary demonstrates a substantial
conflict of interest on the part of the fiduciary
responsible for benefits determinations, the burden
shifts to the fiduciary to prove that its interpretation
of plan provisions committed to its discretion was not
tainted by self-interest. That is, a wrong but
apparently reasonable interpretation is arbitrary and
capricious if it advances the conflicting interest of the
fiduciary at the expense of the affected beneficiary or
beneficiaries unless the fiduciary justifies the
interpretation on the ground of its benefit to the class
of all participants and beneficiaries.
21
Id. at 1566-67. Another example of this kind of approach is the
Ninth Circuit’s opinion in Atwood v. Newmont Gold Co., Inc., 45
F.3d 1317, 1323 (9th Cir. 1995):
The "less deferential" standard under which we
review apparently conflicted fiduciaries has two steps.
First, we must determine whether the affected beneficiary
has provided 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
administrator's fiduciary obligations to the beneficiary.
If not, we apply our traditional abuse of discretion
review. On the other hand, if the beneficiary has made
the required showing, the principles of trust law require
us to act very skeptically in deferring to the discretion
of an administrator who appears to have committed a
breach of fiduciary duty.
Id.; see also Armstrong v. Aetna Life Ins. Co., 128 F.3d 1263, 1265
(8th Cir. 1997) (finding conflict and reviewing decisions de novo);
Kotrosits v. GATX Corp. Non-Contributory Pension Plan for Salaried
Employees,
970 F.2d 1165, 1173 (3d Cir. 1991) (holding that the
court will withhold deference when the administrator has been shown
to be biased by a conflict of interest).
In the interim since Chambers, the First Circuit has issued an
opinion that defies the neat categories set forth in Chambers. In
Doe v. Travelers Ins. Co., 167 F.3d 53, 57 (1st Cir. 1999), the
court held:
[T]he requirement that [the administrator’s] decision be
"reasonable" is the basic touchstone in a case of this
kind and that fine gradations in phrasing are as likely
to complicate as to refine the standard. The essential
requirement of reasonableness has substantial bite itself
where, as here, we are concerned with a specific
treatment decision based on medical criteria and not some
broad issue of public policy. Any reviewing court is
going to be aware that in the large, payment of claims
costs [the administrator] money. At the same time, the
22
policy amply warns beneficiaries that [the administrator]
retains reasonable discretion based on medical
considerations.
Id.
Having polled the other Circuits, we reaffirm today that our
approach to this kind of case is the sliding scale standard
articulated in Wildbur. The existence of a conflict is a factor to
be considered in determining whether the administrator abused its
discretion in denying a claim. The greater the evidence of
conflict on the part of the administrator, the less deferential our
abuse of discretion standard will be. Having said that, we note
that we sympathize with the First Circuit’s approach--our review of
the administrator’s decision need not be particularly complex or
technical; it need only assure that the administrator’s decision
fall somewhere on a continuum of reasonableness--even if on the low
end.
B
The panel opinion offers a new solution to the problem of how
to evaluate decisions by self-interested administrators. According
to the panel, when reviewing such a decision, the district court
should determine whether the administrator has met its duty to
conduct a good faith, reasonable investigation. If not, the court
need not restrict its review to the facts before the administrator:
The court must pause, before limiting itself to the
record before the administrator, to assure itself that
the administrator conducted a reasonable, good faith
investigation of the claim. That requirement must be
cautiously and carefully imposed when the administrator
has the inherent conflict of interest as exists in the
23
case at bar. To hold otherwise would restrict the
district court to reviewing only those materials before
the administrator, even in cases where the administrator
conducted an unreasonably lax, bad faith investigation of
the facts.
Vega, 145 F.3d at 680 (5th Cir. 1998).
We have never before imposed a duty on the administrator like
the one imposed by the panel here. The two cases that have come
closest to imposing such a duty are Southern Farm Bureau Life Ins.
Co. v. Moore, 993 F.2d 98, 104 (5th Cir. 1993), and Salley v. E.I.
DuPont de Nemours & Co.,
966 F.2d 1011, 1015 (5th Cir. 1992).
Neither of these cases, however, actually imposed such a duty.
Moore simply stated that the administrator had conducted a
reasonable investigation and, although Salley notes that the
administrator did not conduct a reasonable investigation, Salley
rested its decision on the sufficiency of the administrative record
to support the denial.
Having considered the relative merit of placing such a burden
on the administrator, we reject this rule and stand by our
precedent: We will continue to apply a sliding scale standard to
the review of administrator’s decisions involving a conflict of
interest. If we placed a duty on conflicted administrators to
reasonably investigate, we would be adopting the presumptively void
standard of the Eleventh, Eighth, and Third Circuits. In effect,
we would shift the burden to the administrator to prove that it
reasonably investigated the claim. A rule that permitted such a
result would be at odds with the Supreme Court’s instruction in
24
Bruch to review such determinations under an abuse of discretion
standard--a standard that demands some deference be given to the
administrator’s decision. Such a rule would also violate basic
principles of judicial economy. There is no justifiable basis for
placing the burden solely on the administrator to generate evidence
relevant to deciding the claim, which may or may not be available
to it, or which may be more readily available to the claimant. If
the claimant has relevant information in his control, it is not
only inappropriate but inefficient to require the administrator to
obtain that information in the absence of the claimant’s active
cooperation.
Instead, we focus on whether the record adequately supports
the administrator’s decision. In many cases, this approach will
reach the same result as one that focuses on whether the
administrator has reasonably investigated the claim. The advantage
to focusing on the adequacy of the record, however, is that it (1)
prohibits the district court from engaging in additional fact-
finding and (2) encourages both parties properly to assemble the
evidence that best supports their case at the administrator’s
level. For instance, in this case, the administrator’s decision
does not seem to be adequately supported by the record. On the
other hand, the additional information--what Mrs. Vega’s personal
physician meant by his notation--could have been more easily
obtained by the Vegas. When National Life did call Dr. Galvan’s
office, it did not actually get through to the doctor. Although
25
National Life should have done so before denying the claim, this
controversy could have been resolved if the Vegas, who were
represented by counsel, had presented this information to National
Life when their claim was denied. Here, it is apparent that the
Vegas’ attorney dismissed the administrative process as a nuisance
and placed all their eggs in the litigation basket.
We hold today that, when confronted with a denial of benefits
by a conflicted administrator, the district court may not impose a
duty to reasonably investigate on the administrator. Under our own
precedent and the Supreme Court’s ruling in Bruch, we must give
deference to the administrator’s decision. That the administrator
decides a claim when conflicted, however, is a relevant factor. In
a situation where the administrator is conflicted, we will give
less deference to the administrator’s decision. In such cases, we
are less likely to make forgiving inferences when confronted with
a record that arguably does not support the administrator’s
decision. Although the administrator has no duty to contemplate
arguments that could be made by the claimant, we do expect the
administrator’s decision to be based on evidence, even if
disputable, that clearly supports the basis for its denial.10
C
10
By focusing on the requirements that support an
administrator’s denial of a claim, we by no means wish to cast the
administrator in the role of an advocate for denying all claims.
However, because we only review litigation arising out of an
administrator’s denial of a claim, we do wish to be specific about
the record an administrator must create, when the administrator
chooses to deny a claim.
26
We turn next to the panel’s use of the doctors’ affidavits in
reaching its decision. A long line of Fifth Circuit cases stands
for the proposition that, when assessing factual questions, the
district court is constrained to the evidence before the plan
administrator. Meditrust Financial Services Corp. v. Sterling
Chemicals, Inc., 168 F.3d 211, 215 (5th Cir. 1999); Schadler v.
Anthem Life Insurance Company,
147 F.3d 388, 394-95 (5th Cir.
1998); Thibodeaux v. Continental Casualty Insurance,
138 F.3d 593,
595 (5th Cir. 1998); Barhan v. Ry-Ron Inc.,
121 F.3d 198 (5th Cir.
1997); Bellaire General Hosp. v. Blue Cross Blue Shield of
Michigan,
97 F.3d 822, 828-29 (5th Cir. 1996); Sweatman v.
Commercial Union Insurance Co.,
39 F.3d 594, 597-98 (1994); Duhon
v. Texaco Inc.,
15 F.3d 1302, 1306-07 (5th Cir. 1994); Southern
Farm Bureau Life Ins. Co. v. Moore,
993 F.2d 98, 101-02 (5th Cir.
1993); Wildbur v. ARCO Chem. Co.,
974 F.2d 631, 639 (5th Cir.
1992).
Our case law also makes clear that the plan administrator has
the obligation to identify the evidence in the administrative
record and that the claimant may then contest whether that record
is complete. See, e.g., Barhan, 121 F.3d at 201-02. Once the
administrative record has been determined, the district court may
not stray from it except for certain limited exceptions. To date,
those exceptions have been related to either interpreting the plan
or explaining medical terms and procedures relating to the claim.
Thus, evidence related to how an administrator has interpreted
27
terms of the plan in other instances is admissible. See Wildbur v.
ARCO Chemical Co., 974 F.2d 631, 639 & n.15 (5th Cir.
1992)(compiling cases). Likewise, evidence, including expert
opinion, that assists the district court in understanding the
medical terminology or practice related to a claim would be equally
admissible. However, the district court is precluded from
receiving evidence to resolve disputed material facts--i.e., a fact
the administrator relied on to resolve the merits of the claim
itself.
In this case, the record amounted to a number of exhibits
attached to Pan-American’s motion for summary judgment. The
exhibits contained the relevant plan documents, Mrs. Vega’s medical
record, and the phone logs documenting Pan-American’s contact with
Mrs. Vega’s doctors. The dispute here was essentially a factual
one that would resolve the merits of the claim: Did Mrs. Vega
receive notice that she would need posterior repair surgery prior
to applying for membership in the plan? The testimony that the
Vegas sought to introduce is evidence related to this factual
dispute, which easily could have been presented to the
administrator by the Vegas’ counsel. The district court therefore
correctly held that it could not admit new evidence for the purpose
of resolving this dispute on the merits of the claim.
Our motivating concern here is that our procedural rules
encourage the parties to resolve their dispute at the
administrator’s level. If a claimant believes that the district
28
court is a better forum to present his evidence and we permit the
claimant to do so, the administrator’s review of claims will be
circumvented. This result is plainly contrary to Bruch, which
requires us to apply an abuse of discretion standard of review.
Although we recognize that there is a concern that a self-
interested administrator can manipulate this process unfairly
(e.g., by permitting the administrator to exclude from the record
information that would weigh in favor of granting the claim), we
think that this concern is largely unwarranted in the light of
adequate safeguards that can be put in place.
Before filing suit, the claimant’s lawyer can add additional
evidence to the administrative record simply by submitting it to
the administrator in a manner that gives the administrator a fair
opportunity to consider it. In Moore, we said that "we may
consider only the evidence that was available to the plan
administrator in evaluating whether he abused his discretion in
making the factual determination.” Moore, 993 F.2d at 102. If the
claimant submits additional information to the administrator,
however, and requests the administrator to reconsider his decision,
that additional information should be treated as part of the
administrative record. See, e.g., Wildbur, 974 F.2d at 634-35.
Thus, we have not in the past, nor do we now, set a particularly
high bar to a party’s seeking to introduce evidence into the
administrative record.
29
We hold today that the administrative record consists of
relevant information made available to the administrator prior to
the complainant’s filing of a lawsuit and in a manner that gives
the administrator a fair opportunity to consider it. Thus, if the
information in the doctors’ affidavits had been presented to
National Life before filing this lawsuit in time for their fair
consideration, they could be treated as part of the record.11
Furthermore, in restricting the district court’s review to evidence
in the record, we are merely encouraging attorneys for claimants to
make a good faith effort to resolve the claim with the
administrator before filing suit in district court; we are not
establishing a rule that will adversely affect the rights of
claimants.
In the light of our precedent and the abuse of discretion
standard set forth in Bruch, we will not permit the district court
or our own panels to consider evidence introduced to resolve
factual disputes with respect to the merits of the claim when that
evidence was not in the administrative record. We therefore stand
by our precedent and reaffirm that, with respect to material
factual determinations--those that resolve factual controversies
11
Because there is no evidence in either the administrative
record or the record before the district court to support the
Vegas’ contention that they presented the information in the
doctor’s affidavits to National Life, we cannot treat this
information as part of the record. However, had the Vegas
demonstrated to the district court that the information in the
doctors’ affidavits was presented to the administrator, the
district court should have treated that information as part of the
record.
30
related to the merits of the claim--the court may not consider
evidence that is not part of the administrative record.
IV
We turn finally to the merits of the district court’s summary
judgment ruling. Although we find that the district court did not
err in refusing to consider the additional testimony of Dr. Bueso
and Dr. Galvan, we cannot agree with the district court that
National Life did not abuse its discretion in denying the claim.
In the case at hand, the employer has contracted with both National
Life and Pan-American. The record does not adequately address the
relationship between these two companies. It is clear that Pan-
American is a subsidiary of National Life, and we therefore must
regard Pan-American as owned and controlled by National Life. What
is not clear from the record is whether National Life exercises
control over the day-to-day decisions of Pan-American.
Although our cases have addressed conflicts of interest in
evaluating whether there has been an abuse of discretion, none of
those cases involved the arrangement presented in this case in
which the administrator is a separate but wholly-owned subsidiary
of the insurer. Instead, in these previous cases, the insurer and
the administrator have operated within the same entity. In this
case, given the ownership and control of Pan-American by National
Life, we must regard their relationship as something more than
31
purely contractual12 and therefore conclude that Pan-American’s
decision was, to some degree, self-interested.13 Although the Vegas
have demonstrated the minimal basis for a conflict, they have
presented no evidence with respect to the degree of the conflict.
On our sliding scale, therefore, we conclude that it is appropriate
to review the administrator’s decision with only a modicum less
deference than we otherwise would.
A review of the evidence available to National Life at the
time it denied the claim illustrates that its decision was not
reasonable. National Life concluded that the Vegas made a material
misrepresentation in response to the question, “Have you or your
dependents had any consultation, advice, tests, treatment or
medication for any medical condition(s) during the past 6 months?”
Pan-American argues that the notation in Mrs. Vega’s medical record
clearly indicates that she received advice or consultation about a
medical condition. To be material, however, the advice or
consultation must be related to a medical condition that Mrs. Vega
had at the time. In this case, there is simply no competent
evidence that, at the time the notation was made in her medical
12
As we made clear in Part III. A., a purely contractual
relationship between the insurer and the administrator does not
create an inference that the administrator is conflicted.
13
We note that, under Bruch, our analysis of the duties owed
by an administrator are likened to the law of trusts. In the ERISA
context, then, the purported conflict is examined in the light of
the fiduciary obligations of a trustee. The way we impute the
incentives of the parent to those of the subsidiary is therefore
strictly limited to a conflict of interest on the part of an ERISA
administrator.
32
record, Mrs. Vega suffered from a condition that required posterior
repair surgery.
Shortly after enrolling in the plan, Mrs. Vega underwent
surgery for posterior repair. The occurrence of the operation
shortly after enrollment and the handwritten note by Dr. Galvan in
Mrs. Vega’s medical records certainly create a doubt regarding
whether the procedure had been recommended to her prior to her
enrollment in the plan.
The explanation of this notation provided by Dr. Galvan’s
assistant does not necessarily dispel this concern. Neither,
however, does it provide evidence to support a conclusion that Mrs.
Vega suffered from a medical condition for which she required
posterior repair surgery; the notation is simply ambiguous. The
evidence makes clear that Dr. Galvan made the notation during a
telephone conversation with Mrs. Vega. If Mrs. Vega had called
with questions about an actual ailment that required surgery, one
would expect Dr. Galvan to set up an appointment with her, which he
did not do. It is therefore far from a foregone conclusion that
Dr. Galvan’s notation was related to a medical condition that Mrs.
Vega was experiencing at that time. This is the only information
available in the record that supports the denial of the claim.
Plainly put, we will not countenance a denial of a claim
solely because an administrator suspects something may be awry.
Although we owe deference to an administrator’s reasoned decision,
we owe no deference to the administrator’s unsupported suspicions.
33
Without some concrete evidence in the administrative record that
supports the denial of the claim, we must find the administrator
abused its discretion.
If an administrator has made a decision denying benefits when
the record does not support such a denial, the court may, upon
finding an abuse of discretion on the part of the administrator,
award the amount due on the claim and attorneys’ fees. See, e.g.,
Salley, 966 F.2d at 1014. We find such an abuse of discretion
here, and we will remand to the district court for a determination
of damages and reasonable attorney’s fees and for entry of
judgment.14
V
In this case, we were first confronted with a jurisdictional
issue--whether Mr. Vega was an employee and therefore a participant
of the plan for purposes of ERISA. We hold today that, under Texas
law, a sole shareholder of a corporation who is also an employee of
14
Damages would include the amount due on the claim plus
interest. 29 U.S.C. § 1132(g)(2). In some special circumstances
a remand to the administrator for further consideration may be
justified. Here, however, the only issue in dispute was whether a
material misrepresentation was made. We decline to remand to the
administrator to allow him to make a more complete record on this
point. We want to encourage each of the parties to make its record
before the case comes to federal court, and to allow the
administrator another opportunity to make a record discourages this
effort. Second, allowing the case to oscillate between the courts
and the administrative process prolongs a relatively small matter
that, in the interest of both parties, should be quickly decided.
Finally, we have made plain in this opinion that the claimant only
has an opportunity to make his record before he files suit in
federal court, it would be unfair to allow the administrator
greater opportunity at making a record than the claimant enjoys.
34
that corporation is an employee for purposes of determining whether
he is a participant of an ERISA plan.
This case also involves a complex issue with respect to how we
deal procedurally with ERISA claims. Given the Supreme Court’s
language in Bruch, we must review this sort of claim under an abuse
of discretion standard. Recognizing that a rule that unduly
permits litigation in the district court may result in claimants’
being less than forthcoming in the initial claim procedure, we
reject the panel’s formulation of an administrator’s duty to
conduct a good faith, reasonable investigation. Instead, we
reaffirm that decisions like this one will be reviewed under an
abuse of discretion standard--i.e., we will give deference to the
administrator’s decision. The amount of deference we accord to the
administrator will decrease the more the administrator labors under
an apparent conflict of interest. We nevertheless always give some
deference to the administrator’s decision. Finally, because we are
bound by an abuse of discretion standard, we will not permit
additional evidence to be admitted with respect to materially
factual issues.
In this case, even applying a standard under which we accord
deference to the plan administrator, we cannot affirm the district
court’s summary judgment ruling in its favor. The administrative
record contained no evidence that would support denying the claim.
Although the record contains innuendos and hints that Mrs. Vega may
have made a material misrepresentation on her enrollment form,
35
there is no concrete evidence to support this finding. For the
foregoing reasons, the ruling of the district court is REVERSED.
We RENDER on the question of liability and REMAND to the district
court for a determination as to the amount of damages and
attorney’s fees.
REVERSED, RENDERED and REMANDED for
entry of judgment for the plaintiffs
and award of attorney fees.
36
