William Reed Smathers v. Multi-Tool, Inc./multi-Plastics, Inc. Employee Health

PRECEDENTIAL
Filed July 31, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-1045
*WILLIAM REED SMATHERS,
Appellant
v.
MULTI-TOOL, INC./MULTI-PLASTICS, INC.
EMPLOYEE HEALTH AND WELFARE PLAN;
MULTI-TOOL, INC./MULTI-PLASTICS, INC.,
as Administrator and named Fiduciary of
the named Plan
(*Amended in accordance with Clerk’s Order
dated 2/15/01)
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil No. 00-cv-00140E)
District Judge: Honorable Sean J. McLaughlin
Argued December 4, 2001
Before: ALITO, RENDELL and AMBRO, Circuit Judg es
(Filed July 31, 2002)
Lawrence C. Bolla, Esq. [Argued]
Kenneth W. Wargo, Esq.
Quinn, Buseck, Leemhuis,
Toohey & Kroto
2222 West Grandview Boulevard
Erie, PA 16506-4508
Counsel for Appellant
Elaine C. Rizza, Esq. [Argued]
The Rizza Group Professional
Corporation
311 Allison Avenue
Washington, PA 15301
Counsel for Appellees
OPINION OF THE COURT
RENDELL, Circuit Judge:
William Reed Smathers brought this suit against Multi-
Tool, Inc./Multi-Plastics, Inc. and Multi-Tool, Inc./Multi-
Plastics, Inc. Employee Health and Welfare Plan (together
"Multi-Tool") in the Western District of Pennsylvania

-- 1 of 13 --

seeking payment of medical claims in excess of $81,000
arising from an accident that occurred while he was driving
his motorcycle under the influence of alcohol and which
resulted in the amputation of his leg. The District Court
granted summary judgment in favor of Multi-Tool. While
the District Court was correct to apply an arbitrary and
capricious standard of review to the administrator’s denial
of benefits, that standard should have been heightened due
to Multi-Tool’s conflict of interest. Because we find that the
administrator’s denial was arbitrary under the applicable
standard, we conclude that the District Court erred in
affirming its denial. Accordingly, we reverse the District
Court’s grant of summary judgment in favor of Multi-Tool,
and will remand to the District Court with instructions to
remand to the Administrator.
I.
On August 24, 1997, around 1:15 a.m., Smathers was
driving his motorcycle on Route 19 in West Mead Township,
2
Crawford County, Pennsylvania. At the same time,
eighteen-year old Jeffrey S. Southworth was backing out of
a driveway onto Route 19. Southworth admitted that he
saw the lights of Smathers’ motorcycle coming down the
road, but thought that he had the necessary time to back
out. Southworth backed out of the driveway across one lane
and into the lane down which Smathers was traveling.
Once he had backed into the roadway, Southworth saw
Smathers’ bike in his rearview mirror, but as he attempted
to put the car into gear, it stalled. He then heard tires
squealing and Smathers smashed into the side bumper of
the car. Smathers explained that in response to coming
upon the stalled car he hit both his front and rear brakes
which caused his rear wheel to begin spinning to the left.
Afraid that he would lose control of the bike if he continued
to brake, Smathers attempted to drive around the car. He
explained:
[B]ecause of the skid caused by the braking, I had to
try to [drive around the car] to the right, which meant
going off the road surface because the Southworth
vehicle was all the way to the edge of the road surface.
As I attempted to drive around the Southworth vehicle
to the right, my left leg struck it’s [sic] bumper and I
believe it caused me to fly off the motorcycle. At that
point I lost consciousness . . . .
After investigating the scene, the police provided a similar
description of the accident, reporting that it appeared that
Smathers had attempted to steer to the right of the car, but
was unsuccessful and struck the car. A fifty-four foot
skidmark was found leading to the site of the impact.
Smathers was seriously injured in the accident,
necessitating the amputation of his leg.
Both Smathers and Southworth were charged with

-- 2 of 13 --

violations arising from the accident. Southworth was
charged with illegal backing pursuant to Pennsylvania
Vehicle Code, 75 Pa. C.S.A. S 3702, which provides: "No
driver shall back a vehicle unless the movement can be
made with safety and without interfering with other traffic
and then only after yielding the right-of-way to moving
traffic and pedestrians." Southworth pled guilty and paid
the accompanying fine. After Smathers’ blood alcohol
3
content ("BAC") was found to be 0.2521 he was charged
with driving under the influence in violation of 75 Pa. C.S.
S 3731(a)(1).2 Smathers was admitted into an Accelerated
Rehabilitative Disposition ("ARD") program overseen by the
Crawford County Probation/Parole Department. His
completion of the program resulted in a dismissal of the
charges against him.3
Multi-Tool refused to pay Smathers’ medical expenses
arising from the accident under a provision which excludes
coverage for "any charge for care, supplies, or services
which are . . . 8. Caused or contributed to by the Covered
Person’s commission or attempted commission of a felony,
misdemeanor, or being engaged in an illegal occupation or
activity." Multi-Tool refused Smathers’ claims because the
accident occurred while he was driving while intoxicated --
an admittedly illegal activity. In February 1998, while the
claim was pending, Multi-Tool amended its plan to
incorporate a provision giving the administrator
discretionary authority in making benefits determinations.
Smathers subsequently brought suit under the Employees
Retirement Income Security Act ("ERISA"), 29 U.S.C.
S 1132, in an effort to collect benefits which he argued were
due to him under the plan.4 Multi-Tool filed a motion to
dismiss, which was treated by the court as a motion for
summary judgment because Multi-Tool relied on material
_________________________________________________________________
1. Smathers’ BAC was later corrected to be 0.217 instead of 0.252,
however, this is still well over the .10 limit in Pennsylvania.
2. The statute provides: "A person shall not drive, operate or be in actual
physical control of the movement of a vehicle . . . while under the
influence of alcohol to a degree which renders the person incapable of
driving safely." 75 PA. C.S. S 3731(a)(1).
3. We have described ARD as "a rehabilitation program that allows
prosecutors to avert a trial and defendants to ultimately earn a dismissal
of criminal charges by satisfactorily completing a probationary program."
Cain v. Darby Borough, 7 F.3d 377, 382 (3d Cir. 1993).
4. Count II of Smathers’ complaint alleged that Multi-Tool refused to
supply information in violation of ERISA. The District Court’s order on
that issue is not before us on appeal.
4

-- 3 of 13 --

outside the pleadings. Smathers filed a provisional motion
for summary judgment.5
The District Court determined that the administrator’s
decision not to provide Smathers’ benefits was governed by
the discretionary authority provided under the 1998 plan,
and, accordingly, considered only whether that decision
was arbitrary and capricious. Applying that deferential
standard, the District Court granted summary judgment in
favor of Multi-Tool finding that the determination by Multi-
Tool, as plan administrator, was not, as a matter of law,
arbitrary and capricious, and that there were no issues of
material fact remaining to be considered.
II.
As Smathers’ claim for recovery of plan benefits rests on
the rights provided by ERISA, the District Court had
jurisdiction under 28 U.S.C. S 1331 and 29 U.S.C.
S 1132(e). We exercise jurisdiction pursuant to 28 U.S.C.
S 1291. We subject the District Court’s grant of summary
judgment to plenary review, and we apply the same
standard that the lower court should have applied. Farrell
v. Planters Lifesavers Co., 206 F.3d 271, 278 (3d Cir. 2000).
Summary judgment is proper if there is no genuine issue of
material fact and if, viewing the facts in the light most
favorable to the non-moving party, the moving party is
entitled to judgment as a matter of law. F.R.C.P. 56(c);
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
Smathers raises two interrelated issues on appeal, one
procedural and one substantive. He first urges that the
District Court improperly subjected the administrator’s
decision to an arbitrary and capricious standard of review
instead of the de novo standard applicable under the plan
in effect when the claim arose and was filed. Second, he
claims that even if the correct standard was employed by
the District Court, it wrongly determined that the
administrator’s consideration of the claim satisfied that
standard. We will address these claims in order.
_________________________________________________________________
5. His motion was provisional because "questions may remain as to the
amount which the Defendants owe to him and the amount of any costs,
attorneys [sic] fees, or penalties to be imposed against the Defendants."
5
A. Determining the Standard of Review
1. "Arbitrary and Capricious" or De Novo
Before we can evaluate the propriety of the
administrator’s determination, we must decide whether the
District Court properly applied the deferential arbitrary and
capricious standard of review. The Supreme Court has
instructed us to review the determinations of a plan
administrator de novo unless "the benefit plan gives the
administrator or fiduciary discretionary authority to

-- 4 of 13 --

determine eligibility for benefits or to construe the terms of
the plan." Firestone Tire & Rubber Co. v. Bruch, 489 U.S.
101, 115 (1989). In that event, an "arbitrary and
capricious" standard is to be applied. Because Multi-Tool’s
plan was amended on February 1, 1998 to give discretion
to the administrator we need to determine whether that
provision, or the earlier version, should apply, as it impacts
our standard of review.6 The amendment was implemented
after the injury occurred (August 24, 1997), and after the
initial claims were made (prior to January 22, 1998),7 but
before the administrator made its determination (January
29, 1999). The District Court explained its decision to rely
on the later plan: "This [1998] Plan document was in effect
when Multi-Tool considered and then denied the plaintiff ’s
claim for benefits."
Smathers argues that he had a vested right to have his
claim reviewed based on the earlier plan, and therefore, in
accordance with our jurisprudence, that "right" could not
_________________________________________________________________
6. The parties agree that the substantive provisions of the 1995 plan, in
effect at the time of the accident and when the claims were filed, apply.
They also agree that the language of the 1998 plan gives Multi-Tool
discretion.
7. It is difficult to determine when the claims were first filed, but it seems
clear that it was prior to February 1, 1998. There is a telling letter from
a claims manager dated January 22, 1998 which states: "We are in
receipt of medical claims on the above-mentioned employee for 1997. He
was in a motorcycle accident in August, 1997 and incurred charges
totaling approximately $81,000." A January 27, 1998 letter goes on to
speak about the consequences resulting if they "need to have Multitool
fund these claims before the end of the contract year (January 30,
1998)."
6
be retroactively denied. We disagree. Along with our sister
circuits, we have spoken of the retroactive denial of "rights"
only in a narrow factual setting where the occurrence of an
accident or other event resulted in the vesting of coverage
or benefits prior to an amendment affecting the person’s
substantive rights under the plan. See Confer v. Custom
Eng’g Co., 952 F.2d 41, 43 (3d Cir. 1991) (concluding that
coverage had vested because the exclusion was not in force
at the time of the accident); see also Wheeler v. Dynamic
Eng’g, Inc., 62 F.3d 634, 637-40 (4th Cir. 1995)
(determining whether coverage vested); Member Svcs. Life
Ins. Co. v. Amer. Nat’l Bank & Trust Co. of Sapulpa , 130
F.3d 950, 954 (10th Cir. 1997) (considering whether
benefits had vested). This is not the situation before us.
Smathers relies heavily on our statement in Confer that
"the change [in the plan] by means of a formal amendment
could operate only prospectively." 952 F.2d at 43. In Confer
we found that the employer could not apply a motorcycle
exclusion after the fact to deny coverage for injuries
previously sustained in a motorcycle accident; such a

-- 5 of 13 --

substantive change should not be applied retroactively, and
the coverage in effect at the time of the accident governed.
Id. Although the case before us also involves an insured
who was involved in a motorcycle accident and was
subsequently denied benefits, the similarity ends there.
Here, the plan amendment at issue did not change the
coverage under the plan or substance of Smathers’ benefits
or his entitlement to them. Indeed, it is very likely that the
company would have denied him benefits before the
amendment, just as it did after. All that was changed was
the scope of the administrator’s discretion and authority.
The relevant language inserted into the plan was:
It is the express intent of this Plan that the Plan
Administrator shall have maximum legal discretionary
authority to construe and interpret the terms and
provisions of the Plan, to make determinations
regarding issues which relate to eligibility for benefits,
to decide disputes which may arise relative to a Plan
Participant’s rights and to decide questions of Plan
interpretation and those of fact relating to the Plan.
The decisions of the Plan Administrator as to the facts
7
related to any claim for benefits and the meaning and
intent of any provision of the Plan or its application to
any claim will be final and binding on all interested
parties.
This language does not in any way direct the administrator
to decide Smathers’ claim one way or the other. It sets forth
the extent of the administrator’s authority, which, in turn,
happens to be a signal to the district court, as dictated by
the Supreme Court’s Firestone opinion, as to how it is to
review the administrator’s decision.
As the issue involved here is the administrator’s
discretionary authority to make the benefits determination,
we conclude that the better approach is to look at the plan
in effect on the date the administrator actually made that
determination. The Court of Appeals for the Ninth Circuit
adopted that approach in the recent case of Grosz-Salomon
v. Paul Revere Life Insurance Co., 237 F.3d 1154 (9th Cir.
2001), involving similar facts and the same type of plan
amendment. The court there noted: "No circuit has yet
addressed which policy dictates the standard of review
when an insured files her claim under a non-discretionary
policy but is subsequently denied benefits under an
amended regime." Id. at 1159. There, the claim was initially
accepted, but after the company conducted an investigation
into the employee’s disability, it determined that she should
not continue to receive benefits. The new discretionary
language was added to the plan after she filed her claim,
but before the administrator accepted the claim and
conducted the investigation. The court relied on two district
court cases that focused "on when the plan administrator
denied the claim rather than on when the claimant filed it,

-- 6 of 13 --

or when the event triggering coverage occurred." Id. at 1160
(citing Blessing v. Deere & Co., 985 F. Supp. 899 (S.D. Iowa
1997) and Podolan v. Aetna Life Ins. Co., 909 F. Supp. 1378
(D. Idaho 1995)). The court then concluded that the fact
"she became permanently disabled and filed her disability
claim while the first policy was in effect is irrelevant; it does
not entitle her to invoke that plan’s provisions in
perpetuity. . . . [T]his court must look to the revised plan to
determine the appropriate standard of review." Grosz-
Salomon, 237 F.3d at 1160-61.
8
We find this reasoning to be persuasive. Here, there was
no right that vested, nor is there any issue of retroactivity
since the administrator’s discretionary authority was in
place when that discretion was exercised.8 We also note
that this reasoning is consistent with our view that the
concept of "vesting" under benefit plans is to be narrowly
applied, and that there is a presumption against vesting
with respect to most aspects of such plans. See Int’l Union,
U.A.W. v. Skinner Engine Co., 188 F.3d 130, 138-41 (3d Cir.
1999). Smathers cites no relevant authority that stands for
the proposition that the administrator’s authority (and as a
result our scope of review) should be based on provisions
that were in place prior to the administrator’s authority
being exercised. Procedural provisions of a plan such as
this, containing a grant of discretionary authority to the
administrators, are not implicated until the administrator
actually exercises that authority. See Blessing , 985 F.
Supp. at 903. We therefore look to the plan in effect at the
time benefits were denied, the 1998 plan, and, as a result,
we will examine the administrator’s determination using the
arbitrary and capricious standard of review.
2. Conflict of Interest: A Heightened Standard of Review
Our consideration of the proper standard of review does
not end there, however, because the Supreme Court has
instructed 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
determining whether there is an abuse of discretion.’ "
Firestone Tire & Rubber Co., 489 U.S. at 115. The potential
for a conflict of interest arises because Multi-Tool both
funds and administers the welfare benefits plan. 9 In Pinto v.
_________________________________________________________________
8. We view the "prospective" operation of the new provision differently
from Judge Ambro but believe our reasoning to be in accord with Confer.
Here, the plan amendment did not alter benefits for injuries previously
sustained, that would be said to have "vested" as was the situation in
Confer. Rather, here the modification merely affected the administrator’s
discretion, and it did operate prospectively, applying to the
administrator’s decisionmaking which occurred thereafter.
9. Smathers presents no direct evidence demonstrating that the
administrator’s ruling was actually influenced by the presence of a
conflict of interest. However, in Pinto we acknowledged that such

-- 7 of 13 --

evidence is rare, and the absence of direct evidence is not determinative.
Pinto v. Reliance Std. Life Ins. Co., 214 F.3d 377, 379 (3d Cir. 2000).
9
Reliance Standard Life Insurance Co., 214 F.3d 377, 379
(3d Cir. 2000), we set forth a "sliding scale method,
intensifying the degree of scrutiny to match the degree of
the conflict." Id. at 379. The insured in Pinto brought a
claim against the insurance company who funded and
administered his benefits plan, and the court found the
insurance company had a significant conflict of interest. Id.
at 388-89. However, we have explained that the risk of a
conflict of interest is decreased where the administrator
and funder of the plan is the employer, rather than an
insurance company, because the employer has "incentives
to avoid the loss of morale and higher wage demands that
could result from denials of benefits" suggesting that there
is at least some counter to the incentive not to pay claims.
Nazay v. Miller, 949 F.2d 1323, 1335 (3d Cir. 1991).
However, our decisions also make clear that a conflict of
interest can still exist in a situation where an employer is
the administrator.
Here, Multi-Tool had purchased excess loss insurance
through the Life Insurance Company of North America
("LINA") to pay any amount in excess of Multi-Tool’s
deductible. Thus, although Smathers’ claims arising from
this accident totaled approximately $81,000, Multi-Tool was
only responsible for the first $30,000 (the specific
deductible) which it paid provisionally to Diversified Group
Administrators ("DGA"), the plan’s third party
administrator,10 on January 29, 1998.11 Normally, this
$30,000 would then be paid to Smathers if he was
successful, or if benefits were ultimately denied, it would be
returned to Multi-Tool. However, if Multi-Tool is required to
pay benefits here, it would be "over" the maximum
aggregate specific deductibles it would be required to pay
under the excess loss plan, and so it would get back
$7,477.22 of the $30,000 it paid toward Smathers’ specific
_________________________________________________________________
10. DGA’s role as the third party claims administrator should not be
confused with the fact that Multi-Tool is the plan administrator under
ERISA. Neither party challenges that fact.
11. As Smathers worked 50% of his time for Multi-Tool, Inc. and 50% of
his time for Multi-Plastics, Inc., any amount due would be divided evenly
between the companies.
10
deductible. Therefore, Multi-Tool would actually be out of
pocket $22,522.78 if required to pay Smathers’ claims.
The District Court found that these facts dictated the
conclusion that there was no conflict of interest present in
this case. It explained that "while [Multi-Tool] administers,

-- 8 of 13 --

sponsors and self-funds a portion of Plan benefits, the
balance of benefits are covered by excess loss insurance,
and benefits are paid from the Plan through a third party
Claims Administrator." However, the court failed to note
that Multi-Tool will be out $22,522.78 if it has to pay
Smathers’ claims. Appellees urge that Multi-Tool has
already paid the $30,000 but, clearly, it would receive that
entire sum back into its coffers if the denial is upheld.
Either way, the outcome of this litigation will result in the
payment back to Multi-Tool of either $7,477.22 or $30,000,
resulting in the expenditure of either $22,522.78 or $0. We
also note that Smathers ceased to be employed at Multi-
Tool in July 1998, while the payment of his claim was still
under consideration. Since Smathers was no longer an
employee when Multi-Tool made its decision to deny his
claims, the counterbalancing of its monetary self-interest by
possible concerns about the impact of its decision on
morale and wage demands would thereby be lessened. The
employer would still have the incentives discussed in Nazay
in regards to its current employees, however, the incentives
would not be as strong as they would if Smathers were still
a Multi-Tool employee.
Our decisions in similar factual settings, even those in
which we ultimately determined that there was no conflict
of interest, lead us to conclude that the facts of this case do
present a conflict of interest. In Pinto, we took the
opportunity to clarify that our previous cases finding no
conflict of interest did nonetheless establish the possibility
that a conflict of interest could arise in similar factual
settings. 214 F.3d at 379. We explained that our opinions
in Abnathya v. Hoffmann-La Roche, Inc., 2 F.3d 40 (3d Cir.
1993), and Mitchell v. Eastman Kodak Co., 113 F.3d 433
(3d Cir. 1997), also involving employer administrators, did
suggest[ ] that structural bias could heighten the
review. For example, we noted that the defendants in
those cases did not ‘incur’ a ‘direct expense as a result
11
of the allowance of benefits,’ or ‘benefit directly from
the denial or discontinuation of benefits,’ Abnathya, 2
F.3d at 45 n.5; Mitchell, 113 F.3d at 437 n.4, implying
that a company that did profit directly would be
subject to a more stringent standard.
Pinto, 214 F.3d at 389.12 The important fact that clearly
distinguishes this case from pre-Pinto cases involving
employer administrators is that Multi-Tool will suffer direct
financial harm -- in the amount of $22,522.78-- if the
claim must be paid. This is not like Kotrosits v. GATX Corp.
Non-Contributory Pension Plan for Salaried Employees , 970
F.2d 1165, 1173 (3d Cir. 1992), where only a "possibility of
future indirect consequences" was present, or Abnathya, 2
F.3d at 45 n.5, where the company’s contributions were
fixed and held by a trustee, or Mitchell, 113 F.3d at 437,
where "the Plan assets [were] administered by a trustee
pursuant to a trust agreement that provides that funds

-- 9 of 13 --

‘may not be used for any purpose other than for the
exclusive benefit of persons entitled to benefits under the
Plan and for reasonable expenses of administering the
Plan.’ " We stressed in Abnathya the fact that the company
incurred "no direct expense as a result of the allowance of
benefits, nor [did] it benefit directly from the denial or
discontinuation of benefits." 2 F.3d at 45 n.5.
In Skretvedt v. E.I. DuPont De Nemours & Co., 268 F.3d
167 (3d Cir. 2001), we explained that Pinto set forth two
conditions that would warrant providing a heightened
standard of review, one of them being "when a pension plan
is unfunded, i.e., not ‘actuarially grounded, with the
company making fixed contributions to the pension fund,’
214 F.3d at 388, but rather funded by the employer on a
_________________________________________________________________
12. In Abnathya we explained that the deferential standard of review
may, unfortunately leave "employees largely unprotected from
overreaching by employers who act as the administrators of their own
plans, thereby thwarting ERISA’s purpose of protecting plan participants
from abusive management." Abnathya, 2 F.3d at 45 n.5. However, our
analysis and clarification in Pinto, along with Skretvedt v. E.I. DuPont De
Nemours & Co., 268 F.3d 167 (3d Cir. 2001), and Goldstein v. Johnson &
Johnson, 251 F.3d 433 (3d Cir. 2001), makes clear that employees will
not always be left in such a compromising position.
12
claim-by-claim basis." 268 F.3d at 174.13 Accordingly,
heightened scrutiny is clearly appropriate in this case,
because although this case involves an employer and not
an insurance company, the conflict arises because the
employer is directly funding a portion of the plan and is
benefitted by denying the claims.
In Pinto, we discussed the application of the Supreme
Court’s directive that a conflict of interest should be "a
factor" in reviewing the administrator’s decision. 214 F.3d
at 392-93 (discussing Firestone Tire & Rubber Co., 489 U.S.
at 115). In determining how to take that factor into
account, we find the Fifth Circuit’s reconciliation of the
sliding scale and the arbitrary and capricious standard to
be helpful, albeit imprecise. Pinto, 214 F.3d at 393. We
explained that in Wildbur v. ARCO Chem. Co., 974 F.2d
631, 638 (5th Cir. 1992), the Fifth Circuit "essentially
reformulat[ed] the arbitrary and capricious standard for
ERISA law, concluding that ‘the arbitrary and capricious
standard may be a range, not a point . . . [it is] more
penetrating the greater is the suspicion of partiality, less
penetrating the smaller that suspicion is.’ " Pinto, 214 F.3d
at 392-93 (citations omitted) (alteration in Pinto). In Pinto,
we therefore directed "district courts to consider the nature
and degree of apparent conflicts with a view to shaping
their arbitrary and capricious review of the benefits
determinations of discretionary decisionmakers." Id. at 393.
In accordance with Pinto, we slide down the scale --
according less deference to the administrator -- and keep

-- 10 of 13 --

in mind the nature of Multi-Tool’s financial interests as we
consider whether its denial of Smathers’ benefits was
arbitrary and capricious. Because the conflict here is not
extraordinary, we will not slide very far down the scale. Our
scrutiny, however, will be somewhat heightened, and
accordingly, we will conduct a more penetrating review of
administrator’s decisionmaking process than would
normally be conducted under the arbitrary and capricious
standard.
_________________________________________________________________
13. Although this language references "pension" plans and funds, its
reasoning would apply equally to welfare benefits, and indeed the facts
of Pinto involved long-term disability benefits.
13
B. Administrator’s Determination
We must now subject Multi-Tool’s decision to deny
Smathers’ claims for benefits to the heightened arbitrary
and capricious review. We have consistently applied the
arbitrary and capricious standard as outlined in Orvosh: "a
plan administrator’s decision will be overturned only if it is
clearly not supported by the evidence in the record or the
administrator has failed to comply with the procedures
required by the plan. A court is not free to substitute its
own judgment for that of the defendants in determining
eligibility for plan benefits." Orvosh v. Program of Group Ins.
for Salaried Employees of Volkswagen of Am., Inc. , 222 F.3d
123, 129 (3d Cir. 2000) (internal quotations omitted).
Furthermore, "[w]hether a claim decision is arbitrary and
capricious requires a determination ‘whether there was a
reasonable basis for [the administrator’s] decision, based
upon the facts as known to the administrator at the time
the decision was made.’ " Levinson v. Reliance Std. Life Ins.
Co., 245 F.3d 1321, 1326 (11th Cir. 2001) (quoting Jett v.
Blue Cross & Blue Shield of Alabama, Inc., 890 F.2d 1137,
1139 (11th Cir. 1989)). Any deference we might ordinarily
afford this decision will be tempered due to Multi-Tool’s
conflict of interest. See supra Part II.A.2.
In this case, Multi-Tool does not explain the basis for its
conclusion, but contends, instead, that "it was reasonable
to conclude that Smathers’ illegal DUI ‘contributed to’ the
Accident and the resulting medical charges." Multi-Tool
fails to appreciate that the administrator was to determine
whether Smathers’ intoxication "caused or contributed to"
his injuries based on relevant facts. But no facts are cited.
Further, it improperly attempts to put the burden on
Smathers to show that Southworth caused the accident.
The law is well-settled that "the insurer must prove facts
that bring a loss within an exclusionary clause of the
policy." McGee v. Equicor-Equitable HCA Corp. , 953 F.2d
1192, 1205 (10th Cir. 1992).
Multi-Tool’s attorney’s explanation to Smathers’ attorney
that Smathers’ claim was denied because "all information
available to the Plan Administrator indicates that Mr.

-- 11 of 13 --

Smathers’ injuries occurred while he was operating a
motorcycle while his blood alcohol level was 0.252%, which
14
is over the applicable legal limit,"14 does not assist in
revealing the basis it found for the necessary causal
connection.15 (emphasis added). We note, also, that we do
not find the reasoning of the District Court in Roberts v.
Carpenters Local Union, Civ.A.No. 92-6825, 1994 WL 37737
(E.D. Pa. Feb. 2, 1994), aff ’d 37 F.3d 1488 (3d Cir. 1994)
(unpublished), particularly helpful because the plan
language here requires causation, or contributory
causation, which is not the same standard as is set forth in
the plan language there.
After conducting a full review of the record, we conclude
that Multi-Tool’s determination was arbitrary and
capricious under the heightened standard. It is apparent to
us that the administrator did not believe that it had to
actually find a causal connection in the way we believe the
plan in question requires. In so doing, its ruling was
arbitrary and capricious. However, because the
administrator misperceived its task, we will remand for it to
consider in the first instance whether there is evidence from
which it could reasonably conclude that Smathers’
intoxication played a causative role in his injuries.
III.
For these reasons, we conclude that the District Court
erred in granting summary judgment in favor of Multi-Tool,
and its judgment will be REVERSED and the case
REMANDED to the District Court to be remanded to the
Administrator for further proceedings consistent with this
opinion.
_________________________________________________________________
14. His BAC was later corrected to be .217.
15. Multi-Tool urges that because Smathers was intoxicated, his
condition must have affected his driving so as to cause or contribute to
the accident, but we disagree. Although Smathers’ blood alcohol level
was very high, evidence of causation was still needed. In other words,
Multi-Tool was required to point to evidence that, if Smathers’ blood
alcohol level had not exceeded the legal limit, the accident would not
have occurred. However, there is nothing in the police report or the
record that shows that an entirely sober person faced with an emergency
situation of a stalled car backing into the middle of a dark road before
him might not have met the same fate.
15
AMBRO, Circuit Judge, Concurring in Part and Dissenting in
Part:
While I concur with the judgment, I write separately
because I believe that under Confer v. Custom Engineering

-- 12 of 13 --

Co., 952 F.2d 41 (3d Cir. 1991), we must apply the
standard of review in place at the time of the accident
(which would be de novo) and not when the benefit plan in
this case was amended to give the plan administrator
discretionary authority to determine eligibility for benefits
(thus, if applicable, calling for an arbitrary and capricious
standard). In Confer we held that "the change [of an
employee benefit plan] by means of a formal amendment
could only operate prospectively." Id. at 43 (emphasis added).1
Because the amendment to the benefit plan here was after
the accident (and indeed after Smathers’ initial claims were
filed, though before the plan administrator denied those
claims), we should therefore review the plan administrator’s
denial of benefits de novo. Under S 9.1 of our Internal
Operating Procedures, I believe that en banc consideration
by the full Court is required before we can overrule Confer.
Thus, on this issue I respectfully dissent.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
1. I recognize that Confer represents a minority position. Most circuit
courts hold that an ERISA cause of action accrues when benefits are
denied, not at the time of the accident. Grosz-Salomon v. Paul Revere Life
Ins. Co., 237 F.3d 1154, 1160 (9th Cir. 2001); Mason v. Aetna Life Ins.
Co., 901 F.2d 662, 664 (8th Cir. 1990); Miles v. N.Y. State Teamsters
Conference Pension and Ret. Fund Employee Pension Benefit Plan, 698
F.2d 593, 595 (2d Cir. 1983); Paris v. Profit Sharing Plan for Employees
of Howard B. Wolf, Inc., 637 F.2d 357, 358 (5th Cir. 1981); Reiherzer v.
Shannon, 581 F.2d 1266, 1272 (7th Cir. 1978).
16

-- 13 of 13 --