Partial rehearing granted by order filed 4/1/96 to
consider attorney's fees. Rehearing denied 5/1/96.
PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

MARSHALL JENKINS,
Plaintiff-Appellee,

v.
                                                                     No. 95-1095
MONTGOMERY INDUSTRIES,
INCORPORATED; CAROLINA BENEFIT
ADMINISTRATORS, INCORPORATED,
Defendants-Appellants.

Appeal from the United States District Court
for the District of South Carolina, at Charleston.
David C. Norton, District Judge.
(CA-93-3026-2-18)

Argued: December 4, 1995

Decided: March 5, 1996

Before MURNAGHAN and MICHAEL, Circuit Judges, and
MICHAEL, Senior United States District Judge
for the Western District of Virginia, sitting by designation.

_________________________________________________________________

Affirmed by published opinion. Judge Murnaghan wrote the opinion,
in which Judge Michael and Senior Judge Michael joined.

_________________________________________________________________

COUNSEL

ARGUED: Howard Michael Bowers, YOUNG, CLEMENT, RIV-
ERS & TISDALE, L.L.P., Charleston, South Carolina, for Appellants.
George John Morris, Charleston, South Carolina, for Appellee. ON
BRIEF: Stephen P. Groves, Sr., Amy R. Jordan, YOUNG, CLEM-
ENT, RIVERS & TISDALE, L.L.P., Charleston, South Carolina, for
Appellants.

_________________________________________________________________

OPINION

MURNAGHAN, Circuit Judge:

Marshall Jenkins, as an employee at a South Carolina warehouse
owned by Montgomery Industries, Inc., was covered by the compa-
ny's employee benefit and health care plan,1 which was subject to the
Employee Retirement Income Security Act of 1974 ("ERISA"), 29
U.S.C. § 1001 et seq. Under the Plan, a claim related to medical treat-
ment for any loss sustained while the claimant was intoxicated is
excluded from coverage. Jenkins sought coverage for treatment of a
gunshot wound, but benefits were denied pursuant to that exclusion.
The district court ruled that the employer should have paid the claim.
On appeal, Montgomery Industries has challenged the district court's
application of a rule of South Carolina law requiring that the insurer
prove a causal connection between the insured's intoxication and his
injury. Because we agree with the district court's analysis, we affirm.

I.

Jenkins, with drink taken, became engaged early one morning in an
altercation with Charles Holloway, a family friend. During the inci-
dent, the two men hit or kicked each other. When Jenkins walked
home, Holloway followed for part of the way and yelled for him to
return. After Jenkins reached his house, he remained outside to smoke
a cigarette. When he saw Holloway drive up with a rifle or shotgun,
he went inside, locking the door behind him but neglecting to remove
the key from the lock. Over Jenkins's verbal and physical opposition,
_________________________________________________________________

1 Jenkins was covered by the Montgomery Industries, Inc. Employee
Benefit/Health Care Plan ("the Plan"), which the parties agree is gov-
erned by ERISA. The Plan lists Montgomery Industries, Inc., as Plan
Administrator and Carolina Benefit Administrators, Inc., as Claims
Administrator. Both are named as Defendants-Appellants.

                    2
Holloway forced his way inside the house and aimed his weapon at
Jenkins's face. Jenkins placed his right hand over the gun's barrel in
an attempt to push it away. Holloway pulled the trigger and shot Jen-
kins in the hand. Medical treatment for Jenkins's injuries cost at least
$38,140.50.

Jenkins's employer denied his claim for benefits, relying on the
Plan's intoxication exclusion, which reads:

          Section 5.09 - Exclusions and Limitations

          Except as specifically provided in the attachment to the
          Plan, the following services, supplies, and benefits, or the
          cost thereof, are limited (as noted) or excluded from cover-
          age under the Plan:

...

          (www) Charges for or related to treatment for any loss sus-
          tained or contracted while a person is intoxicated (as defined
          by state law), under the influence of intoxicants or any nar-
          cotic unless administered on the advise of a physician in the
          course of treatment for a covered expense.

Following the denial, Jenkins sued Montgomery Industries and its
claims administrator in South Carolina state court. On removal to
United States District Court for the District of South Carolina, the
claim proceeded to a bench trial on a stipulated record. The district
judge rejected Montgomery Industries' position that the Plan's intoxi-
cation exclusion operates to preclude recovery "anytime and any-
where a person is intoxicated." Instead, the district judge read the
exclusion to require some causal connection between the intoxication
and the injury. Finding none, the district court entered judgment in
Jenkins's favor for damages of $38,140.50, costs of $187.57 and
attorneys' fees of $9,117.00.

                     3
II.

A.

Because Montgomery Industries has discretionary authority as Plan
Administrator to interpret Plan provisions and determine eligibility
for benefits, we ordinarily would review its interpretation of the Plan
and denial of benefits for an abuse of discretion. Firestone Tire and
Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); Glocker v. W.R.
Grace & Co., 974 F.2d 540, 543 (4th Cir. 1992). However, because
Montgomery Industries is also the Named Fiduciary of the Plan with
a financial interest in the outcome of its interpretation, we review its
decision under a less deferential standard.2 Bailey v. Blue Cross &
Blue Shield of Virginia, 67 F.3d 53, 57 (4th Cir. 1995); see also
Bruch, 389 U.S. at 115 ("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 factor in determining
whether there is an abuse of discretion.").

B.

A basic rule of insurance law provides that the insured must prove
that a covered loss has occurred, while the insurer carries the burden
of demonstrating that a loss falls within an exclusionary clause of the
policy. McGee v. Equicor-Equitable HCA Corp., 953 F.2d 1192, 1205
(10th Cir. 1992); M.H. Lipiner & Son, Inc. v. Hanover Ins. Co., 869
F.2d 685, 687 (2nd Cir. 1989). Those general principles apply in
_________________________________________________________________
2 As we explained in Doe v. Group Hospitalization & Medical
Services, 3 F.3d 80, 87 (4th Cir. 1993):

          [W]hen a fiduciary exercises discretion in interpreting a dis-
          puted term of the contract where one interpretation will further
          the financial interests of the fiduciary, we will not act as deferen-
          tially as would otherwise be appropriate. Rather, we will review
          the merits of the interpretation to determine whether it is consis-
          tent 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 lessened to the degree necessary to neutralize
          any untoward influence resulting from the conflict.

                     4
South Carolina. Outlaw v. Calhoun Life Ins. Co. , 119 S.E.2d 685, 690
(S.C. 1961). South Carolina courts allow a policy exclusion provision
to relieve an insurer of liability only where the insurer demonstrates
a causal connection between the exclusion and the loss claimed.
Gardner Trucking v. South Carolina Ins. Guar. Ass'n , 376 S.E.2d
260, 262 (S.C. 1989); McGee v. Globe Indemnity Co., 175 S.E. 849,
850 (S.C. 1934); Reynolds v. Life & Casualty Ins. Co. of Tennessee,
164 S.E. 602, 603 (S.C. 1932). For a legitimate denial of coverage
pursuant to an intoxication exclusion, South Carolina law requires
that an employer establish a causative connection between the injuries
suffered and the intoxication claimed. South Carolina Ins. Guar.
Ass'n v. Broach, 353 S.E.2d 450, 451 (S.C. 1987); Outlaw, 119
S.E.2d at 690.

The district court did not err in reading this well-established rule
into the Plan. Federal courts interpret ERISA regulated benefit plans
without deferring to either party's interpretation, Bruch, 389 U.S. at
112, by "using ordinary principles of contract law [and] enforcing the
plan's plain language in its ordinary sense," Bailey, 67 F.3d at 57.
Where there is ambiguity in the plan, courts "construe it against the
drafter, and in accordance with the reasonable expectations of the
insured." Bailey, 67 F.3d at 57 (citations omitted). In addition, Mont-
gomery Industries' plan itself calls for construction of its provisions
"according to the laws of the State of South Carolina" in Section 9.07.
The insurance rule requiring causation to be shown for intoxication
to have exclusionary effect is so well entrenched in South Carolina
law that an employee easily and reasonably could expect it to be
included in the terms of any benefit plan that fails specifically to
exclude it. See Broach, 353 S.E.2d at 451 (listing cases applying the
rule); Reynolds, 164 S.E. at 603. Thus, Montgomery Industries' read-
ing of the intoxication exclusion to omit this generally accepted
principle3 despite its own failure expressly to eliminate it is not sup-
portable.
_________________________________________________________________

3 Montgomery Industries' argument that the rule is not accepted in all
states carries little weight. South Carolina courts have applied the
requirement since at least 1932. See Reynolds v. Life & Casualty Ins. Co.
Of Tennessee, 164 S.E. 602, 603 (S.C. 1932).

                    5
Here, the employer proved no causative link justifying a denial of
coverage. The district judge did not clearly err in finding that, while
Jenkins may have been intoxicated, his injuries were due to "an inde-
pendent act of a third party."

C.

Like the district court, we find no merit in Montgomery Industries'
contention that ERISA preempts application of South Carolina law in
this case. With ERISA, Congress created a federal statutory scheme
to govern employee benefit plans. Pilot Life Ins. Co. v. Dedeaux, 481
U.S. 41, 44 (1987). Congress intended courts to fill in the statute's
gaps by developing a "federal common law of rights and obligations
under ERISA-regulated plans." Bruch, 489 U.S. at 110 (quoting
Dedeaux, 481 U.S. at 56); Phoenix Mut. Life Ins. Co. v. Adams, 30
F.3d 554, 562 (4th Cir. 1994). In carrying out this duty, federal courts
should fashion federal common law only when "necessary to effectu-
ate the purposes of ERISA," Singer v. Black & Decker Corp., 964
F.2d 1449, 1452 (4th Cir. 1992) (citations omitted), or because the
Act fails to address a certain issue, Thomason v. Aetna Life Ins. Co.,
9 F.3d 645, 647 (7th Cir. 1993). To this end, federal courts may adopt
and apply state law, but only if compatible with national policies
underlying the statute. Todd v. AIG Life Ins. Co., 47 F.3d 1448, 1451
(5th Cir. 1995); Adams, 30 F.3d at 564; Heasley v. Belden & Blake
Corp., 2 F.3d 1249, 1257 n.8, 1258 (3rd Cir. 1993).

ERISA contains broad provisions precluding state law, but that
"does not mean that all common law concepts are automatically inap-
plicable in the ERISA context."4 Adams, 30 F.3d at 563 (quoting
_________________________________________________________________
4 ERISA contains an expansive and complicated preemption scheme
designed to "establish pension plan regulation as exclusively a federal
concern." See Pilot Life Ins. Co. v. Dedeaux , 481 U.S. 41, 46 (1987)
(citation omitted); see also Phoenix Mut. Life Ins. v. Adams, 30 F.3d 554,
558-59 (4th Cir. 1994). ERISA's provisions preempt all state laws that
"relate to" any employee benefit plan. 29 U.S.C. § 1144(a). However,
state laws that regulate insurance survive preemption, 29 U.S.C.
§ 1144(b)(2)(A), and some common law concepts may be applicable as
well, Thomason v. Aetna Life Ins. Co., 9 F.3d 645, 647 (7th Cir. 1993).
Federal courts may adopt a state law rule as a matter of federal common
law without regard for whether it falls within the"insurance savings
clause" as long as it is consistent with the purposes of ERISA. Heasley
v. Belden & Blake Corp., 2 F.3d 1249, 1258 (3rd Cir. 1993).

                    6
Thomason, 9 F.3d at 647). Indeed, courts considering ERISA-
regulated plans often apply general principles of contract law, insur-
ance law or trust law that do not conflict with the Congressional pur-
pose of enacting ERISA.5 While state law concepts should not be
used to interpret a plan beyond its express terms, they may lead to the
inclusion of terms defined by employer representations and employee
expectations even if they extend past the language of the plan.

In light of these concepts, the district court's use of South Carolina
law was not improper. The court did not use state law to allow a com-
mon law action otherwise precluded by ERISA. See Dedeaux, 481
U.S. at 57; Singer, 764 F.2d at 1452. Nor did it apply a state law con-
cept that modifies an ERISA plan by overriding its explicit terms. See
Adams, 30 F.3d at 563. Instead, the district court properly drew on
South Carolina common law to create federal common law in order
to construe the intoxication exclusion as expressly directed by the
Plan itself. Id. at 564.

Furthermore, the rule requiring a causal link between an exclusion
provision and a loss or injury for a proper denial of recovery does not
conflict with ERISA's provisions, because the statute is silent on the
matter. Nor is it inconsistent with the congressional purposes of "pro-
mot[ing] the interests of employees and their beneficiaries in
employee benefit plans and [ ] protect[ing] contractually defined ben-
efits" which underlie ERISA. Adams, 30 F.3d at 564 (internal quota-
tions omitted). To ignore the rule in the present case "would require
us to afford less protection to employees and their beneficiaries than
they enjoyed before ERISA was enacted" and thus be at odds with
Congress's purposes. Bruch, 489 U.S. at 113-14.
_________________________________________________________________
5 See, e.g., Glocker, 974 F.2d at 544 (advising that employee benefit
plans should be interpreted according to general principles of contract
law); Masella v. Blue Cross & Blue Shield of Connecticut, 936 F.2d 98,
107 (2nd Cir. 1991) (finding that adoption of the insurance law principle
"contra proferentum" as a federal common law rule in ERISA cases
makes sense because to do otherwise would yield results inconsistent
with the purposes behind the statute); Kane v. Aetna Life Ins. Co., 893
F.2d 1283, 1285-86 (11th Cir.) (finding common law doctrine of equita-
ble estoppel appropriate for application in some ERISA cases), cert.
denied, 498 U.S. 890 (1990).

                    7
Montgomery Industries argues that application of the rule defeats
the uniformity that ERISA's preemption scheme seeks to achieve. But
we have previously rejected the argument that use of state common
law will undermine Congress's uniformity goal. See Singer, 964 F.2d
at 1453. While the rule applied in the present matter is not universal
to all states, see, e.g., Brown v. J.C. Penney Life Ins. Co., 861 S.W.2d
834, 837 (Tenn. Ct. App. 1992); Jefferson Pilot Life Ins. Co. v. Clark,
414 S.E.2d 521, 525 (Ga. Ct. App. 1991), that fact alone fails to
establish that the requirement is incompatible with national policies
and goals. Other federal courts construing ERISA plans have
employed common law insurance principles placing on the insurer the
burden of proving that a loss fell within an exclusionary provision.
See, e.g., Blair v. Metropolitan Life Ins. Co., 974 F.2d 1219, 1221
(10th Cir. 1992); McGee, 953 F.2d at 1205. The district court acted
consistently by applying South Carolina common law here.6

For these reasons, we agree with the district court's determination
that Montgomery Industries' interpretation of the Plan is unreasonable
and find Jenkins entitled to coverage. The judgment is accordingly

AFFIRMED.
_________________________________________________________________
6 Appellants also challenge on appeal the district court's determination
that the intoxication exclusion did not comply with South Carolina's stat-
utory requirement of a predominant caption in the health policy. S.C.
Code Ann. § 38-71-370. In light of the district court's clarification in its
written order that the failure to comply with the statutory requirement
"was not the ultimate basis of the court's decision," however, we find it
unnecessary to review the determination.

                    8
