                          United States Court of Appeals
                              FOR THE EIGHTH CIRCUIT
                                     ___________

                                   No. 00-1445/1934
                                    ___________

Gina Milone,                              *
                                          *
             Appellee,                    *    Appeal from the United States
                                          *    District Court for the District
   vs.                                    *    of Nebraska.
                                          *
Exclusive Healthcare, Inc.,               *
                                          *
             Appellant.                   *
                                     ___________

                              Submitted: December 13, 2000
                                 Filed: March 22, 2001
                                      ___________

Before LOKEN and HEANEY, Circuit Judges, and BATTEY,1 District Judge.
                            ___________

BATTEY, District Judge.

      This appeal involves a question of liability for medical expenses under a welfare
benefit plan formulated pursuant to the Employee Retirement Income Security Act
(ERISA), 29 U.S.C. § 1001 et seq. Appellee Gina Milone (Milone) is an employee of
Omaha Property and Casualty Company, a Mutual of Omaha affiliate. As an
employee, Milone is eligible for health benefits under Omaha Property and Casualty
Company’s Group Health Plan (the Plan). The Plan in this case is administered by


         1
       The Honorable Richard H. Battey, United States District Judge for the District
of South Dakota, sitting by designation.
appellant Exclusive Healthcare (Exclusive). The district court2 overturned the decision
of the Plan’s Benefit Review Committee which had denied benefits to Milone. It held,
based upon the “medical necessity” of Milone’s condition, that Exclusive had abused
its discretion in denying coverage. It then granted Milone’s request for attorney’s fees.
Exclusive asserts on appeal that the district court erred in granting benefits, attorney
fees, and costs to appellee. We affirm.

                                        FACTS

        In October 1997, Milone, suffering from neck, back, and headache pain, was
seen by her primary care physician, Dr. Karen Stacey. Dr. Stacey diagnosed Milone
as having bilateral hypertrophy of the breast3 and referred her to Dr. Deanna
Armstrong, a plastic surgeon. Dr. Armstrong, after examining Milone, recommended
a bilateral breast reduction. After meeting with Dr. Armstrong, Milone applied for pre-
certification for the bilateral breast reduction. Exclusive denied her claim stating that
the requested procedure was not a covered benefit.

      The parties agree that Milone’s condition was not necessitated by, nor otherwise
associated with, cancer. The parties also agree that the bilateral breast reduction was
a “medical necessity” as defined in the Plan.

     Milone appealed the denial of her claim. Her first appeal was to the Site
Committee, then to the Corporate Appeal Committee, and finally, to the Benefits
Review Committee. At all stages of the administrative appeal process Milone’s claim



      2
      The Honorable Joseph F. Bataillon, United States District Judge for the District
of Nebraska.
      3
         A physical condition characterized as enlarged breasts which contributed to
the stress upon the neck, back, and arms.
                                           -2-
was denied. The denial was based upon exclusion (tt)4 which provided that there was
no coverage for “breast augmentation or reduction not associated with cancer of the
breast.”

                                    DISCUSSION

                                Welfare Plan Contract

      At issue in this case is Exclusive’s application of the Plan’s definition of medical
necessity and exclusions (q) and (tt). The Plan defines medical necessity as follows:



      A medically necessary service or supply means one which is ordered or
      authorized by the Primary Care Physician, and which the Primary Care
      Physician, our medical staff or our Medical Director and/or a qualified
      party or entity selected by us determines is:
             (a) provided for the diagnosis or direct treatment of an
                    injury or sickness;
             (b) appropriate and consistent with the symptoms and
                    findings or diagnosis and treatment of the member’s
                    injury or sickness;
             (c) provided in accord with generally accepted medical
                    practice on a national basis; and
             (d) the most appropriate supply or level of service which
                    can be provided on a cost-effective basis (including,
                    but not limited to, inpatient vs. outpatient care,


      4
       The parties have referred to the exclusion as both (tt) and (ss); the controlling
plan document refers to the exclusion as (tt). See Exhibit Appendix, Exhibit 201 at 29.
Accordingly, we shall refer to the exclusion as (tt).
                                    -3-
                    electric vs. manual wheelchair, surgical vs. medical or
                    other types of care).

       The fact that the member’s physician prescribes services or supplies does
       not automatically mean such services or supplies are medically necessary
       and covered by the Contract.

Exhibit Appendix (EA), Exhibit 201 at 6. As previously stated, the parties are in
agreement that Milone’s condition was a “medical necessity” as defined above.

       Turning to the relevant exclusions and limitations which provide no coverage,
the Plan reads as follows:

                              Exclusions and Limitations

       We will not pay for:

       (q)    cosmetic or reconstructive surgery5 (or any treatment resulting
              therefrom).
Id. at 28.

       (tt)   breast augmentation or reduction not associated with cancer of the
              breast.


       5
        Cosmetic or reconstructive surgery means any surgical procedure performed
primarily:

       (a)    to improve physical appearance or to change or restore bodily form
              without materially correcting a bodily malfunction . . .

EA, Exhibit 201 at 3.
                                          -4-
Id. at 29.

       Simply stated, the issue presented is whether a reasonable person could conclude
that the Plan does not cover Milone’s breast augmentation or reduction surgery where
it was deemed to be “medically necessary,” but nonetheless not associated with cancer
of the breast.

                                          I.

       A.    Standard of Review

       ERISA does not specify a standard of review; however, the Supreme Court has
held that a district court reviewing a denial of benefits should use a de novo standard
of review unless the plan gives the “administrator or fiduciary discretionary authority
to determine eligibility for benefits or to construe the terms of the plan.” Donaho v.
FMC Corp., 74 F.3d 894, 897 (8th Cir. 1996) (quoting Firestone Tire & Rubber Co. v.
Bruch, 489 U.S. 101, 115, 109 S. Ct. 948, 956-57, 103 L. Ed. 2d. 80 (1989)). If
discretionary authority is given to the plan administrator, the court reviews the plan
administrator’s decision for abuse of discretion. See id. at 898. It is conceded that
Exclusive did have discretionary authority, thus the deferential standard of “abuse of
discretion” applies.6




       6
        Although Exclusive is a wholly owned subsidiary of Mutual of Omaha
Insurance Company, the parties have not addressed a conflict of interest which may
exist in this situation. See Schatz v. Mutual of Omaha Insurance Company, 220 F.3d
944, 948 (8th Cir. 2000). The parties also have not addressed whether this conflict of
interest, if it exists, actually caused a serious breach of the plan administrator’s
fiduciary duty to Milone. See id. Accordingly, because these issues were not
addressed we shall not consider applying a less deferential standard of review.
                                          -5-
       We review de novo the question of whether the district court applied the correct
standard of review for evaluating the administrator’s interpretation of the ERISA plan.
See Davolt v. The Executive Committee of O’Reilly Automotive, 206 F.3d 806, 809
(8th Cir. 2000) (citing Woo v. Deluxe Corp., 144 F.3d 1157, 1160 (8th Cir. 1998)).
Based upon such review, including the district court’s thorough opinion, we hold that
the district court properly applied the abuse of discretion standard.

       The appropriate inquiry is whether the decision by the plan administrator to deny
benefits is “extraordinarily imprudent or extremely unreasonable.” Lutheran Medical
Ctr. of Omaha, Neb. v. Contractors, Laborers, Teamsters, & Engineers Health &
Welfare Plan, 25 F.3d 616, 620-21 (8th Cir. 1994) (citing Cox v. Mid-American
Dairymen, Inc., 965 F.2d 569, 572 (8th Cir. 1992) (quoting George C. Bogert & George
T. Bogert, The Law of Trusts and Trustees § 560 at 201-204 (rev. ed. 1980))). The
reasonableness of Exclusive’s actions is determined by whether the decision to deny
Milone’s pre-certification was supported by substantial evidence, meaning more than
a scintilla but less than a preponderance. See Schatz v. Mutual of Omaha Insurance
Company, 220 F.3d 944, 949 (8th Cir. 2000) (citing Donaho v. FMC Corp., 74 F.3d
894, 898-901 (8th Cir. 1996)). During our inquiry, “[w]e consider only the evidence
that was before the administrator when the claim was denied.” Sahulka v. Lucent
Technologies, 206 F.3d 763, 769 (8th Cir. 2000) (citing Brown v. Seitz Foods, Inc.
Disability Benefit Plan, 140 F.3d 1198, 1200 (8th Cir. 1998)). Here, exclusion (tt) was
utilized by Exclusive to deny benefits for a medically necessary procedure. We will
require that the record contain substantial evidence to support this interpretation of the
Plan.

        Dr. Mark Pilley, a member of Exclusive’s Benefit Review Committee, testified
that exclusion (tt) was written to allow “[c]osmetic treatment of the patient who has had
breast cancer.” Joint Appendix at 191. Exclusion (q) of the Plan would deny benefits
for all cosmetic surgery. The district court found that exclusion (tt) was intended to

                                           -6-
comply with state law which required cosmetic treatment of a patient with breast
cancer. The trial court found that without the addition of exclusion (tt), which allows
cosmetic surgery in cases of breast cancer, the Plan would be in violation of this state
law.

        Despite knowing the background of exclusion (tt), Exclusive contends that the
exclusion was designed to bar coverage for all breast augmentations or reductions,
including those that were medically necessary, unless they were associated with cancer
of the breast. Exclusive supported this interpretation with limited testimony concerning
the annual application of exclusion (tt), stating that one to two cases were denied each
week. This conclusory statement is not supported by facts which would show whether
or not such denials were for claims involving simply cosmetic surgery or surgery
required by reason of medical necessity. Absent such evidence, the statement lacks
probative value to explain Exclusive’s application of the terms of the Plan. The only
relevant inquiry, according to Exclusive, is a review for cancer relatedness. Exclusive
argues that if there is no cancer there is no coverage.

       The evidence established that Exclusive granted benefits to three other women
who requested breast reduction surgery in non-cancerous situations. The evidence also
established that Exclusive went beyond a simple cancer review before denying benefits
in this case. For example, Exclusive made use of the term “medical necessity”
throughout the review of Milone’s claim and made treatment suggestions to Milone’s
treating physician. Exclusive explained this expanded examination by stating that such
procedure was utilized to provide Milone with complete and thorough medical
treatment. We do not fault such a purpose.

       Having reviewed the evidence, we find that the record in this case does not
contain substantial evidence to support Exclusive’s interpretation of the Plan. We also
find that the purpose of exclusion (tt) was to permit cosmetic surgery for victims of


                                          -7-
breast cancer. Accordingly, we conclude the district court did not err in its detailed
findings that Exclusive’s denial was arbitrary and capricious.

       We are not unmindful of the fact that, read in isolation, exclusion (tt) would by
its own terms deny benefits (for breast augmentation or reduction) to any female
suffering from breast disease of whatever kind as long as those diseases were not
cancer related. This was the argument of counsel for Exclusive at oral argument. As
stated, the evidence indicates that claims for the breast augmentation or reduction
procedure were denied in one or two cases per week. A thorough search of the record
facts fails to reveal how many of such cases were “medically necessary” or were
simply for cosmetic surgery unrelated to cancer.

       The trial court in its analysis determined that Exclusive’s interpretation of the
Plan was unreasonable. The court also applied the five factors set forth in Finley v.
Special Agents Mut. Benefit Ass’n, 957 F.2d 617 (8th Cir. 1992). Those factors are:
(a) whether the Committee’s interpretation is consistent with the goals of the Plan; (b)
whether the interpretation renders any language in the Plan meaningless or internally
inconsistent; (c) whether the Committee’s interpretation conflicts with the substantive
or procedural requirements of the ERISA statute; (d) whether the Committee has
interpreted the relevant terms consistently; and (e) whether the interpretation is contrary
to the clear language of the Plan. See id. at 621.

       We do not believe that the many women who have breast disease unrelated to
cancer were intended to be excluded from the Plan where it was medically necessary
to have such corrective surgery. We conclude that the court’s application of Finley is
not clearly erroneous.

       A finding that Exclusive’s denial was arbitrary and capricious does not end our
analysis. We now turn to whether the Plan covers Milone’s requested procedure. As
stated above, the parties agree that Milone’s requested procedure was “medically

                                            -8-
necessary” as defined by the Plan. Accordingly, we conclude that the district court did
not err in granting benefits to Milone.



                                            II.

              A.     Attorney Fees

     Exclusive also argues that the district court abused its discretion in awarding
Milone attorney fees and costs. We affirm.

       Pursuant to ERISA, an award of attorney fees and costs are discretionary. See
29 U.S.C. § 1132(g); Lutheran Medical Ctr. of Omaha, Neb., 25 F.3d at 623. We
review the district court’s decision to award attorney fees and costs under an abuse of
discretion standard, and reverse only if the record clearly shows an abuse of discretion.
See id.

       The district court awarded attorney fees in the amount of $11,442.75, and
taxable court costs of $962.05. This Court has previously stated that when determining
whether to award attorney fees, the district court must consider “the degree of
culpability or bad faith; the ability to pay an award of attorney fees; the deterrent effect
an award would have on others; whether the attorney fees are requested to benefit the
other plan participants or to resolve legal issues; and the relative merits of the parties’
position.” Id. (citing Jacobs v. Pickands Mather & Co., 933 F.2d 652, 659 (8th Cir.
1991)).

       Absent “special circumstances,” a plan beneficiary who successfully enforces
her rights under a plan should recover attorney fees. See id. The burden of
establishing the “special circumstance” which would make the award of attorney fees
inequitable rests upon the unsuccessful party. See id. Here, the district court

                                            -9-
thoroughly analyzed each of the five Jacobs factors. In addition, we find that Exclusive
has failed to establish the existence of any “special circumstances.” Accordingly, we
conclude that the district court’s award of attorney fees and costs was not an abuse of
discretion.

      For the foregoing reasons, we affirm the judgment of the district court.



A true copy.

      ATTEST:

               CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.




                                          -10-
