PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ROBERT A. HALEY,
Plaintiff-Appellant,

v.
                                                                   No. 95-1701
THE PAUL REVERE LIFE INSURANCE
COMPANY,
Defendant-Appellee.

Appeal from the United States District Court
for the Eastern District of North Carolina, at Wilmington.
James C. Fox, Chief District Judge.
(CA-93-115)

Argued: November 1, 1995

Decided: March 4, 1996

Before NIEMEYER, HAMILTON, and MICHAEL, Circuit Judges.

_________________________________________________________________

Affirmed by published opinion. Judge Niemeyer wrote the opinion,
in which Judge Hamilton and Judge Michael joined.

_________________________________________________________________

COUNSEL

ARGUED: Erna Avari Patrick, WOMBLE, CARLYLE, SAND-
RIDGE & RICE, P.L.L.C., Winston-Salem, North Carolina, for
Appellee. ON BRIEF: James W. Crabtree, SMATHERS & THOMP-
SON, Charlotte, North Carolina, for Appellant.

_________________________________________________________________
OPINION

NIEMEYER, Circuit Judge:

Robert A. Haley became disabled and stopped working in February
1990 as a result of ankylosing spondylitis (a fusing of the spine) and
neuropathies (degeneration of the nerves) in his legs. He filed a claim
under his employer's long-term disability benefits plan, but the plan's
administrator denied the claim on the ground that Haley's disability
resulted from medical conditions that preexisted his enrollment in the
plan and was therefore excluded by the plan's terms. Contending that
the administrator wrongfully denied him benefits, Haley filed this
action against the administrator under the Employee Retirement
Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. The
district court concluded that the administrator had not abused its dis-
cretion in denying benefits and granted its motion for summary judg-
ment.

While we conclude that the district court erred in reviewing the
administrator's decision for abuse of discretion rather than de novo,
we nevertheless affirm the district court's judgment because it is
incontrovertible that Haley's disabling ailments preexisted his enroll-
ment in the plan and therefore his resulting disability was excluded
from coverage by the plan's terms.

I

In July 1989, Haley began working for Century II, Inc., in Conway,
South Carolina, as an electrical engineer. On September 1, 1989, he
became eligible for coverage under Century II's long-term disability
income benefits plan. Century II provided the benefits of that plan
through an insurance policy that it obtained from Paul Revere Life
Insurance Company (Revere). Revere was also the administrator of
Century II's plan.

In February 1990, several months after he began work, Haley was
admitted to a hospital in Wilmington, North Carolina, after fainting.
He complained of back pain and tingling and numbness in his legs.
The hospital believed that Haley's fainting was"possibly" caused by

                    2
postural hypotension and diagnosed him as suffering from peripheral
neuropathy, anemia, ankylosing spondylitis, and Vitamin B-12 defi-
ciency. After his discharge from the hospital, Haley continued treat-
ment for his condition, but he never returned to work. In October
1990, he submitted a claim to Revere for long-term disability benefits,
describing his disability as "neuropathies--ankylosing spondylitis."

After reviewing Haley's medical history, Revere found that
Haley's medical records revealed "a history of this condition with
specific dates of treatment within the three-month period prior to his
effective date." Accordingly, Revere concluded that Haley's condition
was "preexisting" and therefore that he was"not eligible to receive
benefits under the Long Term Disability policy." 1 Following an inter-
nal administrative review of Haley's claim, Revere reaffirmed its
denial of benefits, stating:

         Significant to classifying Mr. Haley's ailments of February,
         1990 as pre-existing, would be records and sworn testimony
_________________________________________________________________
1 Century II's plan contained the following exclusion for preexisting
conditions:

          PRE-EXISTING CONDITIONS LIMITATION

          Any period of disability due to a pre-existing condition is not
          covered.

          PRE-EXISTING CONDITION means a disability which:

          1. is caused by an injury or sickness; and

          2. requires an employee, during the three months just before
          becoming insured, to:

          a. consult a doctor; or

          b. seek diagnosis or advice or receive medical care or treat-
          ment; or

          c. undergo hospital admission or doctor's visits for testing or
          for diagnostic studies; or

          d. obtain services, supplies, prescription drugs or medicines.

          This limitation does not apply to disabilities which begin after
          the employee has been insured for a period of twelve consecutive
          months.

                    3
          pertinent to the pre-existing condition period, June, 1989
          through August, 1989. Specific to this time frame would be
          office notes provided by Dr. John Herion as well as
          deposition testimony taken of Dr. Herion on April 13, 1993.

Dr. Herion's office notes, on which Revere relied, reveal that when
Haley first saw Dr. Herion in November 1988 he had"a history of
ankylosing spondylitis and hypertension," but that his symptoms from
the ankylosing spondylitis were then "currently stable." Dr. Herion's
records also show that Haley returned to visit him on June 21, 1989,
for "follow-up evaluation of his hypertension, ankylosing spondylitis,
and anxiety/agoraphobia." Dr. Herion's notes from Haley's second
visit indicate that Haley "complain[ed] of some bilateral leg numb-
ness" but was "not anxious to have any diagnostic studies performed
because the problem ha[d] been present for a short period of time and
[was] very transient." The notes from Haley's June 1989 visit include
Haley's remark that his wife was more concerned than he was about
the condition and conclude, "Consider EMG and nerve conduction
velocity studies if the leg numbness persists for the next several
weeks."

Haley filed this action under § 502(a)(1)(B) of ERISA, 29 U.S.C.
§ 1132(a)(1)(B), contending that Revere wrongfully denied him bene-
fits under Century II's long-term disability plan. Granting Revere's
motion for summary judgment, the district court concluded that
Revere's decision was supported by "substantial evidence in the
Administrative Record under a reasonable interpretation of the plan"
and that Revere's denial of benefits was "not arbitrary and/or capri-
cious, and did not result from an abuse of discretion." The court
added its independent conclusion that "the entire record in this matter
fully supports [Revere's] contentions."

This appeal followed.

II

At the outset, we address the appropriate standard for judicial
review of an ERISA plan administrator's decision to deny benefits.

                    4
Revere, as administrator of Century II's benefit plan, contends that
its decision to deny Haley disability benefits warrants deference. It
maintains that an "[e]xamination of the Policy language demonstrates
numerous areas of discretionary and decision-making authority vested
in Revere," and therefore "Revere's Policy entitles it to exercise dis-
cretion in making eligibility determinations." Revere argues that
because the plan confers such discretionary authority, its decision to
deny benefits should be judicially reviewed only for abuse of discre-
tion. Revere also argues that because its factual determinations are
based on "the Administrative Record," they, too, should be reviewed
only for abuse of discretion.

In support of its contention that the plan gives the administrator
discretion, Revere directs our attention to several plan provisions. For
example, Revere points out that the plan provides,"In the case of
death, any unpaid accrued benefits are paid, at[Revere's] option, to
the employee's estate or to one of the employee's surviving relatives
based on [Revere's] selection." The plan also states that proof of an
individual's insurability "must be based on medical information and
must be acceptable to [Revere]." In connection with the processing of
claims, Revere points to plan language that reads:

          If [Revere does] not receive notice within twenty days, the
          claim may be reduced or invalidated. If it can be shown that
          it was not reasonably possible to submit notice within the
          twenty day period and it is shown that notice was given as
          soon as possible, the claim will not be reduced or invali-
          dated.

And in connection with the evaluation of proof submitted to support
a continuing disability, the plan gives Revere "the right to require
additional written proof to verify the continuance of any disability"
and permits Revere to "request this additional proof as often as
[Revere] feel[s] is necessary, within reason." Because the plan is "re-
plete with discretionary language," Revere argues, it is entitled "to
exercise discretion in making eligibility determinations, and [there-
fore] the proper standard of [judicial] review is abuse of discretion."

Accepting Revere's argument, the district court concluded that the
plan "confers upon Revere, as the ERISA plan administrator and/or

                    5
plan fiduciary, the discretion to make eligibility determinations." The
court therefore concluded that the proper standard for reviewing
Revere's denial of benefits is "abuse of discretion."

On appeal, Haley contends that the district court erred in according
deference to Revere's decision. Haley argues that the court should
have reviewed Revere's decision de novo because Revere acted under
a conflict of interest in both administering the plan and paying the
benefits. For support, Haley relies on our decision in Doe v. Group
Hospitalization & Medical Services, 3 F.3d 80, 87 (4th Cir. 1993), in
which we held that less deference is due to an administrator's inter-
pretation of a plan "where one interpretation will further the financial
interests of the [administrator]."

The question of when it is appropriate for courts to show deference
to the decisions of ERISA plan administrators continues to cause con-
fusion. Because such decisions are usually reviewed within a corpo-
rate hierarchy on a record made by the plan administrator, a notion
emerges that such an "administrative" decision enjoys the same defer-
ence accorded the decisions of governmental administrative agencies
under the Administrative Procedure Act (APA). See 5 U.S.C. § 706.
For example, that suggestion emerges in this case where Revere
claims that "under ERISA, Mr. Haley bears the burden of demonstrat-
ing that the denial of benefits was an abuse of discretion (arbitrary
and capricious)." Compare that formulation with the APA's formula-
tion at 5 U.S.C. § 706(2)(A), which provides that a reviewing court
shall set aside agency action that is "arbitrary, capricious, an abuse of
discretion." Similarly, the district court found"substantial evidence in
the Administrative Record" to support Revere's decision. Compare
that formulation with the APA's formulation at 5 U.S.C. § 706(2)(E),
which provides that a reviewing court shall set aside agency findings
"unsupported by substantial evidence."

Even though some analogies can be made between in-house admin-
istrative determinations on ERISA claims and governmental agency
decisions, neither plan administrators nor private corporate personnel
who review plan administrators' decisions regularly employ the pro-
cedural safeguards that justify judicial deference to the decisions of
governmental agencies. While that fact alone might be a sufficient
one for not according judicial deference to plan administrators' deci-

                     6
sions generally even if private plan administrators could be thought
to provide due process, the proper reason for denying general judicial
deference to plan administrators' decisions is that judicial review of
those decisions is not governed by principles of administrative law.
Rather, ERISA plans are contractual documents which, while regu-
lated, are governed by established principles of contract and trust law.
See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111 (1989)
(noting that in determining appropriate standard of judicial review
under ERISA, courts should be "guided by principles of trust law");
Wheeler v. Dynamic Eng'g, Inc., 62 F.3d 634, 638 (4th Cir. 1995)
(ERISA plans are interpreted "under ordinary principles of contract
law").

Because an ERISA plan is contractual in nature, we use standard
contract principles and look to the plan's language to determine
whether the plan confers discretion on the administrator to provide
benefits and what the scope of that discretion is. When the terms of
a plan give an administrator "discretionary powers," principles of trust
law dictate that the administrator's exercise of those powers "not [be]
subject to control by the court, except to prevent an abuse by the
[administrator] of his discretion." Restatement (Second) of Trusts
§ 187 (1957). When the administrator's exercise of a discretionary
power forms the basis of a dispute between the parties, courts do not
review the merits of the administrator's decision, but rather decide
only the contractual questions of whether the administrator exceeded
its power or abused its discretion because only those inquiries are rel-
evant to whether the administrator's decision breached the contractual
provision.

If, for example, the language of a plan instructs the administrator
to provide specific benefits when a plan participant breaks a leg, the
administrator has no discretion and must provide those benefits when
a participant breaks his leg. If the administrator is sued for his refusal
to provide benefits, the court takes evidence and applies the contract's
terms, determining de novo whether the administrator breached the
contract. In such a case, the administrator's decision receives no def-
erence from the court because the contract does not confer discretion-
ary authority on the administrator. See, e.g., Glocker v. W. R. Grace
& Co., 974 F.2d 540, 543 (4th Cir. 1992).

                     7
If, on the other hand, the language of a plan instructs the adminis-
trator to provide "such benefits when a participant breaks a leg, as are
determined by the administrator, in his discretion, to be necessary to
assist the participant until the leg is healed," the administrator is
authorized by the parties' agreement to exercise judgment about the
amount of benefits to be provided. If the administrator determines that
a $1,000 payment is appropriate, no provision of the contract is
breached even though the participant believes that $2,500 is the
appropriate amount. In such a case, the administrator's judgment can-
not form the basis of a breach of contract absent an abuse of discre-
tion and therefore cannot be subjected to de novo judicial review. See
Firestone, 489 U.S. at 111 ("Trust principles make a deferential stan-
dard of review appropriate when a trustee exercises discretionary
powers"); Restatement (Second) of Trusts § 187 (1957). While de
novo review is inappropriate when reviewing an administrator's exer-
cise of discretion, it is proper in deciding the two questions of con-
tractual interpretation and performance: (1) whether the plan confers
discretion upon the administrator to make the decision at issue; and
(2) whether the administrator's decision falls within the scope of dis-
cretion conferred.

In sum, when reviewing an ERISA plan administrator's decision to
grant or deny plan benefits, a court must first decide de novo whether
the plan's language prescribes the benefit or whether it confers discre-
tion on the administrator to determine the benefit. If the plan confers
discretion, the court must decide, again de novo , whether the adminis-
trator, in making its determination, acted within the scope of that dis-
cretion. And, finally, if the plan administrator's decision falls within
the scope of the administrator's contractually conferred discretion, the
court may review the merits of an administrator's decision only for
an abuse of discretion. The court must not disturb the administrator's
decision if it is reasonable, even if the court itself would have reached
a different conclusion. See Doe, 3 F.3d at 85; Restatement (Second)
of Trusts § 187 cmt. e (1957) ("The mere fact that if the discretion
had been conferred upon the court, the court would have exercised the
power differently, is not a sufficient reason for interfering with the
exercise of the power by the trustee").

Finally, in deciding whether an administrator has abused its con-
tractually conferred discretion, a court should consider, to the extent

                     8
relevant: (1) the scope of the discretion conferred; (2) the purpose of
the plan provision in which the discretion is granted; (3) any external
standard relevant to the exercise of that discretion; (4) the administra-
tor's motives; and (5) any conflict of interest under which the admin-
istrator operates in making its decision. See Restatement (Second) of
Trusts § 187 cmt. d (1957).

In this case, Revere, acting as the plan administrator, determined
that Haley was not entitled to benefits under Century II's long-term
disability plan because Haley's disabling condition fell under the
plan's preexisting condition exclusion. The language of that exclu-
sion, however, does not grant Revere discretionary authority to deter-
mine whether an employee's disability falls within its scope. While
other plan provisions may give Revere discretion to decide peripheral
issues, such as whether Haley's claim was properly documented or
timely filed, none of the plan's discretionary grants of authority cov-
ers Revere's decision to deny Haley benefits under the preexisting
condition exclusion.

Accordingly, Haley's ERISA claim for benefits under the plan
must be reviewed de novo, and thus we accord no deference to
Revere's decision. Having reached that conclusion, we need not
address Haley's claim that Revere acted under a conflict of interest.

III

Reviewing de novo Haley's claim for benefits under Century II's
long-term disability plan, we agree with the district court that the
undisputed facts of record establish that Haley's disabling condition
preexisted his enrollment in the plan thus triggering the plan's preex-
isting condition exclusion.2

Haley began work with Century II in July 1989 and became eligi-
ble for its long-term disability benefits on September 1, 1989.
Approximately six months later, he became disabled. Because Haley
_________________________________________________________________
2 Ordinarily, we would remand the case to the district court to decide
the claim in the first instance, applying the proper standard of judicial
review. In this case, however, the undisputed facts demonstrate that
Revere's decision to deny benefits was the correct one.

                     9
had been insured for less than 12 months, the plan provides that he
be subject to its preexisting condition exclusion, which denies cover-
age for "[a]ny period of disability due to a preexisting condition." The
plan defines a "disability due to a preexisting condition" as a disabil-
ity caused by injury or sickness that requires, inter alia, an employee,
during the three months just before becoming insured, to "consult a
doctor; or seek diagnosis or advice or receive medical care or treat-
ment."

Since at least 1986, Haley has complained about back pain as well
as tingling and numbness in his legs, and in 1986 he underwent nerve
conduction velocity tests to ascertain the reason. When Haley first
consulted Dr. Herion in 1988, Haley reported that he had suffered
from "ankylosing spondylitis for many years." Ankylosing spondyli-
tis, a disease which results in a fusion or stiffening of the spine, can
cause damage to nerves in the body's extremities (neuropathies). At
the time of his 1988 visit, Haley's symptoms from the disease were
stable. However, when Haley returned to Dr. Herion on June 21,
1989, for a "follow-up evaluation" of his spondylitis and other prob-
lems, he complained of numbness and tingling in his legs because
those symptoms "bothered" him. Dr. Herion advised Haley that if his
condition persisted, Haley should consider "EMG and nerve conduc-
tion velocity studies." Dr. Herion later testified that Haley's leg
numbness on June 21 was "not a major complaint" but was "one of
the several things that [Haley] had talked about during that visit."

As it turned out, however, Haley's condition was serious, and it
ultimately caused his disability. Haley's own claim for disability ben-
efits acknowledged that he was disabled from "neuropathies-
ankylosing spondylitis."3 Thus, the very disease Haley discussed with
Dr. Herion on June 21 later worsened and caused Haley's disability.
_________________________________________________________________
3 Similarly, Haley wrote on his claim for total disability with the Social
Security Administration, "I am unable to work due to neuropathy in my
legs and upper limbs. . . . I have difficulty walking. . . . I have ankylosing
spondylitis." Explaining how his condition disabled him, he stated:

          Difficulty walking, limited use of legs & feeling. .. . Both legs
          feel asleep most of the time--must avoid standing long. The sen-
          sation in legs is similar--half asleep, tingling constantly--
          whether standing, or sitting. Also elbows . . . tingle also but not
          as severe as the legs. (couldn't write for awhile, though). Legs
          are prone to give out when going down stairs.

                    10
Because Haley's disabling disease was the subject of a doctor's
consultation and advice on June 21, 1989--a date within the three-
month period before September 1, 1989, when Haley first became
insured--his subsequent period of disability was"due to a preexisting
condition" as defined by the plan and, therefore, excluded from the
plan's coverage.

Haley argues that the reason he visited Dr. Herion on June 21 was
to refill several prescriptions. The purpose of his visit, however, does
not negate the fact that Haley sought medical advice on other sub-
jects. Haley concedes that during the visit he asked Dr. Herion why
his legs tingled because the tingling bothered him and he "wanted his
money's worth" from the visit.

It is apparent that the plan intends to exclude benefits for medical
conditions that the employee already has when he begins employment
and to provide benefits only for disability caused by injury or sickness
occurring while the insured is an employee. The three-month period
is an arbitrary, but contractually established, period sufficiently close
to the beginning of coverage to provide a reasonable basis for identi-
fying the existence of a preexisting condition. That the record
includes doctor's notes prepared contemporaneously with a medical
consultation, at which Haley's ultimately disabling illness was dis-
cussed and which occurred during the relevant three-month period, is
incontrovertible.

While the parties argue over the significance of Haley's condition
in relation to the overall purpose of his June 21 doctor's visit, the
undisputed fact remains that Haley was suffering at that time from,
and sought advice for, the very condition that later disabled him.
Because the plan does not provide benefits under such circumstances,
we conclude that even under de novo review, the administrator prop-
erly denied Haley's claim. Accordingly, we affirm the district court's
summary judgment in favor of Revere.

AFFIRMED

                     11
