                    REVISED SEPTEMBER 7, 1999
              IN THE UNITED STATES COURT OF APPEALS

                      FOR THE FIFTH CIRCUIT

                      _____________________

                           No. 97-20645
                      _____________________



VILMA LISSETTE VEGA; JOSE VEGA,

                                              Plaintiffs-Appellants,

                              versus

NATIONAL LIFE INSURANCE
SERVICES, INC.; ET AL.,

                                                         Defendants,

PAN-AMERICAN LIFE INSURANCE
COMPANY,

                                              Defendant-Appellee.
_________________________________________________________________

      Appeal from the United States District Court for the
               Southern District of Texas, Houston
_________________________________________________________________
                        September 1, 1999
Before REYNALDO G. GARZA, POLITZ, JOLLY, HIGGINBOTHAM, DAVIS,
JONES, SMITH, DUHÉ, WIENER, BARKSDALE, EMILIO M. GARZA, DeMOSS,
BENAVIDES, STEWART, PARKER, and DENNIS, Circuit Judges.1

E. GRADY JOLLY, Circuit Judge:

     This case involves a denial of health benefits claimed by Jose

Vega and his wife, Vilma Vega, under a health benefits plan they

established for themselves and the employees of their business, the

Corona Paint & Body Shop, Inc. (“Corona”).       The Vegas sued the

insurance companies responsible for insuring and maintaining the

plan, Pan-American Life Insurance Co. (“Pan-American”) and National


     1
      Chief Judge King is recused.
Life Insurance Services, Inc. (“National Life”)--a subsidiary of

Pan-American.   The district court granted summary judgment for the

insurance companies, relying in part on its holding that it could

not consider additional evidence submitted by the Vegas to the

district court when that evidence was not available to the plan

administrator at the time it reached its decision.              On appeal, a

panel reversed the district court, holding that the district court

erred in not considering the evidence presented by the Vegas.

     We heard this case en banc to address three issues.              First,

the Vegas argue that we do not have jurisdiction under the Employee

Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq.,

because the Vegas, as the sole owners of Corona, were not employees

as that term is defined by the statute and related Department of

Labor regulations.     This issue has divided the Circuits and we

recognize the need to clarify the scope of ERISA in this context.

We hold today that where a husband and wife are sole owners of a

corporation that has created an employee benefits plan covered by

ERISA, and the husband and wife are also enrolled under the plan as

employees of the corporation, they are employees for ERISA purposes

and so our courts have jurisdiction under ERISA to review a denial

of their claims.

     The   second   issue   we   address   is   the   panel’s   approach   to

reviewing a decision of an administrator operating under a conflict

of interest, which in this case is that the corporation deciding

the claim will have to pay the claim.       Although in the past we have




                                     2
repeatedly    stated       that   the       district    court      may    not    engage    in

additional fact finding, the panel here sought to carve out an

exception for conflicted administrators. The panel held that, when

the administrator has a conflict of interest in denying a claim, it

must meet a duty to conduct a good faith, reasonable investigation.

In determining whether the administrator has met this duty, the

panel elected       to    consider      evidence       that    it    believed      such    an

investigation would have uncovered.                    We hold today that no such

specific and uniform duty exists.                  We further hold that evidence

may not be admitted in the district court that is not in the

administrative record when that evidence is offered to allow the

district court       to    resolve      a    disputed      issue     of    material   fact

regarding the claim--i.e., a fact the administrator relies on to

resolve the merits of the claim.

      Finally, we turn to the merit of the summary judgment ruling

by the district court.            Even though the district court correctly

refused to consider the additional evidence proffered by the Vegas,

the   district       court        nonetheless          erred    in        upholding       the

administrator’s      denial       of    the       claim.       After      reviewing       the

administrative record, we find no rational basis is contained

therein for denying the Vegas’ claim and therefore conclude that

National Life abused its discretion.

                                              I

      The   Vegas    are    the    sole      owners     of    Corona,      a    corporation

structured as a Subchapter S corporation under the Internal Revenue




                                              3
Code.     On March 20, 1995, Mr. Vega, on behalf of Corona, applied

for an employer-sponsored group medical plan with Pan-American.

Pan-American issued the policy, which covered Mr. Vega as an

employee and his wife as a dependent. Under the plan, Pan-American

was the insurer and National Life, a subsidiary of Pan-American,

acted as the claims administrator of the plan.         The plan granted

National Life discretion in deciding claims.

     In filling out the form for his wife, Mr. Vega denied that she

had received any advice, consultation, or test for any medical

condition (other than a recovered bladder infection) during the

previous six months.         Less than two months after Pan-American

approved coverage for Mrs. Vega, she saw Dr. Bueso, who recommended

surgery for posterior repair of the vagina.          Mrs. Vega underwent

the surgery and processed her claim for coverage under the plan.

     In    reviewing   the   medical   records   related   to   the   claim,

National Life discovered a notation by Mrs. Vega’s gynecologist,

Dr. Galvan, dated October 5, 1994, that stated “posterior repair.”

A representative of National Life then called Dr. Galvan’s office

and asked about the notation.      National Life kept phone logs of two

phone calls related to the inquiry.        In the first phone call, the

representative spoke to an assistant of Dr. Galvan’s, Ramone, who

told the representative that she would ask Dr. Galvan and call

back.     The second log states:

     S/W Ramone

     Last 2 entries were from phone conversations




                                       4
     Last pc was when patient called Dr. Galvan back and Ms.
     Vega had some questions regarding a surgical procedure.
     Dr. Galvan answered her questions about the procedure and
     wrote note in pt chart because they talked about it.
          Was she anticipating surgery? He (Dr. Galvan) said
     she had questions and he answered them. Doesn’t recall
     what prompted conversation.

On the basis of this information, National Life decided to deny

Vega’s claim.

     National Life sent a letter to the Vegas explaining to them

that it was denying the Vegas’ claim.   The letter stated:

     During processing of your claims we learned that the
     information contained on your GEC regarding your health
     history was not accurate. Specifically, medical records
     received and reviewed from Dr. Pineda and Dr. Galvan
     indicate that your response to question number 3 was
     incorrect. Dr. Galvan’s medical records indicate that on
     September 29, 1994 he consulted Ms. Vega for a check up
     and relaxation of tissue with breast tenderness. The
     records further state that on October 5, 1994, he
     recommended a posterior repair.    Dr. Pineda’s records
     indicate that on May 10, 1995 Ms. Vega obtained a
     consultation complaining of galactorrhea and a cytology
     was recommended.    Had you advised us of Ms. Vega’s
     medical history as you were obligated to do, coverage
     would have been denied at initial underwriting.2

The letter went on to state:

     The URB [Underwriting Review Board] remains willing to
     review and consider any additional information you may
     have which you feel would impact on our decision to
     rescind coverage. If you wish to appeal this decision,

    2
     Question number 3 from the Group Enrollment Card (“GEC”) was
“Are you or any of your dependents currently pregnant?”     It is
apparent that National Life meant to reference question number 1:
“Have you or your dependents had any consultation, advice, tests,
treatment or medication for any medical condition(s) during the
past 6 months?”
     Although Pan-American continues to claim that the Vegas made
misrepresentations other than the omission regarding posterior
repair, Pan-American does not seem to currently argue that any of
the other misrepresentations was material.



                                5
     please do so in writing and send it to the attention of
     the Underwriting Review Board at the company address
     listed below.

     The Vegas did not submit a request for review of the decision3

but instead hired an attorney who sent a letter on their behalf

indicating that if Pan-American did not pay the claim, the Vegas

would sue.   Pan-American sent a reply indicating that it was

prepared to go to court.

     Shortly thereafter, the Vegas filed suit in state court

alleging state law causes of action. Pan-American removed the

action to federal court and each side sought summary judgment.           In

the pleadings filed in district court, the Vegas attempted to

introduce testimony from Mrs. Vega’s physicians (Dr. Galvan and Dr.

Bueso) contradicting Pan-American’s claim that, at the time the

Vegas enrolled in the plan, Mrs. Vega contemplated posterior repair

surgery. Pan-American then attempted to introduce expert testimony

supporting its conclusion as a fair reading of the medical records.

     The district court granted summary judgment to Pan-American

after concluding   that    ERISA   applied   to   the   dispute   and   that

Pan-American had not abused its discretion in denying the medical

claim and rescinding coverage.      The district court concluded that

it could not consider the testimony introduced by the Vegas as it


    3
     In their briefs, the Vegas argue that their doctors attempted
to contact National Life to explain to National Life that it had
misunderstood Mrs. Vega’s medical history. There does not appear
to be any actual evidence to support the Vegas’ claims.        The
affidavits of the doctors, for example, never mention that they
contacted National Life.



                                    6
was not available to the plan administrator.        On appeal, the panel

held that such testimony could be considered, as there was evidence

that Pan-American had violated its duty to conduct a “reasonable,

good   faith   investigation   of   the   claim.”    In   reaching   this

conclusion, the panel relied heavily on the affidavits prepared by

Dr. Galvan and Dr. Bueso.      Vega v. National Life Ins. Services,

Inc., 145 F.3d 673, 678-79 & 680-81 (5th Cir. 1998) (quoting full

text of affidavits and treating testimony as relevant evidence for

summary judgment purposes), reh’g en banc granted and vacated, 167

F.3d 197 (5th Cir. 1999).

                                    II

       The first issue we must address is whether the federal courts

have jurisdiction under ERISA to hear this appeal.            The Vegas

contend that the trial court and the panel erred in concluding that

ERISA covers this dispute. According to the Vegas, their status as

sole shareholders of Corona renders Mrs. Vega neither a participant

nor a beneficiary for ERISA purposes, so ERISA does not govern

their claims.    They urge that their suit belongs in state court.

       ERISA preempts all state claims that “relate to any employee

benefit plan.”   29 U.S.C. § 1144(a).4     In order for ERISA to govern

        4
       There are two kinds of preemption under ERISA. There is
complete preemption--where there is federal jurisdiction because
ERISA contains specific enforcement provisions for the claim, see
29 U.S.C. § 1132, and thus occupies the entire field. Then there
is conflict preemption--where the cause of action is preempted by
29 U.S.C. § 1144, but there is no federal jurisdiction because the
cause of action is outside the scope of ERISA’s civil enforcement
provisions and is therefore governed by the well pleaded complaint
rule. In that case, preemption is a defense to be raised in the



                                    7
the Vegas’ claims, two criteria must be met: (1) an employee

benefit plan must exist, and (2) Mrs. Vega must have standing to

sue as a participant or beneficiary of that employee benefit plan.

See Madonia v. Blue Cross & Blue Shield of Virginia, 11 F.3d 444,

446 (4th Cir. 1993); Apffel v. Blue Cross Blue Shield of Texas, 972

F. Supp. 396, 398 (S.D. Tex. 1997).

      The ERISA statute defines “employee welfare benefit plan” as:

      any plan, fund, or program . . . established or
      maintained by an employer . . . to the extent that such
      a plan, fund, or program was established or is maintained
      for the purpose of providing for its participants or
      their beneficiaries, through the purchase of insurance or
      otherwise, (A) medical, surgical, or hospital care or
      benefits . . . .

29 U.S.C. § 1002(1).           The panel stopped at the initial step--

finding that there was an ERISA plan--and determined that ERISA

governed the Vegas’ lawsuit.          The first step is the easy part,

however.    In fact, the Vegas agree that an ERISA plan exists to the

extent that the plan is established or maintained for the purpose

of providing benefits to employees who are plan participants and

their beneficiaries.

      The Vegas’ argument is that the plan as it regards Mrs. Vega

is   not   an   ERISA   plan    because   she   is   not   a   participant   or

beneficiary.      That is, to have standing to bring a suit under



state court, but is no basis for removal jurisdiction. See Giles
v. NYLCare Health Plans, Inc., 172 F.3d 332, 336-37 (5th Cir.
1999). In this case, the cause of action is completely preempted
because 29 U.S.C. § 1132 provides an enforcement mechanism for
claims to be brought “(1) by a participant or beneficiary--. . .(B)
to recover benefits due to him under the terms of his plan.”



                                      8
ERISA, a person must be either a “participant” or a “beneficiary”

of an ERISA plan, see Weaver v. Employers Underwriters, Inc., 13

F.3d 172, 177 (5th Cir. 1994), and Mrs. Vega argues that her status

as a co-owner precludes her from having standing to assert claims

under ERISA.     Thus, determining whether Mrs. Vega is a participant

or beneficiary is key, and the panel did not reach the issue.

      To be considered a “participant” of the plan, a claimant must

be an “employee or former employee of an employer . . . who is or

may become eligible to receive a benefit . . . .”                   29 U.S.C.

§   1002(7).      Unhelpfully,    ERISA     defines   “employee”     as    “any

individual employed by an employer.” Id. § 1002(6). A beneficiary

is defined as “a person designated by a participant, or by the

terms of an employee benefit plan, who is or may become entitled to

a benefit thereunder.”      29 U.S.C. § 1002(8).5

      Because Mrs. Vega is listed under the policy as her husband’s

dependent, her claims are governed by ERISA only if her husband

qualifies as an employee under ERISA.             Because Mr. Vega is a

co-owner,   we    must   decide   whether    a   shareholder   of    a    Texas

corporation is precluded from qualifying as an employee for ERISA

purposes.

      The Circuits are not in accord as to whether an individual

partner, sole proprietor, or shareholder may be a “participant” in

       5
       Pan-American argues that Mrs. Vega is a plan beneficiary
because the plan application and subscription agreement states that
“present full-time employees” and their “dependents” are eligible
for benefits. This argument assumes, however, that Mr. Vega is, in
fact, an employee of the company for purposes of ERISA.



                                     9
an ERISA plan established for the business’s employees.            Compare

Fugarino v. Hartford Life & Accident Ins. Co., 969 F.2d 178, 185-86

(6th Cir. 1992)(holding that ERISA did not apply to insurance

coverage of a sole proprietor and his family even though the group

insurance policy purchased by the sole proprietor established an

ERISA plan with respect to the sole proprietor’s employees);

Kwatcher v. Massachusetts Serv. Employees Pension Fund, 879 F.2d

957, 959-60 (1st Cir. 1989)(holding that the sole shareholder of a

corporation was not an “employee” within the meaning of ERISA and,

therefore, could not participate in an ERISA plan); Brech v.

Prudential Ins. Co. of America, 845 F. Supp. 829, 832-33 (M.D. Ala.

1993)(holding that on account of his position as an employer, the

sole proprietor of a company was not a participant of an employee

benefit plan he had established with the purchase of a group

insurance policy for himself and his employee sons, and ERISA

therefore did not preempt his state law claims); and Kelly v. Blue

Cross & Blue Shield of Rhode Island, 814 F. Supp. 220, 226-29

(D.R.I. 1993)(holding that the sole shareholder and chairman of the

board   of   the   employer   corporation   was   not   a   participant   or

beneficiary with respect to a health insurance policy purchased for

the sole shareholder and the company’s employees) with Madonia v.

Blue Cross & Blue Shield of Virginia, 11 F.3d 444, 449-50 (4th Cir.

1993)(holding that a physician’s status as the corporation’s sole

shareholder did not bar him from being an “employee” under ERISA’s

definition of the term).




                                    10
      The cases holding that owners cannot also count as employees

for purposes of ERISA base their conclusion on their interpretation

of   the   ERISA   statute,    relevant       regulations,     and       legislative

history.    First, pointing to the definitions given in 29 U.S.C.

§ 1002, the cases assert that Congress “meant to divorce owner-

employees from plan participation.” See Kwatcher, 879 F.2d at 959.

An “employee” is “any individual employed by an employer.”                          29

U.S.C. § 1002(6).      The statute defines the term “employer” as “any

person acting      directly    as   an    employer,     or   indirectly      in    the

interest of an employer . . . .”                Id. § 1002(5).           While these

definitions are not particularly helpful substantively, they do

reveal, according to these cases, that an employee and an employer

are different beings--they cannot be the same person for ERISA

purposes.      These   cases   further        reason   that,   as    a    matter   of

“economic reality,” an owner should be considered an employer

rather than an employee because he “dominates the actions of the

corporate entity.”      Kwatcher, 879 F.2d at 960.

      Furthermore,     Department        of   Labor    regulations       related    to

defining when a plan is covered by ERISA provide that:

      An individual and his or her spouse shall not be deemed
      to be employees with respect to a trade or business,
      whether incorporated or unincorporated, which is wholly
      owned by the individual or by the individual and his or
      her spouse . . . .

29 C.F.R. § 2510.3-3(c)(1)(1992).              Various courts have concluded

that this regulation, clarifying the definition, is reasonable and

controlling.    See Meredith v. Time Ins. Co., 980 F.2d 352, 357 (5th




                                         11
Cir. 1993); Kelly, 814 F. Supp. at 227.   The Fifth Circuit has held

that the owner of a business cannot, for purposes of ERISA,

simultaneously be an employer and an employee.     See Meredith, 980

F.2d at 358 (holding that an insurance plan covering only a sole

proprietor and her spouse was not an ERISA employee welfare benefit

plan because the plan did not benefit employees).

     Finally, these cases posit that the purpose of ERISA suggests

that an employer’s policy is not part of an ERISA plan because

Congress intended, in passing ERISA, to provide protection for

employees, not employers.   See Kwatcher, 879 F.2d at 960 (stating

that “ERISA’s framers were concerned that employers would exploit,

misuse, or loot the huge reserves of funds collected for employee

benefit plans”); Kelly, 814 F. Supp. at 228.     These cases contend

that Congress’ intent to exclude owners from ERISA coverage is

revealed in the statute’s “anti-inurement” provision:

     [T]he assets of a plan shall never inure to the benefit
     of any employer and shall be held for exclusive purposes
     of providing benefits to participants in the plan and
     their beneficiaries and defraying reasonable expenses of
     administering the plan.

29 U.S.C. § 1103(c)(1).6




    6
     The cases relying on that passage to support an exclusion of
owners as employees are off the mark. This provision refers to the
congressional determination that funds contributed by the employer
(and, obviously, by the employees, if any) must never revert to the
employer; it does not relate to plan benefits being paid with funds
or assets of the plan to cover a legitimate pension or health
benefit claim by an employee who happens to be a stockholder or
even the sole shareholder of a corporation.



                                12
       Madonia,    a     Fourth      Circuit     case,    reached    a    different

conclusion.      Madonia considered the status of a physician who was

the    director,    president,        and    sole   shareholder      of   MNA,   the

corporation that he founded.            MNA had an employee welfare benefit

plan established for the corporation’s employees.                   The court held

that the doctor qualified as an “employee” of MNA under ERISA’s

definition of the term--“employee” is “any individual employed by

an employer,” 29 U.S.C. § 1002(6)--because he was an “individual”

and he was “employed by” the corporation.                See Madonia, 11 F.3d at

448.

       The court also looked beyond the definition and followed the

Supreme Court’s mandate in Nationwide Mut. Ins. Co. v. Darden, 503

U.S. 318 (1992), that it should employ “‘a common-law [agency] test

for determining who qualifies as an ‘employee’ under ERISA. . . .’”

Madonia, 11 F.3d at 448-49 (quoting Darden, 503 U.S. at 323).

Darden, in which the Court grappled with the question of whether an

individual qualified as an employee or an independent contractor,

directed that, because the statutory definition of “employee” was

“circular and explain[ed] nothing,” courts should use a common-law

test for determining who qualifies as an employee under ERISA.                   503

U.S. at 323.           And, because the common-law test contains “no

shorthand formula or magic phrase that can be applied to find the

answer   .   .    .[,]    all   of    the    incidents    of   the    [employment]

relationship must be assessed and weighed with no one factor being




                                            13
decisive.”      Id. at 324 (quoting NLRB v. United Ins. Co. of America,

390 U.S. 254, 258 (1968)).

       In discerning common-law principles in Madonia, the court

looked     to   relevant        Virginia    law,        which     recognized    that     a

“corporation is a legal entity separate and distinct from its

shareholders” and that the corporate form may be disregarded only

in extraordinary circumstances.                  Madonia, 11 F.3d at 449.               In

accordance with this principle, the court held that MNA’s corporate

identity was the “employer,” and Dr. Madonia’s separate identity

was    MNA’s    “employee.”           See    id.            The   court    specifically

distinguished its case from cases dealing with sole proprietors of

unincorporated businesses that, by definition, have no separate

legal existence.         See id. at n.2 (noting that “[t]he question of a

sole proprietorship is not one that is before us”).

       Madonia also addressed 29 C.F.R. § 2510.3-3(c)(1), the DOL

regulation that provides that an owner of a business is not to be

considered an employee.           The court insisted that the introductory

clause of the regulation, “[f]or purposes of this section,” refers

to    29   C.F.R.   §     2510.3-3,    which          deals    exclusively     with    the

determination       of    the   existence        of    an     employee    benefit   plan.

Therefore, according to the court, the regulation’s exclusion of

business owners from the definition of “employee” is “limited to

its self-proclaimed purpose of clarifying when a plan is covered by

ERISA and does not modify the statutory definition of employee for

all purposes.”           Madonia, 11 F.3d at 449 (quoting Dodd v. John




                                            14
Hancock Mut. Life Ins. Co., 688 F. Supp. 564, 571 (E.D. Cal.

1988)).    In other words, “[t]he regulation does not govern the

issue of whether someone is a ‘participant’ in an ERISA plan, once

the existence of that plan has been established,” id. at 449-50;

instead, because the regulations provide that the plan must involve

at least one employee, 29 C.F.R. § 2510.3-3(c)(1) simply insures

that owners are not counted as employees to satisfy the “employee”

requirement.     The court thought that its result made “perfect

sense” because    “it      would    be   anomalous   to   have    those   persons

benefitting from [the employee benefit plan] governed by two

disparate sets of legal obligations.”           Id. at 450.       The court also

believed that its result promoted Congress’ objective of achieving

uniformity through the enactment of ERISA because it fostered

consistency in the law governing employee benefits.                See id.

     We are persuaded by the reasoning in Madonia and interpret the

regulations to define employee only for purposes of determining the

existence of an ERISA plan. Under this approach, Corona’s employee

benefit plan is an ERISA plan because it does not solely cover the

Vegas,    co-owners   of    the    company;    rather,    it     includes   their

employees, and Corona employs at least one other person besides the

Vegas.    Mr. Vega’s status as a co-owner does not automatically

foreclose ERISA coverage.          Instead, whether Mrs. Vega has standing

to bring ERISA claims under the plan depends on whether common-law

principles define her husband as an “employee” or an “employer.”




                                         15
       As in Madonia, the entity in this case is a corporation.

Texas courts recognize the basic proposition that a corporation is

a legal entity separate and distinct from its shareholders.                   See

Western Horizontal Drilling, Inc. v. Jonnet Energy Corp., 11 F.3d

65, 67 (5th Cir. 1994).        Also like Virginia law in Madonia, Texas

law permits disregard of the corporate form only in very limited

circumstances. See id. Thus, we hold that Corona’s corporate form

was the “employer,” Mr. Vega was an “employee,” and Mrs. Vega was

her husband’s beneficiary--in short, ERISA applies to this case, so

this   court   has    jurisdiction.         As   long   as   a   Texas   business

corporation maintains a plan and at least one employee participant

(other than a shareholder or a spouse of the shareholder), an

employee shareholder and his beneficiaries may be participants in

the plan with standing to bring claims under ERISA.7

                                      III

       We turn now to the panel’s assessment of the district court’s

summary judgment ruling.        On appeal, the panel agreed that ERISA

applied to the case, but it reversed and remanded, concluding that

Pan-American abused its discretion in denying Mrs. Vega’s claim and

rescinding her coverage.            The panel based this conclusion on

Pan-American’s       failure   to   conduct      a   reasonable,    good    faith

investigation of the facts surrounding the Vegas’ claim.                 In doing

        7
       This circuit’s decision in Meredith does not upset this
result. Meredith held that a plan must have employees besides the
owners to qualify as an ERISA plan. See 980 F.2d at 358. The
instant plan involves at least one other employee, so it is
consistent with Meredith.



                                       16
so, the panel relied on the additional evidence presented by the

Vegas in district court.

     Although we have dealt with cases involving similar fact

patterns, we have never before explicitly imposed a duty like the

one imposed by the panel here.             In reaching its decision, the

panel relied on the existence of a conflict of interest between

National Life’s role as the administrator and Pan-American’s role

as the insurer.8     We therefore first address the role that a

conflict of interest plays in our analysis.            We then turn to the

merits   of   imposing   such   a   duty    on   the   plan   administrator,

concluding that such an imposition is inappropriate.             Finally, we

reaffirm our long-standing rule that when performing the appellate

duties of reviewing decisions of an ERISA plan administrator, the

district court may not engage in fact-finding.

                                     A

     ERISA provides the federal courts with jurisdiction to review

determinations made by employee benefit plans, including health

care plans.    29 U.S.C. § 1132(a)(1)(B).        Generally, there are two

ways employee benefit plans may be created: (1) the employer funds

the program and either contracts with a third party who administers


    8
     As explained above, Pan-American is the insurer and therefore
pays out money for each successful claim made against the plan.
National Life, in its role as claims administrator, decides which
claims succeed.   Because National Life is a subsidiary of Pan
American and is controlled by Pan-American, its interests must be
considered to be aligned with those of Pan-American.        It is
therefore arguably the case that National Life has a disincentive
to grant claims that Pan-American will have to pay.



                                     17
the plan or provides for administration by a trustee, individual,

committee, or the like; or (2) the employer contracts with a third

party that both insures and administers the plan.    In the latter

situation, the administrator of the plan is self-interested, i.e.,

the administrator potentially benefits from every denied claim.9

     Section 1132(a)(1)(B) does not provide any guidance regarding

the standard of review to be employed by the federal courts.    In

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), the

Supreme Court addressed this issue holding:

     [A] denial of benefits challenged under § 1132(a)(1)(B)
     is to be reviewed under a de novo standard unless the
     benefit plan gives the administrator or fiduciary
     discretionary authority to determine eligibility for
     benefits or to construe the terms of the plan. . . . Of
     course, if a benefit plan gives discretion to an
     administrator or fiduciary who is operating under a
     conflict of interest, that conflict must be weighed as a
     “facto[r] in determining whether there is an abuse of
     discretion."

Id. at 115 (citation omitted).




     9
      We say “potentially” because an insurance company may well
encounter drawbacks from unreasonably denying meritorious claims.
The company’s reputation may suffer as a result and others may be
less willing to enter into contracts where the company has
discretion to decide claims. The argument that Pan-American has
acted out of self-interest is essentially that Pan-American has
acted opportunistically by engaging in activity that is acceptable
under the terms of the agreement (exercising its discretion to deny
claims) but contrary to the purpose of the agreement. The issue of
whether a party is apt to engage in opportunism is one that
preoccupies contract law and for which there are no easy answers.
See, e.g., Richard A. Posner, Economic Analysis of Law 101-04,
369-70 (5th ed., 1998). We do not believe that the reputational
and contractual costs incurred by Pan-American denying a claim
should be ignored.



                                 18
     Under    Bruch,     therefore,         when     an   administrator     has

discretionary authority with respect to the decision at issue, the

standard of review should be one of abuse of discretion.              However,

the proceeding by which an administrator denies a claim tends not

to be as well defined as, for example, adjudicatory hearings under

the APA.   The issues are often further complicated by the relative

sophistication of the parties.         An employer may have an incentive

to choose a less expensive benefit plan for his employees, even

though that plan grants a self-interested administrator discretion

to resolve claims.       When an employee files such a claim, the

administrator has a financial incentive to deny the claim and often

can find a reason to do so.       The employee, on the other hand, is

often not a sophisticated negotiator and therefore may not best

present his case to the administrator.

     In the interim, since Bruch, our Circuit has struggled with

the appropriate standard of review for determinations by a self-

interested administrator with discretionary authority. See, Salley

v E.I. DuPont de Nemours & Co. 966 F.2d 1011 (5th Cir. 1992)

(holding that a conflict of interest required the court to more

closely examine the denial of health care benefits under the plan);

Duhon v. Texaco, Inc., 15 F.3d 1302, 1306 (5th Cir. 1994) (holding

that court must “weigh this possible conflict as a factor in our

determination   of     whether   the    plan       administrator   abused   his

discretion, instead of . . . altering the applicable standard of

review”); Sweatman v. Commercial Union Insurance Co., 39 F.3d 594,




                                       19
599 (1994) (holding that conflict does not change the standard of

review, but should be weighed in determining whether administrator

abused his discretion); Wildbur v. ARCO Chem. Co., 974 F.2d 631,

638-42 (5th Cir. 1992)(“We note that the arbitrary and capricious

standard may be a range, not a point.         There may be in effect a

sliding scale of judicial review of trustees' decisions--more

penetrating the greater is the suspicion of partiality, less

penetrating the smaller that suspicion is . . . .").

     Other Circuits have also struggled with the role a conflict of

interest should play in determining whether an administrator has

abused its discretion.     The Tenth Circuit, in Chambers v. Family

Health Plan Corp., 100 F.3d 818, 824-27 (10th Cir. 1996), catalogs

the various approaches under two categories:        the “sliding scale”

standard and the “presumptively void” standard.

     Under the “sliding scale” standard, the court always applies

the abuse of discretion standard, but gives less deference to the

administrator   in    proportion   to   the   administrator’s   apparent

conflict.   An example of this approach is the Fourth Circuit

decision in Doe v. Group Hospitalization & Medical Services, 3 F.3d

80 (4th Cir. 1993):

     We hold that when a fiduciary exercises discretion in
     interpreting a disputed term of the contract where one
     interpretation will further the financial interests of
     the fiduciary, we will not act as deferentially as would
     otherwise be appropriate. Rather, we will review the
     merits of the interpretation to determine whether it is
     consistent with an exercise of discretion by a fiduciary
     acting free of the interests that conflict with those of
     the beneficiaries. In short, the fiduciary decision will
     be entitled to some deference, but this deference will be



                                   20
     lessened to the degree necessary to neutralize       any
     untoward influence resulting from the conflict.

Id. at 86; see also Chambers, 100 F.3d at 826 (holding “that the

sliding scale approach more closely adheres to the Supreme Court's

instruction to treat a conflict of interest as a ‘facto[r] in

determining whether there is an abuse of discretion’”); Sullivan v.

LTV Aerospace & Defense Co., 82 F.3d 1251, 1255 (2d Cir. 1996);

Taft v. Equitable Life Assurance Soc’y, 9 F.3d 1469, 1474 (9th Cir.

1993); Van Boxel v. Journal Co. Employees' Pension Trust, 836 F.2d

1048, 1052-53 (7th Cir. 1987).

     Under the presumptively void standard, once a claimant has

demonstrated that the administrator acted out of self-interest, the

administrator then has the burden of establishing that its action

was nevertheless in the plan’s interest.       An example of the

application of this approach is the Eleventh Circuit’s decision in

Brown v. Blue Cross & Blue Shield of Alabama, Inc., 898 F.2d 1556

(11th Cir. 1990):

     [W]hen a plan beneficiary demonstrates a substantial
     conflict of interest on the part of the fiduciary
     responsible for benefits determinations, the burden
     shifts to the fiduciary to prove that its interpretation
     of plan provisions committed to its discretion was not
     tainted by self-interest.       That is, a wrong but
     apparently reasonable interpretation is arbitrary and
     capricious if it advances the conflicting interest of the
     fiduciary at the expense of the affected beneficiary or
     beneficiaries unless the fiduciary justifies the
     interpretation on the ground of its benefit to the class
     of all participants and beneficiaries.




                                 21
Id. at 1566-67.   Another example of this kind of approach is the

Ninth Circuit’s opinion in Atwood v. Newmont Gold Co., Inc., 45

F.3d 1317, 1323 (9th Cir. 1995):

          The "less deferential" standard under which we
     review apparently conflicted fiduciaries has two steps.
     First, we must determine whether the affected beneficiary
     has provided material, probative evidence, beyond the
     mere fact of the apparent conflict, tending to show that
     the fiduciary's self-interest caused a breach of the
     administrator's fiduciary obligations to the beneficiary.
     If not, we apply our traditional abuse of discretion
     review. On the other hand, if the beneficiary has made
     the required showing, the principles of trust law require
     us to act very skeptically in deferring to the discretion
     of an administrator who appears to have committed a
     breach of fiduciary duty.

Id.; see also Armstrong v. Aetna Life Ins. Co., 128 F.3d 1263, 1265

(8th Cir. 1997) (finding conflict and reviewing decisions de novo);

Kotrosits v. GATX Corp. Non-Contributory Pension Plan for Salaried

Employees, 970 F.2d 1165, 1173 (3d Cir. 1991) (holding that the

court will withhold deference when the administrator has been shown

to be biased by a conflict of interest).

     In the interim since Chambers, the First Circuit has issued an

opinion that defies the neat categories set forth in Chambers.   In

Doe v. Travelers Ins. Co., 167 F.3d 53, 57 (1st Cir. 1999), the

court held:

     [T]he requirement that [the administrator’s] decision be
     "reasonable" is the basic touchstone in a case of this
     kind and that fine gradations in phrasing are as likely
     to complicate as to refine the standard. The essential
     requirement of reasonableness has substantial bite itself
     where, as here, we are concerned with a specific
     treatment decision based on medical criteria and not some
     broad issue of public policy. Any reviewing court is
     going to be aware that in the large, payment of claims
     costs [the administrator] money. At the same time, the



                                22
       policy amply warns beneficiaries that [the administrator]
       retains   reasonable    discretion   based   on   medical
       considerations.

Id.

       Having polled the other Circuits, we reaffirm today that our

approach to this kind of case is the sliding scale standard

articulated in Wildbur.    The existence of a conflict is a factor to

be considered in determining whether the administrator abused its

discretion in denying a claim.         The greater the evidence of

conflict on the part of the administrator, the less deferential our

abuse of discretion standard will be.     Having said that, we note

that we sympathize with the First Circuit’s approach--our review of

the administrator’s decision need not be particularly complex or

technical; it need only assure that the administrator’s decision

fall somewhere on a continuum of reasonableness--even if on the low

end.

                                  B

       The panel opinion offers a new solution to the problem of how

to evaluate decisions by self-interested administrators. According

to the panel, when reviewing such a decision, the district court

should determine whether the administrator has met its duty to

conduct a good faith, reasonable investigation.    If not, the court

need not restrict its review to the facts before the administrator:

       The court must pause, before limiting itself to the
       record before the administrator, to assure itself that
       the administrator conducted a reasonable, good faith
       investigation of the claim. That requirement must be
       cautiously and carefully imposed when the administrator
       has the inherent conflict of interest as exists in the



                                  23
      case at bar.     To hold otherwise would restrict the
      district court to reviewing only those materials before
      the administrator, even in cases where the administrator
      conducted an unreasonably lax, bad faith investigation of
      the facts.

Vega, 145 F.3d at 680 (5th Cir. 1998).

      We have never before imposed a duty on the administrator like

the one imposed by the panel here.               The two cases that have come

closest to imposing such a duty are Southern Farm Bureau Life Ins.

Co. v. Moore, 993 F.2d 98, 104 (5th Cir. 1993), and Salley v. E.I.

DuPont de Nemours & Co., 966 F.2d 1011, 1015 (5th Cir. 1992).

Neither of these cases, however, actually imposed such a duty.

Moore      simply   stated   that    the    administrator       had    conducted     a

reasonable     investigation       and,    although    Salley    notes    that     the

administrator did not conduct a reasonable investigation, Salley

rested its decision on the sufficiency of the administrative record

to support the denial.

      Having considered the relative merit of placing such a burden

on   the    administrator,    we    reject      this   rule   and     stand   by   our

precedent: We will continue to apply a sliding scale standard to

the review of administrator’s decisions involving a conflict of

interest.      If we placed a duty on conflicted administrators to

reasonably investigate, we would be adopting the presumptively void

standard of the Eleventh, Eighth, and Third Circuits.                    In effect,

we would shift the burden to the administrator to prove that it

reasonably investigated the claim.               A rule that permitted such a

result would be at odds with the Supreme Court’s instruction in




                                           24
Bruch to review such determinations under an abuse of discretion

standard--a standard that demands some deference be given to the

administrator’s decision.            Such a rule would also violate basic

principles of judicial economy.             There is no justifiable basis for

placing the burden solely on the administrator to generate evidence

relevant to deciding the claim, which may or may not be available

to it, or which may be more readily available to the claimant.                If

the claimant has relevant information in his control, it is not

only inappropriate but inefficient to require the administrator to

obtain that information in the absence of the claimant’s active

cooperation.

     Instead, we focus on whether the record adequately supports

the administrator’s decision.           In many cases, this approach will

reach    the   same   result    as    one    that   focuses   on   whether   the

administrator has reasonably investigated the claim. The advantage

to focusing on the adequacy of the record, however, is that it (1)

prohibits the district court from engaging in additional fact-

finding and (2) encourages both parties properly to assemble the

evidence that best supports their case at the administrator’s

level.    For instance, in this case, the administrator’s decision

does not seem to be adequately supported by the record.                 On the

other hand, the additional information--what Mrs. Vega’s personal

physician meant by his notation--could have been more easily

obtained by the Vegas.         When National Life did call Dr. Galvan’s

office, it did not actually get through to the doctor.                Although




                                        25
National Life should have done so before denying the claim, this

controversy        could   have   been   resolved       if    the    Vegas,   who    were

represented by counsel, had presented this information to National

Life when their claim was denied.               Here, it is apparent that the

Vegas’ attorney dismissed the administrative process as a nuisance

and placed all their eggs in the litigation basket.

      We hold today that, when confronted with a denial of benefits

by a conflicted administrator, the district court may not impose a

duty to reasonably investigate on the administrator. Under our own

precedent and the Supreme Court’s ruling in Bruch, we must give

deference to the administrator’s decision.                   That the administrator

decides a claim when conflicted, however, is a relevant factor. In

a situation where the administrator is conflicted, we will give

less deference to the administrator’s decision.                      In such cases, we

are less likely to make forgiving inferences when confronted with

a   record    that    arguably    does    not    support       the    administrator’s

decision.         Although the administrator has no duty to contemplate

arguments that could be made by the claimant, we do expect the

administrator’s        decision     to   be     based    on     evidence,     even    if

disputable, that clearly supports the basis for its denial.10

                                          C

             10
           By focusing on the requirements that support an
administrator’s denial of a claim, we by no means wish to cast the
administrator in the role of an advocate for denying all claims.
However, because we only review litigation arising out of an
administrator’s denial of a claim, we do wish to be specific about
the record an administrator must create, when the administrator
chooses to deny a claim.



                                         26
     We turn next to the panel’s use of the doctors’ affidavits in

reaching its decision.     A long line of Fifth Circuit cases stands

for the proposition that, when assessing factual questions, the

district court is constrained to the evidence before the plan

administrator.      Meditrust Financial Services Corp. v. Sterling

Chemicals, Inc., 168 F.3d 211, 215 (5th Cir. 1999);                 Schadler v.

Anthem Life Insurance Company, 147 F.3d 388, 394-95 (5th Cir.

1998); Thibodeaux v. Continental Casualty Insurance, 138 F.3d 593,

595 (5th Cir. 1998); Barhan v. Ry-Ron Inc., 121 F.3d 198 (5th Cir.

1997);   Bellaire   General    Hosp.    v.    Blue   Cross   Blue    Shield   of

Michigan,   97   F.3d   822,   828-29       (5th   Cir.   1996);   Sweatman   v.

Commercial Union Insurance Co., 39 F.3d 594, 597-98 (1994); Duhon

v. Texaco Inc., 15 F.3d 1302, 1306-07 (5th Cir. 1994); Southern

Farm Bureau Life Ins. Co. v. Moore, 993 F.2d 98, 101-02 (5th Cir.

1993);   Wildbur v. ARCO Chem. Co., 974 F.2d 631, 639 (5th Cir.

1992).

     Our case law also makes clear that the plan administrator has

the obligation to identify the evidence in the administrative

record   and that the claimant may then contest whether that record

is complete.     See, e.g., Barhan, 121 F.3d at 201-02.               Once the

administrative record has been determined, the district court may

not stray from it except for certain limited exceptions.               To date,

those exceptions have been related to either interpreting the plan

or explaining medical terms and procedures relating to the claim.

Thus, evidence related to how an administrator has interpreted




                                       27
terms of the plan in other instances is admissible.                    See Wildbur v.

ARCO    Chemical     Co.,   974       F.2d     631,   639     &     n.15   (5th      Cir.

1992)(compiling      cases).      Likewise,         evidence,       including     expert

opinion, that assists the district court in understanding the

medical terminology or practice related to a claim would be equally

admissible.         However,    the    district       court    is    precluded       from

receiving evidence to resolve disputed material facts--i.e., a fact

the administrator relied on to resolve the merits of the claim

itself.

       In this case, the record amounted to a number of exhibits

attached to Pan-American’s motion for summary judgment.                              The

exhibits contained the relevant plan documents, Mrs. Vega’s medical

record, and the phone logs documenting Pan-American’s contact with

Mrs. Vega’s doctors.        The dispute here was essentially a factual

one that would resolve the merits of the claim: Did Mrs. Vega

receive notice that she would need posterior repair surgery prior

to applying for membership in the plan?                  The testimony that the

Vegas sought to introduce is evidence related to this factual

dispute,    which      easily     could      have     been     presented        to    the

administrator by the Vegas’ counsel.              The district court therefore

correctly held that it could not admit new evidence for the purpose

of resolving this dispute on the merits of the claim.

       Our motivating concern here is that our procedural rules

encourage     the     parties     to     resolve       their      dispute       at    the

administrator’s level.          If a claimant believes that the district




                                          28
court is a better forum to present his evidence and we permit the

claimant to do so, the administrator’s review of claims will be

circumvented.     This result is plainly contrary to Bruch, which

requires us to apply an abuse of discretion standard of review.

Although   we   recognize   that    there    is    a    concern    that    a    self-

interested   administrator    can    manipulate         this   process    unfairly

(e.g., by permitting the administrator to exclude from the record

information that would weigh in favor of granting the claim), we

think that this concern is largely unwarranted in the light of

adequate safeguards that can be put in place.

     Before filing suit, the claimant’s lawyer can add additional

evidence to the administrative record simply by submitting it to

the administrator in a manner that gives the administrator a fair

opportunity to consider it.          In Moore, we said that "we may

consider   only   the   evidence    that     was       available    to    the    plan

administrator in evaluating whether he abused his discretion in

making the factual determination.”          Moore, 993 F.2d at 102.             If the

claimant submits    additional      information         to   the   administrator,

however, and requests the administrator to reconsider his decision,

that additional information should be treated as part of the

administrative record.      See, e.g., Wildbur, 974 F.2d at 634-35.

Thus, we have not in the past, nor do we now, set a particularly

high bar to a party’s seeking to introduce evidence into the

administrative record.




                                     29
       We hold today that the administrative record consists of

relevant information made available to the administrator prior to

the complainant’s filing of a lawsuit and in a manner that gives

the administrator a fair opportunity to consider it.            Thus, if the

information in the doctors’ affidavits had been presented to

National Life before filing this lawsuit in time for their fair

consideration, they could be treated as part of the record.11

Furthermore, in restricting the district court’s review to evidence

in the record, we are merely encouraging attorneys for claimants to

make    a   good   faith   effort   to    resolve   the    claim   with   the

administrator before filing suit in district court; we are not

establishing a rule that will adversely affect the rights of

claimants.

       In the light of our precedent and the abuse of discretion

standard set forth in Bruch, we will not permit the district court

or our own panels to consider evidence introduced to resolve

factual disputes with respect to the merits of the claim when that

evidence was not in the administrative record.            We therefore stand

by our precedent and reaffirm that, with respect to material

factual determinations--those that resolve factual controversies

       11
       Because there is no evidence in either the administrative
record or the record before the district court to support the
Vegas’ contention that they presented the information in the
doctor’s affidavits to National Life, we cannot treat this
information as part of the record.        However, had the Vegas
demonstrated to the district court that the information in the
doctors’ affidavits was presented to the administrator, the
district court should have treated that information as part of the
record.



                                     30
related to the merits of the claim--the court may not consider

evidence that is not part of the administrative record.

                                  IV

     We turn finally to the merits of the district court’s summary

judgment ruling.    Although we find that the district court did not

err in refusing to consider the additional testimony of Dr. Bueso

and Dr. Galvan, we cannot agree with the district court that

National Life did not abuse its discretion in denying the claim.

In the case at hand, the employer has contracted with both National

Life and Pan-American.    The record does not adequately address the

relationship between these two companies.     It is clear that Pan-

American is a subsidiary of National Life, and we therefore must

regard Pan-American as owned and controlled by National Life. What

is not clear from the record is whether National Life exercises

control over the day-to-day decisions of Pan-American.

     Although our cases have addressed conflicts of interest in

evaluating whether there has been an abuse of discretion, none of

those cases involved the arrangement presented in this case in

which the administrator is a separate but wholly-owned subsidiary

of the insurer.    Instead, in these previous cases, the insurer and

the administrator have operated within the same entity.     In this

case, given the ownership and control of Pan-American by National

Life, we must regard their relationship as something more than




                                  31
purely contractual12 and therefore conclude that Pan-American’s

decision was, to some degree, self-interested.13 Although the Vegas

have demonstrated the minimal basis for a conflict, they have

presented no evidence with respect to the degree of the conflict.

On our sliding scale, therefore, we conclude that it is appropriate

to review the administrator’s decision with only a modicum less

deference than we otherwise would.

     A review of the evidence available to National Life at the

time it denied the claim illustrates that its decision was not

reasonable. National Life concluded that the Vegas made a material

misrepresentation in response to the question, “Have you or your

dependents       had   any    consultation,    advice,   tests,   treatment    or

medication for any medical condition(s) during the past 6 months?”

Pan-American argues that the notation in Mrs. Vega’s medical record

clearly indicates that she received advice or consultation about a

medical        condition.      To   be   material,   however,   the   advice   or

consultation must be related to a medical condition that Mrs. Vega

had at the time.             In this case, there is simply no competent

evidence that, at the time the notation was made in her medical

          12
        As we made clear in Part III. A., a purely contractual
relationship between the insurer and the administrator does not
create an inference that the administrator is conflicted.
     13
       We note that, under Bruch, our analysis of the duties owed
by an administrator are likened to the law of trusts. In the ERISA
context, then, the purported conflict is examined in the light of
the fiduciary obligations of a trustee.     The way we impute the
incentives of the parent to those of the subsidiary is therefore
strictly limited to a conflict of interest on the part of an ERISA
administrator.



                                          32
record, Mrs. Vega suffered from a condition that required posterior

repair surgery.

     Shortly after enrolling in the plan, Mrs. Vega underwent

surgery for posterior repair.    The occurrence of the operation

shortly after enrollment and the handwritten note by Dr. Galvan in

Mrs. Vega’s medical records certainly create a doubt regarding

whether the procedure had been recommended to her prior to her

enrollment in the plan.

     The explanation of this notation provided by Dr. Galvan’s

assistant does not necessarily dispel this concern.       Neither,

however, does it provide evidence to support a conclusion that Mrs.

Vega suffered from a medical condition for which she required

posterior repair surgery; the notation is simply ambiguous.    The

evidence makes clear that Dr. Galvan made the notation during a

telephone conversation with Mrs. Vega.    If Mrs. Vega had called

with questions about an actual ailment that required surgery, one

would expect Dr. Galvan to set up an appointment with her, which he

did not do.   It is therefore far from a foregone conclusion that

Dr. Galvan’s notation was related to a medical condition that Mrs.

Vega was experiencing at that time.   This is the only information

available in the record that supports the denial of the claim.

     Plainly put, we will not countenance a denial of a claim

solely because an administrator suspects something may be awry.

Although we owe deference to an administrator’s reasoned decision,

we owe no deference to the administrator’s unsupported suspicions.




                                33
Without some concrete evidence in the administrative record that

supports the denial of the claim, we must find the administrator

abused its discretion.

      If an administrator has made a decision denying benefits when

the record does not support such a denial, the court may, upon

finding an abuse of discretion on the part of the administrator,

award the amount due on the claim and attorneys’ fees.            See, e.g.,

Salley, 966 F.2d at 1014.         We find such an abuse of discretion

here, and we will remand to the district court for a determination

of   damages   and   reasonable   attorney’s   fees   and   for    entry   of

judgment.14

                                     V

      In this case, we were first confronted with a jurisdictional

issue--whether Mr. Vega was an employee and therefore a participant

of the plan for purposes of ERISA.       We hold today that, under Texas

law, a sole shareholder of a corporation who is also an employee of


       14
        Damages would include the amount due on the claim plus
interest. 29 U.S.C. § 1132(g)(2). In some special circumstances
a remand to the administrator for further consideration may be
justified. Here, however, the only issue in dispute was whether a
material misrepresentation was made. We decline to remand to the
administrator to allow him to make a more complete record on this
point. We want to encourage each of the parties to make its record
before the case comes to federal court, and to allow the
administrator another opportunity to make a record discourages this
effort. Second, allowing the case to oscillate between the courts
and the administrative process prolongs a relatively small matter
that, in the interest of both parties, should be quickly decided.
Finally, we have made plain in this opinion that the claimant only
has an opportunity to make his record before he files suit in
federal court, it would be unfair to allow the administrator
greater opportunity at making a record than the claimant enjoys.



                                    34
that corporation is an employee for purposes of determining whether

he is a participant of an ERISA plan.

     This case also involves a complex issue with respect to how we

deal procedurally with ERISA claims.    Given the Supreme Court’s

language in Bruch, we must review this sort of claim under an abuse

of discretion standard.    Recognizing that a rule that unduly

permits litigation in the district court may result in claimants’

being less than forthcoming in the initial claim procedure, we

reject the panel’s formulation of an administrator’s duty to

conduct a good faith, reasonable investigation.       Instead, we

reaffirm that decisions like this one will be reviewed under an

abuse of discretion standard--i.e., we will give deference to the

administrator’s decision. The amount of deference we accord to the

administrator will decrease the more the administrator labors under

an apparent conflict of interest. We nevertheless always give some

deference to the administrator’s decision. Finally, because we are

bound by an abuse of discretion standard, we will not permit

additional evidence to be admitted with respect to materially

factual issues.

     In this case, even applying a standard under which we accord

deference to the plan administrator, we cannot affirm the district

court’s summary judgment ruling in its favor.   The administrative

record contained no evidence that would support denying the claim.

Although the record contains innuendos and hints that Mrs. Vega may

have made a material misrepresentation on her enrollment form,




                                35
there is no concrete evidence to support this finding.               For the

foregoing reasons, the ruling of the district court is REVERSED.

We RENDER on the question of liability and REMAND to the district

court   for   a   determination   as    to   the   amount   of   damages   and

attorney’s fees.

                                   REVERSED, RENDERED and REMANDED for
                                  entry of judgment for the plaintiffs
                                           and award of attorney fees.




                                       36
