Sixth Circuit Expands Damages in ERISA Case

In Employee Benefits, Litigation by Coolidge Wall

In December the Sixth Circuit Court of Appeals issued an opinion in Rochow v. Life Insurance Company of North America. Rochow, the president of a company, began experiencing short- term memory loss and other symptoms of illness in 2001 which led to him being demoted. The symptoms continued to interfere with his performance and he was forced to resign in 2002. Rochow filed a claim for long-term disability benefits and the Life Insurance Company of North America (“LINA”) denied his claim and three appeals. Finally, Rochow filed a complaint in court against LINA and stated two claims under ERISA: one to recover benefits due and one to remedy the alleged breach of fiduciary duty. The district court found for Rochow concluding that LINA acted arbitrarily in denying his claim for disability benefits. After the Sixth Circuit affirmed the district court’s decision in 2007, the district court awarded Rochow the unpaid benefits and found that LINA must disgorge of approximately $3.8 million in profits supposedly earned from the money that LINA failed to pay Rochow.

Normally, under ERISA a plaintiff is entitled to the amount of benefits denied or some other appropriate equitable relief that is different from the denial of benefits. The plaintiff is not entitled to be overcompensated or paid the benefits twice. However, in this second appeal of the case, the Sixth Circuit concluded that the remedies were both appropriate because they provided different kinds of relief under ERISA: one for benefits denied and one for disgorgement which prevented LINA from being unjustly enriched. The court found that disgorgement did not result in Rochow being compensated twice or LINA being punished.

The sole dissenting judge found that the disgorgement created a windfall for Rochow and was contrary to Supreme Court and Sixth Circuit precedent. The dissenting judge’s opinion was that Rochow would have been made whole by being paid his disability benefits, attorney’s fees and prejudgment interest.

It is too early to determine what will result from this opinion since it can still be appealed to the Supreme Court. However, opinions differ as to whether this decision will just increase litigation or deter arbitrary denials of benefits.