For decades, federal courts have uniformly concluded that a plaintiff with a viable benefits claim was generally precluded from seeking "equitable relief" under ERISA. Plaintiffs could sometimes assert both benefit and equitable relief claims where there were independent acts challenged, such as a denial of benefits and an alleged misrepresentation by a fiduciary about available benefits, but that was about the only exception to the general rule. On December 6, 2013, however, in Rochow v. Life Insurance Company of North America, a panel of the Sixth Circuit Court of Appeals affirmed a district court's award of both benefits and "disgorgement" of approximately $3.8 million on an "equitable relief" theory premised not on independent conduct, but on the denial of benefits itself. This marks a substantial departure from Sixth Circuit ERISA law.
At issue was a denial of a long term disability claim initially submitted by Daniel Rochow to Life Insurance Company of North America ("LINA") in 2002. After exhausting the administrative process, Rochow filed an ERISA lawsuit in 2004, alleging both a denial of benefits and a breach of fiduciary duty in how his claim was reviewed. The district court ruled in Rochow's favor, LINA appealed, and the Sixth Circuit affirmed and remanded. Back in the district court, Rochow (actually his Estate, as he had since passed away) filed a motion for an "equitable accounting and a request for disgorgement," based on Rochow's allegation that LINA had breached its fiduciary duties to him in the way it administered his claim, and in the interim, it had been unjustly enriched by holding on to the benefits owed him to the tune of $3.8 million. Rochow reached this number with a complex calculation presented by an "expert."
LINA argued, consistent with the weight of authority, that disgorgement under ERISA § 502(a)(3) was unavailable because equitable relief is only available when there is no sufficient benefit remedy, and in this case, Rochow had already been awarded the benefit at issue.
The district court sided with Rochow, concluding that he could receive both the benefit and disgorgement, i.e., he could recover under both a denial of benefit theory and an equitable relief theory.
So what are the implications of this decision? First, LINA filed a petition for en banc review of the panel's decision on December 20, 2013, so this may not be the final word from the Sixth Circuit. The petition lists as the first issue presented "whether the panel majority improperly held that Mr. Rochow could pursue a breach of fiduciary claim ... based exclusively on the wrongful denial of benefits." If this remains the law of the land, however, ERISA plans and plan sponsors can expect increases, and potentially substantial ones, in both the size of awards in ERISA cases and the cost to litigate them. Plaintiff's attorneys will likely seek disgorgement of profits based on the delay in receiving an ERISA benefit as an additional remedy available above and beyond the value of the benefit. In addition, litigation costs will likely go up as well because adding ERISA § 502(a)(3) equitable relief claims to "garden variety" denial of benefits claims increases the discovery permitted. In addition to reviewing the administrative record, plaintiff's attorneys seeking disgorgement as a remedy will likely want to discover the most advantageous calculation of the plan's or sponsor's alleged "unjust enrichment."
Stay tuned to see where the Sixth Circuit, or other circuits, go from here.
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