Overview
In Depth
On March 5, 2015, the U.S. Court of Appeals for the Sixth Circuit, sitting en banc in the matter of Rochow v. Life Insurance Company of North America, 2015 WL 925794 (6th Cir. Mar. 5, 2015), reversed the finding of a prior Sixth Circuit panel that allowed a participant to recover benefits under an ERISA-covered disability plan as well as additional equitable relief in the form of disgorgement of profits.
The case began when Daniel Rochow sued Life Insurance Company of North America (LINA) for disability benefits under ERISA Section 502(a)(1)(B) and sought additional equitable relief under ERISA Section 502(a)(3). In an unprecedented opinion, the U.S. District Court for the Eastern District of Michigan awarded Rochow benefits of approximately $900,000 plus interest, and an additional $3.8 million in disgorgement of profits as equitable relief. A Sixth Circuit panel, in a 2 to 1 decision, initially affirmed the district court’s decision, holding that ERISA allows both a claim for withheld benefits under ERISA Section 502(a)(1)(B) and a breach of fiduciary duty claim under ERISA 502(a)(3) even when the denial of the benefits is the basis of both claims.
In the initial opinion, the Sixth Circuit panel affirmed that “appropriate equitable relief” under ERISA Section 502(a)(3) extends beyond relief meant to redress violations of ERISA. In doing so, the panel concluded that appropriate equitable relief permitted a court to award the disgorgement of profits earned on the denied benefits. Further, the panel approved of a return-on-equity (ROE) analysis to compute the amount of the profits, rather than a methodology akin to determining prejudgment interest on the withheld benefits. Here, the district court had accepted evidence that LINA used the wrongfully withheld benefits to earn between 11 percent and 39 percent annually. The Sixth Circuit panel reasoned that a generalized ROE measure was appropriate because the assets were in LINA’s general assets. As a result, the court looked to the percentage by which LINA’s net growth increased during the period that it held the funds underlying the denied benefits in its general asset accounts. In February 2014, the Sixth Circuit granted a rehearing en banc.
The question presented to the en banc Sixth Circuit was whether the plaintiff was entitled to recover under both ERISA Sections 502(a)(1)(B) and 502(a)(3) for “LINA’s arbitrary and capricious denial of long-term disability benefits.” The Sixth Circuit vacated the disgorgement award and remanded the case. The en banc Sixth Circuit determined that unless a plaintiff could show that the remedy for denied benefits under ERISA Section 502(a)(1)(B) is inadequate to make the plaintiff whole, equitable relief under ERISA Section 502(a)(3) is unavailable. The court reasoned that Rochow’s ERISA 502(a)(3) claim constituted impermissible repackaging of a benefit denial claim because the remedy thereunder is duplicative or redundant when denied benefits are granted under ERISA Section 502(a)(1)(B). Accordingly, in order to seek additional equitable relief, a plaintiff must show that a breach of fiduciary duty, or other ERISA violation, caused damages separate and distinct from a mere denial of benefits.
As a result of this opinion, the Sixth Circuit realigns itself with the other circuits in requiring that plaintiffs seeking relief in a claim for wrongful denial of benefits first do so under ERISA Section 502(a)(1)(B). To establish a separate claim under ERISA Section 502(a)(3), plaintiffs must prove a separate injury. This reversal is a significant win for plan sponsors because it significantly limits their exposure in cases of wrongful benefits denial.