In Rochow v. Life Ins. Co. of N. Am., 2015 U.S. App. LEXIS 3532 (6th Cir. 2015), the Sixth Circuit Court of Appeals (the Court) was asked to review the district court’s order requiring Life Insurance Company of North America (“LINA”) to disgorge profits obtained from its wrongful denial of long-term disability (“LTD”) benefits.
In this case, the late Daniel J. Rochow (“Rochow”), an employee of Arthur J. Gallagher & Co. (“Gallagher”), was covered under a LINA policy of insurance providing LTD benefits. Rochow developed a condition known as HSV-Encephalitis, a rare and severely debilitating brain infection, and was forced to resign from Gallagher. Rochow then filed a claim for LTD benefits under the policy with LINA. LINA denied Rochow benefits, stating that Rochow’s employment ended before his disability began. Rochow subsequently filed this suit. The case reached the Court, which decided the LINA’s denial of the LTD claim was a breach of fiduciary duty under ERISA, since the denial was arbitrary and capricious, was not the result of a deliberate, principled reasoning process, and did not appear to have been made solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries’ as required by ERISA. As a result of this finding that a breach of fiduciary duty had occurred, the plaintiff (suing in the late Rochow’s place) recovered the LTD benefit denied under ERISA section 502(a)(1)(B). The issue then arose as to whether the plaintiff was also entitled to a disgorgement of profits due to the Court’s ruling. A district court had ruled that the plaintiff was so entitled.
In analyzing the case, the Court said that there is essentially one issue before us: is the plaintiff entitled to recover under both ERISA section 502(a)(1)(B) and 502(a)(3) for LINA’s breach of fiduciary duty stemming from its arbitrary and capricious denial of LTD benefits, given plaintiff’s recovery of the LTD benefits? Section 502(a)(3) makes “appropriate equitable relief” available to redress violations such as a breach of fiduciary duty. The Court concluded that, in this case, the disgorgement relief was not available, since–absent a showing that the the 502(a)(1)(B) remedy is inadequate (and no such showing here)–granting this relief would result in an impermissible duplicative recovery. Accordingly, the Court overturned the district court’s ruling, and remanded the case back to the district court to determine if the plaintiff is entitled to prejudgment interest on the benefits recovered.