ERISA-Sixth Circuit Upholds Judgment For Disgorgement of Profits, Stemming From Denial Of Disability Benefits, Of Almost $3.8 Million On The Equitable Theory Of Unjust Enrichment-This In Addition To Upholding The Entitlement To The Disability Benefit

In Rochow v. Life Insurance Company of North America, No. 12-2074 (6th Cir. 2013), Daniel J. Rochow (“Rochow”) had been President of Arthur J. Gallagher & Co. (“Gallagher”). As an employee of Gallagher, Rochow was covered under a Life Insurance Company of North America (“LINA”) policy which provided a disability benefit.

Rochow began to experience short term memory loss, occasional chills, sporadic sweating, and stress at work. Gallagher then demoted Rochow from President to Sales Executive-Account Manager, because Rochow could no longer perform his duties as President. Rochow continued to have difficulties, and as a result of his inability to perform his job, Gallagher forced Rochow to resign. Rochow was subsequently diagnosed with HSV-Encephalitis, a rare and severely debilitating brain infection. Rochow then filed a claim with LINA for a long term disability benefit under the policy. LINA denied the benefit and ultimately this suit ensued. In the suit, Rochow stated two claims under ERISA: one to recover full disability benefit due him under the policy(“claim 1”), and one to remedy the breach of fiduciary duty under the policy caused by the denial of the disability benefits (“claim 2”).

The district court rendered judgment, granting Rochow his disability benefit (claim 1). The Sixth Circuit Court of Appeals (the “Court”) affirmed this judgment. It ruled that LINA’s denial of Rochow’s claim for a disability benefit 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. Thus, Rochow prevailed on claim 1.

As to claim 2, the following transpired. Rochow died on October 16, 2008, and the representatives of his estate became the plaintiffs in this action. On November 10, 2008, LINA filed a statement of resolved and unresolved issues and the plaintiffs filed motions for attorneys’ fees and costs, and for equitable accounting and disgorgement of profits, the disgorgement arising from LINA’s breach of its fiduciary duties when denying the disability benefit, and being necessary to prevent LINA’s unjust enrichment resulting from profits it earned on the wrongfully retained benefits. The district court granted the plaintiffs’ motion for an equitable accounting of profits and disgorgement of the profits, on the equitable theory of unjust enrichment, in the amount of $3,797,867.92. LINA appealed. The Sixth Circuit affirmed the district court’s judgment. In particular, the Court held that prevailing on claim 1(under section 502(a)(1) of ERISA) did not bar the equitable relief under claim 2(under section 502(a)(3) of ERISA)-under the “no double remedy rule”, particularly when, as here, the later relief is needed to make the plaintiff whole.

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