To remedy a wrongful denial of short or long term disability benefits, courts will typically limit the claimant’s recovery to his or her unpaid benefits in addition to attorney’s fees and costs. However, a recent case from the Sixth Circuit Court of Appeals may have opened the door for greater recoveries for ERISA disability benefits plaintiffs. If upheld, Rochow v. Life Insurance Company of North America., 737 F.3d 415 (6th Cir. 2013) will undoubtedly transform the landscape of ERISA benefit plan litigation.
Rochow involved a plaintiff who was unable to perform his occupation of insurance executive due to a rare and debilitating brain infection. The plaintiff filed a claim for long-term disability benefits, which was denied by his employer’s disability insurance carrier. Subsequently, a district court determined that the insurance company’s decision to deny the claim was arbitrary and capricious. The court then awarded the plaintiff not only the amount of unpaid benefits due to him under § 502(a)(1)(B) of ERISA, but also an additional $3.8 million in disgorged profits under § 502(a)(3), ERISA’s equitable relief provision. The court based the award on its determination that the insurance company had breached its fiduciary duty and disgorgement was necessary to prevent the insurance company’s unjust enrichment from the profits it had earned on the wrongfully retained benefits.
On appeal, the insurance company argued that disgorgement was inappropriate because equitable relief under § 502(a)(3) is available only when ERISA’s other provisions do not otherwise provide an adequate remedy. The Sixth Circuit disagreed, and held that disgorgement was an appropriate equitable remedy under § 502(a)(3) and may provide a separate remedy in addition to a benefit recovery under § 502(a)(1)(B).
Additionally, the Sixth Circuit found that awarding disgorgement of profits may act as an important deterrent to insurer misconduct in ERISA benefit cases. The court explained, “[i]f no remedy beyond the award of benefits were allowed, insurance companies would have the perverse incentive to deny benefits as long as possible, risking only litigation costs in the process.” 737 F.3d at 417.
Recently, the case was set for rehearing en banc. Oral arguments will occur on June 18, 2014.
As evidenced by Rochow, the law related to disability benefits claims continues to evolve. To ensure that our clients have the opportunity to exercise all rights afforded to them under ERISA, our firm is committed to closely monitoring and adapting to these changes. At this time, it is too early to know precisely how Rochow will affect ERISA litigation here in Wisconsin and throughout the U.S. But, the disability benefits attorneys at Hawks Quindel, S.C. are keeping a close eye on the case’s progression and outcome.
If you have been denied short or long term disability benefits, contact us for a free consultation.