Insured Made Whole Under ERISA Could Not Recover Additional Equitable Relief For Same Injury

Equitable relief under ERISA Sec. 502(a)(3) for breach of fiduciary duty was not in line with the remedial objective of ERISA when such relief would be additional to that already received under ERISA Sec. 502(a)(1)(B) and had made the insured whole for the same injury, the Sixth Circuit U.S. Court of Appeals has ruled, vacating the lower court’s disgorgement award. The issue of whether prejudgment interest was appropriate was remanded. The case is Rochow v. Life Insurance Company of North America (No. 12-2074).

Background. Daniel J. Rochow had been covered under a long-term disability insurance policy from Life Insurance Company of North America (LINA) during his employment as President of Arthur J. Gallagher & Co. He was demoted a little over a year later for failure to perform his duties as president of the company and, ultimately, he was forced to resign. A month later he was diagnosed with a rare and debilitating brain infection. He applied for long term disability insurance benefits, but LINA denied coverage on the ground that he was not employed when his disability began. He appealed the denial and presented evidence that he suffered from short-term memory loss while he was employed. LINA denied coverage on the ground that he had continued to work and was not disabled until after he resigned.

After his appeals had been denied a third time, Rochow filed a lawsuit against Cigna Group Insurance, LINA’s parent company. Specifically, the complaint stated two claims under ERISA Sec. 502(a)(3): one to recover full benefits due to the failure to pay benefits in violation of the terms of the plan, and one to remedy the alleged breach of fiduciary duty. The federal district court found that LINA’s actions were arbitrary and capricious, which was affirmed on LINA’s appeal to the Sixth Circuit. Thereafter, Rochow filed a motion seeking an equitable accounting and request for disgorgement on the basis of LINA’s breach of fiduciary duties, and the district court ordered disgorgement of over $3.7 million. LINA filed an appeal, but the disgorgement was affirmed by a panel of the Sixth Circuit. LINA filed a petition for en banc rehearing.

Analysis. The Sixth Circuit concluded that the insured could not recover under ERISA Sec. 502(a)(3) as he had already been made whole in a prior proceeding under ERISA Sec. 502(a)(1)(B). The appellate court premised its analysis on a U.S. Supreme Court decision that “dictate[d] a result contrary to that reached by the district court.” The Supreme Court held that further equitable relief would not be appropriate when a beneficiary had been provided adequate relief under another statutory provision and emphasized that ERISA remedies are concerned with the adequacy of relief to redress a beneficiary’s injury—not with the nature of the wrongdoing.

Additionally, if an arbitrary and capricious denial of benefits implicated a breach of fiduciary duty permitting recovery of both benefits and profits, then equitable relief would be potentially available when a denial of benefits was found to be arbitrary and capricious, which is inconsistent with ERISA’s objective to make beneficiaries whole. The appellate court also explained that a single injury—the denial of benefits—was the basis for both the benefits denial and the equitable remedy claim. The appellate court stated that the insured’s “loss remained exactly the same irrespective of the use made by LINA of the withheld benefits.” Because there was no showing that the remedy for the denial of benefits was inadequate, the insured could not recover under ERISA Sec. 502(a)(3), and the appellate court vacated the disgorgement award.

The appellate court noted that the prejudgment interest request could have been granted by the lower court and was properly preserved through the proceedings. Because the issue had been pretermitted through no fault of the parties, it was remanded to the lower court for consideration.

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