Simply paying an aggrieved plan participant for unpaid benefits due was enough to make him whole under ERISA, so no further money damages were warranted as a form of equitable relief, a federal appeals court has ruled. With this conclusion, a majority of the full en banc 6th U.S. Circuit Court of Appeals overturned an earlier ruling by 6th Circuit judges commanding an insurer to pay $2.8 million for ERISA fiduciary breaches.
The majority concluded that “relief traditionally available in equity” (ERISA Section 502(a)(3)) should be available only when an order to pay for benefits due (ERISA Section 502(a)(1)) is insufficient to make a claimant whole. The court also concluded that Daniel Rochow suffered a single injury, and it would be improper to separate the award into: (1) a benefits award; and (2) an unjust enrichment recovery. Nine judges were on the side of the majority opinion, six wrote a dissenting opinion; and one judge wrote a short opinion that agreed and dissented with the majority.
The ruling in Rochow v. LINA, 2015 WL 925794 (6th Cir., Mar. 5, 2015), has implications across the spectrum of ERISA equitable-relief claims, even though it involves a claim for long-term disability benefits.
Background
Daniel Rochow was an insurance executive who fell seriously ill, applied for LTD benefits and was denied. In September 2004, He sued the LTD insurer, the Life Insurance Company of North America, in federal district court, which decided the denial was improper and ordered the insurer to pay $900,000 in benefits, a ruling that was upheld by the appeals court. After Daniel’s death in 2008, his estate sued for attorney’s fees, and raised arguments that LINA unjustly enriched itself with the money it should have paid to him.
In the March 2012 ruling in Rochow v. LINA, 851 F. Supp. 2d 1090 (E.D. Mich., 2012), the district court awarded the estate an extra $2.8 million in earnings based on LINA’s return on the benefits it should have paid to Daniel. LINA appealed.
In 2013, the 6th Circuit upheld the lower court’s award, holding that the insurer used money it should have paid out in benefits to generate profits, and that returning those monies to the plaintiff was a form of “appropriate equitable relief,” in addition to receiving benefits owed. The circuit agreed to vacate the ruling, review the opinion en banc and reconsider whether the disgorgement-of-profits award was proper.
The Court’s Ruling
The court stated that the dominant issue was whether the plaintiff was allowed to recover both benefits unfairly denied and extra equitable remedies.
But it found that an order to pay Rochow the investment proceeds unjustly gained through a breach of fiduciary duty would be improper because Rochow had been made whole through recovery of his unpaid benefits and attorney’s fees (and through the potential recovery of prejudgment interest). A supplemental award based on disgorged profits should not go to Rochow, because he failed to show that a simple award of benefits did not make him whole.
Rewarding the plaintiff an additional $2.8 million would itself be a breach of fiduciary duty because it would allow Rochow to make an impermissible double recovery, the majority said.
The U.S. Supreme Court explained in Varity Corp. v. Howe, 516 U.S. 489 (1996), that ERISA’s equitable relief provision “functions as a safety net, offering appropriate equitable relief for injuries caused by violations that Section 502 does not elsewhere adequately remedy.” The Varity court made it clear that ERISA remedies are concerned with redressing the claimant’s injury, and not with the scope of the defendant’s wrongdoing.
Two Separate Injuries Not Seen
The court rejected Rochow’s argument that he had two separate injuries, and instead concluded that the claim denial was the only injury.
The denial is the injury and the withholding is simply ancillary thereto, the continuing effect of the same denial. Together they comprise a single injury.
In such cases, the equitable relief arguments are viewed as “repackaged claims” for injuries that were redressed through the award of benefits.
The court distinguished Rochow’s case from ones where a breach of fiduciary duty separate from the claims denial justified warranted additional equitable relief to redress that second separate infraction. Such was the case in Hill v. Blue Cross and Blue Shield of Michigan, 409 F.3d 710 (6th Cir. 2005), but it was not the case in Rochow.
The fact that LINA made money off the denied claim did not aggravate Rochow’s injury, the circuit court said. The opinion stated that if Rochow’s logic held, then all wrongful denials of benefits that enables insurers to make gains could subject plan fiduciaries to ERISA enforcement for disgorgement of profits.
The earlier Rochow ruling focused on the company’s gain, but that was beyond consideration for ERISA relief. Since there was no showing that the benefit recovery, attorney’s fee and (potential) prejudgment interest would be inadequate, the further award was inappropriate.
Rochow argued that CIGNA v. Amara, 131 S. Ct. 1866 (2011), eliminated the requirement that he show a separate injury, but the court rejected this, returning to its conclusion that other equitable relief should only be available when restoration of benefits unfairly denied is inadequate to make the plaintiff whole.
The court, however did say that prejudgment interest might be warranted, but only if such an award was not excessive, so as to remain compensatory and not punitive.
Accordingly, the 6th Circuit vacated the disgorgement award and remanded the case to the district court to determine whether prejudgment interest was appropriate.
Dissenting Opinion
A dissenting opinion held that two wrongs were committed, so both remedies should be available. The payer delayed benefits for five of the last six years of the plan participant’s life; it paid the second lump sum eight months after Rochow died. Further, it:
engaged in deliberate and willful wrongful acts, created non-existent insurance policy requirements, concocted a knowingly false rationale for its second denial of benefits, closed the administrative record without medical input or evidence, and acted in bad faith. [Further] … rather than segregating the disability benefits it owed to Rochow in an interest-bearing account for his later use, LINA commingled Rochow’s benefits with company funds in a general equity account used in part for corporate investment.
Because of these separate wrongs Rochow’s health deteriorated for five years without adequate income, the dissent stated. Fiduciary breaches above and beyond denying benefits require remedies above and beyond repaying denied benefits, the dissent said. LINA’s fiduciary breaches were actionable because:
Equity has long recognized that “[a] trustee (or a fiduciary) who gains a benefit by breaching [fiduciary] duty must return that benefit to the beneficiary” (quoting a 9th Circuit opinion);
and:
“The elementary rule of restitution is that if you take my money and make money with it, your profit belongs to me” (quoting another 9th Circuit opinion).
The dissent also disagreed with the majority’s conclusions around CIGNA v. Amara, saying that Amara actually justified further awards for Rochow, because the obstacles it put up to frustrate Rochow did harm him in ways that a simple payment of benefits could not address.
In this case, requiring LINA to disgorge its profits earned on wrongly withheld benefits … was necessary to make Rochow whole and to prevent LINA’s unjust enrichment.
For more information about the scope of ERISA relief, see Section 723 of the Employer’s Guide to Self-Insuring Health Benefits.