Monday, December 9, 2013

6th Cir: ERISA Remedy for Wrongful Denial of Benefits May Include Disgorgement Remedy under Section 502(a)(3)

GavelThanks to friend of the blog, Mark DeBofsky, for brining to my attention a potentially game-changing ERISA legal remedies case, Rochow v. Life Insurance Company of North America (6th Cir. Dec. 6, 2013).

Without seeking to lay out the byzantine world of ERISA remedial law, the important question in the case is whether a plaintiff can maintain both a Section 502(a)(1)(B) claim for benefits and Section 502(a)(3) claim for breach of fiduciary at the same time.  If so, the question remains whether disgorgement of profits is cognizable remedy under Section 502(a)(3) against the insurance company for failure to pay the benefits on a timely basis.

Seems like this is the important holding by the 2-1 majority: “[W]e hold that disgorgement is an appropriate equitable remedy under § 502(a)(3) and can provide a separate remedy on top of a benefit recovery.”  This is a welcome development for ERISA plaintiffs and their attorneys, as ERISA's rememdial scheme has been narrowly construed over the years to prevent plaintiffs from receiving full recovery for their losses.

The debate going forward is whether the Supreme Court's Varity case allows this outcome. That case stands for the proposition that where a plaintiff has a remedy for benefits under 502(a)(1)(B), a remedy on the same claim cannot be had for breach of fiduciary duty under 502(a)(3), as 502(a)(3) is only supposed to apply if no other provision does. It is the catch-all.  Here, the court says essentially these are two different claims so Varity does not apply.  It also says that the disgorgement sum of $3.7 million dollar is the appropriate remedy given the size of the benefit denied (almost $1 million disability claim), the time elapsed, and the fact that the benefit owed was commingled with other insurance company monies.

I think this conclusion is well-reasoned and consistent with other circuit decisions, but I suspect we will hear both the dissent’s “improper repackaging of the benefits claims” argument and that disgorgement is not a separate claim from the underlying benefits claim argument again soon.  Indeed, I suspect the dissent's argument will gain some traction with conservatives on the 6th Circuit, which might make rehearing en banc more likely.

I assume the defendant will move for reconsideration and/or rehearing en banc. I wouldn’t be surprised if the decision survives circuit review, if it is not appealed to the Supremes. Stay tuned, as this will likely change the way ERISA plaintiff attorney approach cases where the benefit denial is also amounts to a breach of fiduciary duty.

PS

http://lawprofessors.typepad.com/laborprof_blog/2013/12/6th-cir-erisa-remedy-for-wrongful-denial-of-benefits-may-include-disgorgement-remedy-under-section-5.html

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