Disability Benefits Claim Results In Not Only A Benefits Award But Also Disgorgement Of $3.8 Million

There has been a lot of commentary about this case – Rochow v. Life Insurance Company of North America – and the story’s not over yet, because the case will be re-heard in 2014. This case started as a typical claim for disability benefits – the plaintiff asserted that he was disabled from working full time. The claim was denied, a lawsuit challenging the denial was filed under Section 502(a)(1)(B) of ERISA, the district court granted the benefit claim, and the Sixth Circuit affirmed in 2007.

What was unusual was that after winning the benefits case, the plaintiff was also granted disgorgement of the insurance company’s profit on the benefits initially denied, under Section 502(a)(3) of ERISA – an amount that ultimately totaled $3.8 million – rather than pre-judgment interest. The disgorgement amount was calculated by taking the value of the benefit that was originally withheld, and ascertaining the insurance company’s average return on equity during the time the benefit was unpaid.

The key question on appeal (now for a second time at the Sixth Circuit) was whether disgorgement was a remedy also available in a denial of benefits case. The Sixth Circuit’s decision affirmed the disgorgement award, and concluded that it was an available remedy. That’s the decision that caused such a stir – an award of benefits under Section 502(a)(1)(B), and a disgorgement award under Section 502(a)(3), in the same case.

Recent events, however, have called that decision into doubt. The Sixth Circuit’s decision was 2-1. The two votes in the majority were from a district court judge sitting on the panel by designation, and a Sixth Circuit judge on senior status. The judge who dissented is a “regular, active” member of the Sixth Circuit. In other words, the only “active” judge on the Sixth Circuit disagreed with the opinion.

In response to a motion to rehear the case en banc by the entire Sixth Circuit – which is only considered by active judges, not senior status judges or district court judges who sometimes sit by designation – a majority of the Sixth Circuit’s active judges voted to vacate the opinion and will re-hear the case en banc. That’s not a guaranty that the decision will be reversed, but can be an indication of which way the wind is blowing before the case is re-briefed and re-argued.

We’ll all have to stay tuned to see how this ultimately turns out. Here’s the link to the Sixth Circuit’s disgorgement decision –

http://www.ca6.uscourts.gov/opinions.pdf/13a0338p-06.pdf

And here’s the order vacating that decision and accepting the case for re-hearing en banc –

http://www.erisaboard.com/attachment.php?attachmentid=3566&d=1393444083

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