In Rochow v. Life Insurance Company of North America (“LINA”), the Appeals Court affirmed a disgorgement remedy of $3.8 million under ERISA in this long term disability case. In a previous appeal, the Court had determined that LINA had acted in an arbitrary and capricious manner when it continuously denied Daniel Rochow benefits for his long term disability claim.
Rochow requested (i) unpaid benefits and (ii) a disgorgement of additional profits, claiming LINA breached its fiduciary duties and thereby must not be allowed to enjoy the unjust enrichment associated with profits it earned on wrongfully retained benefits. He offered expert testimony to conclude the proper amount.
The Appeals Court disagreed with LINA’s position that (i) disgorgement is inappropriate in these circumstances because Rochow should be limited to remedies that represent his own injuries, (ii) awarding both the disability benefits and disgorgement represented a double recovery, and (iii) even if awarded, a return on equity (ROE) based calculation was not the appropriate measure.
The dissenting opinion presented by the Court strongly disagreed with the majority opinion on the first two points, stating:
“The majority has taken an unprecedented and extraordinary step to expand the scope of ERISA coverage. The
disgorgement of profits undermines ERISA’s remedial scheme and grants the plaintiff an astonishing $3,797,867.92 windfall under the catchall provision in § 502(a)(3)….
Plaintiff was made whole when he was paid his disability benefits and attorney’s fees. If not, an award of prejudgment interest certainly would have made him whole…
Allowing Rochow to recover disgorged profits, in addition to denied benefits, results in an improper repackaging of the benefits claims. Put differently, it results in a second recovery for the same injury. Such overcompensation contravenes ERISA’s basic purpose….
Both the Supreme Court and this Circuit have interpreted ERISA to prevent such double recoveries. This is precisely why equitable relief under § 502(a)(3) has been allowed in only three circumstances: (1) where § 502(a)(1)(B) does not already provide a remedy to the plaintiff; (2) where an injunction under § 502(a)(3) would remedy future mishandling of claims and an award of benefits under § 502(a)(1)(B) would remedy past wrongful conduct; and (3) where the § 502(a)(3) claim was distinct and independent from the § 502(a)(1)(B) claim, but even then, the plaintiff was permitted to recover under only one of the two theories—he could not recover under both. Notice what is not allowed: simply repackaging the § 502(a)(1)(B) claim as an equitable claim under § 502(a)(3) and thereby obtaining relief for the same injury under both provisions. The disgorgement award granted by the district court and upheld by the majority, however, does exactly this.”