Sixth Circuit Allows Expansive Remedies by Awarding Both Disgorgement of Profits and Benefits

by Goodwin

In Rochow v. Life Insurance Company of North America, No. 12-2074 (6th Cir. Dec. 6, 2013), the U.S. Court of Appeals for the Sixth Circuit took an expansive view of the remedies available under ERISA by allowing a plaintiff to recover benefits under ERISA § 502(a)(1)(B) and also obtain equitable relief in the form of disgorgement of profits under ERISA § 502(a)(3). 


Rochow involved a disability claim filed by a former company executive.  During his employment, the plaintiff was covered under a disability insurance policy issued by Life Insurance Company of North America (the “Insurer”).  The policy provided for disability benefits if an employee gave “satisfactory proof” that “solely because of Injury or Sickness [the employee is] unable to perform all the material duties of [his or her] Regular Occupation or a Qualified Alternative[.]”  After he began experiencing short term memory loss and other symptoms, the plaintiff was demoted from his position as president of the company, and eventually terminated due to inability to perform his job.

Following the termination of his employment, the plaintiff was diagnosed with a rare and debilitating brain infection and filed a claim for long term disability benefits.  The Insurer denied his claim on the ground that his employment ended before his disability began.

District Court Grants Plaintiff’s Motion for an Equitable Accounting and Orders Disgorgement of Profits

Following the denial of several claim appeals, the plaintiff filed a complaint in the U.S. District Court for the Eastern District of Michigan in which he asserted two claims under ERISA § 502(a)(3): (i) to recover full benefits due to the failure to pay benefits in violation of the terms of the plan; and (ii) to remedy the alleged breach of fiduciary duty.  The district court ruled that the Insurer acted arbitrarily and capriciously in finding that the plaintiff was not disabled while still employed and entered judgment for the plaintiff.

In subsequent proceedings the plaintiff argued to the district court that he was entitled to disgorgement of approximately $2.8 million in profits that the Insurer obtained through its return on equity from the wrongfully retained benefits because the Insurer breached its fiduciary duties, and disgorgement was necessary to prevent unjust enrichment.  The district court granted the plaintiff’s motion for an equitable accounting of profits and ultimately ordered disgorgement of profits as calculated by the plaintiffs’ expert.  The Insurer appealed.

Sixth Circuit Affirms District Court’s Decision

On appeal, among other issues, the Insurer argued that disgorgement relief was inappropriate because equitable relief under § 502(a)(3) is available only where § 502(a) does not otherwise provide an adequate remedy.  In a 2-1 decision by a panel of the Sixth Circuit, the appeals court held that the district court correctly permitted the plaintiff both to recover benefits under § 502(a)(1)(B) and to obtain equitable relief in the form of disgorgement under § 502(a)(3) because “Section 502(a)(1)(B) cannot provide the equitable redress of preventing [Insurer’s] unjust enrichment because it only allows a participant to ‘recover benefits due to him under the terms of the plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.’”

The appeals court further held that “disgorgement does not result in double compensation,” and “cannot fairly be characterized as punitive because it leaves [Insurer] no worse off than it would have been had it paid benefits to Rochow when they were due as the law required.”

In a dissenting opinion, Circuit Judge McKeague stated that “[t]he 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 . . . windfall under the catchall provision in § 502(a)(3).”  As the dissent noted, the plaintiff was made whole when he was paid his disability benefits and attorneys’ fees.  “Allowing Rochow to recover disgorged profits, in addition to denied benefits, results in an improper repackaging of the benefits claims . . . [and] contravenes ERISA’s basic purpose.”

The dissent further noted that the majority’s decision appeared to be inconsistent with the Supreme Court’s decision in Howe v. Varity Corp., 516 U.S. 489 (1996), in which the Court held that Section 502(a)(3) “functions as a safety net, offering appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere adequately remedy.”

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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