Are You Entitled to Disgorgement of Profits When Your Insurance Company Improperly Denies You Long-Term Disability Benefits?

Mar 10, 2014 - Articles by

The United States Court of Appeals for the Sixth Circuit recently examined whether or not a claimant who is arbitrarily and capriciously denied ERISA disability benefits is later entitled to an equitable accounting of the disability insurer’s profits and disgorgement of those same profits. Focusing on the portion of the decision that examined the relief available under ERISA, the Sixth Circuit found the plaintiff/claimant was entitled to recover benefits due to him and disgorgement of the Life Insurance Company of North America’s (LINA) profits resulting from the denial of benefits.

The Sixth Circuit began their examination of relief available under ERISA by pointing out that ERISA has six remedial provisions. “Four provide specific relief and two are “catchalls” which provide “‘appropriate equitable relief’ for ‘any’ statutory violation.” 1 The court determined that in the present case one of the specific relief provisions and one catchall provision were relevant.

The Circuit court noted that the District court had determined that specific relief and catchall relief provisions “were not mutually exclusive and both were appropriate in this case because they provide different kinds of relief: benefits under [the specific relief provision] compensated [the claimant] for the denial of his benefits, and disgorgement under [the catchall provision] prevents LINA from being unjustly enriched.” The Circuit court continues this line of reasoning saying that the specific relief provision “cannot provide the equitable redress of preventing LINA’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 Circuit court stated, in response to LINA’s argument, that “disgorgement does not result in double compensation, nor does it represent punishment. An award of both actual damages and disgorgement does not offend the doctrine against double recovery.”

Ultimately, the Sixth Circuit relies on an Eighth Circuit holding recognizing the remedy of disgorgement of profits. The Eighth Circuit determined that disgorgement of profits – an accounting for profits – “is a type of relief that was typically available in equity and therefore is appropriate” in this circumstance. The Sixth Circuit relied on this to “hold that disgorgement is an appropriate remedy under § 502(a)(3) [the catchall provision] and can provide a separate remedy on top of a benefit recovery.” The Sixth Circuit reasons that “if no remedy beyond the award of benefits were allowed, insurance companies would have the perverse incentive to deny benefits for as long as possible, risking only litigation costs in the process” and that “not every court will find that a plan administrator who acted arbitrarily and capriciously in denying benefits also breached its fiduciary duty under [ERISA].”

1. Rochow v. Life Ins. Co. of North America, 737 F.3d 415 (6th Cir. 2013)