Previously I had written about the 6th Circuits expansion of what constitutes appropriate remedies under ERISA, when it affirmed a judgment directing a disability insurer to pay not just benefits due, but also $2.8 million in earnings.
As a refresher, the original case, Rochow v. Life Ins. Co. of N. America, dealt with an executive who fell seriously ill and applied for long-term disability benefits, which were denied. His estate sought disgorgement of profits in addition to benefits, and the Court awarded $3.78 million award that consisted of $910,629 in denied benefits and $2.8 million more in earnings based LINAs rate of return on equity, which ranges between 11% and 39% per year.
The court ruled that ERISA permitted a participant to recover both the benefits payable under the plan (502(a)(1)(B)) plus additional equitable relief (502(a)(3)). Thus, the majority concluded that their remedy was a logical extension of the remedies available under ERISA and prior case law. According to the majority, merely awarding benefits was not adequate relief, so more relief was required.
There was a dissent, which pointed out that there is a need for a distinct injury to the plaintiff or the plan to support a claim for equitable relief on top of a claim for benefits, but the majority ignored this position. The dissent was also concerned with the potential a ruling like this might allow plaintiffs to expand every abuse-of-discretion claim into a claim for returns on investments or profits which could create serious problems for plans that were self-insured.
Last week, the 6th Circuit reversed that opinion in an en banc opinion. The new decision determined that unless there is a showing that that the remedy for denial of benefits under 502(a)(1)(B) is inadequate to make plaintiff whole, equitable relief under Section 502(a)(3) is unavailable. Simply put, the en banc decision found it inappropriate to provide equitable relief when the actual remedy of providing benefits was available. Allowing outsized damages awards based on perceived equitable remedies would be inconsistent with ERISAs purpose. Instead, the remedy would be more akin to whether prejudgment interest was due rather than a windfall on company profits. Consequently, the case was remanded to the lower court to determine a remedy consistent with this finding.
Ultimately, what probably held the most sway was that Rochows claim for breach of fiduciary duty was perceived as nothing more than a repackaged claim for a wrongful denial of benefits. In a case where the remedy of providing benefits is available, the relief for an alleged breach of duty is not always limited to providing benefits. But this decision seems to suggest that the place to look first for relief is the satisfaction of the 502(a)(1)(B) claim.
Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at firstname.lastname@example.org or (212) 878-7919.
The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.
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