ERISA damages—two bites off the same apple are impermissible

The United States Court of Appeals for the Sixth Circuit issued an en banc decision in Rochow v. Life Insurance Company of North America on March 5, 2015 that deals with the ability of a participant in a plan covered by ERISA to recover benefits due from that plan while simultaneously pursuing “other appropriate equitable relief” based on that same asserted injury. In a decision likely to be applauded by many plan sponsors, the court’s en banc decision concluded that both forms of recovery are inappropriate when based on the same injury except in limited circumstances—circumstances that were not satisfied in this case.

The facts of the case involve a claim for long term disability benefits filed by Daniel Rochow under a policy issued by Life Insurance Company of North America (“LINA”). After LINA denied that claim and all administrative appeals also were unsuccessful, Rochow filed an action in the United States District Court for the Eastern District of Michigan. That complaint sought to recover benefits due to Rochow under the applicable disability policy under ERISA Section 502(a)(1)(B) and to seek appropriate equitable relief to redress an alleged fiduciary breach under ERISA Section 502(a)(3).

The District Court issued a decision in favor of Rochow, and awarded him a payment of approximately $900,000 plus interest for benefits due to him under the applicable policy (and based on the claim under Section 502(a)(1)(B)). In addition, the District Court granted Rochow an additional award of almost $3.8 million as additional equitable relief under ERISA Section 502(a)(3). This equitable award was based on a disgorgement of the gain that LINA realized by not paying to Rochow the benefit when due to him under the applicable policy. This somewhat surprising decision subsequently was affirmed by a three-judge panel from the Court of Appeals for the Sixth Circuit, which concluded that separate claims for benefits due under ERISA Section 502(a)(1)(B) and for a breach of fiduciary duty under ERISA 502(a)(3) are permitted even when both are based on the same asserted injury. Subsequent to the issue of the decision by the three-judge panel, LINA’s request of an en banc rehearing was granted.

The sole issue before the Sixth Circuit in the en banc rehearing was whether Rochow was entitled to recover under both ERISA Sections 502(a)(1)(B) and 502(a)(3) based only on LINA’s denial of benefits. In this instance, the Sixth Circuit decided the answer to that question was no, and therefore it vacated the disgorgement award under ERISA Section 502(a)(3) (the case was remanded to consider some tangential prejudgment interest issues). Citing the 1996 decision of the United States Supreme Court in Verity Corp. v. Howe and previous Sixth Circuit decisions, the court concluded that a claimant can pursue recovery under a breach of fiduciary claim under ERISA Section 502(a)(3) only if the claim for such a breach is based on an injury that is separate and distinct from the claim for benefits due or upon a showing that the remedy available under ERISA Section 502(a)(1)(B) to redress the benefits due claim is inadequate. In that regard, the court concluded that Rochow only alleged one injury (i.e., the failure to pay benefits due) and that the remedy available under ERISA Section 502(a)(1)(B) was sufficient to resolve that injury.

The decision by the Sixth Circuit in the en banc rehearing seems to bring that circuit back into alignment with other federal circuits and the Supreme Court, which is a good thing. Accordingly, plaintiffs should be able to sustain separate claims under ERISA Section 502(a)(3) only when they can prove separate claims that are not remedied by claims under ERISA Section 502(a)(1)(B) for benefits due. This decision, which seems to narrow the range of exposure in the context of claims for improper benefit claim denials, should provide some cheer to plan sponsors and their advisers.

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Formal Denial Of Benefits Unnecessary For Accrual of ERISA Benefits Claim

To hold that an insured cannot bring an action until an insurer formally denies the claim for benefits would, as the district court noted, allow insurers to “prevent policy holders from suing by continuing in perpetuity to consider the claims open and the denial of benefits preliminary.” Curry, 2013 U.S. Dist. LEXIS 98791, 2013 WL 3716413, at *3 n.5. This cannot be so.

Therefore, we conclude that Curry’s cause of action for breach of contract arose–and the statute of limitations began to run–when Trustmark terminated Curry’s monthly benefit payments on June 30, 2008.n5 As a result, his suit, filed on July 27, 2011, falls outside the limitations period.n6

Curry v. Trustmark Ins. Co., 2015 U.S. App. LEXIS 1910 (4th Cir. Md. Feb. 6, 2015) (unpublished)

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Reimbursing Employees for Individual Health Insurance Policies Subjects Employers to Hefty Excise Taxes

What, you may ask? That’s right. It no longer works to reimburse employees for the purchase of an individual health insurance policy. I know, many of you have always done this. Well, not any longer under guidance issued under the Affordable Care Act (ACA). Beginning with an IRS Notice issued in September 2013 and most recently in November 2014 DOL FAQs, the federal government has made it clear that this practice does not work under the ACA. While it flew under the radar for some, this rule became effective in 2014. (more…)

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