One of the most frustrating parts of a claimant’s ERISA benefits practice is explaining ERISA’s pinched remedies for wrongful denials of benefits. In my Connecticut ERISA practice, I meet with clients who have exhausted their 401ks, are at risk of losing their houses or pulling their kids out of college. And, I have to tell them that if we win in the administrative appeal or in federal court, we most likely will just get the benefits that the company should have paid in the first case, and maybe my attorneys’ fees as well if we win in court. The remedies for ERISA benefit denials are unjust: the only risk in denying benefits is that the insurer will have to pay its attorney’s fees for defending the case, and maybe the plaintiff’s fees as well. The upside for the insurer is paying no benefits; the downside is paying the benefits plus a fraction of the value of the benefits in fees. Why should the insurance company pay LTD claims or health insurance claims if there is little downside, either in the administrative appeal of the denial, or in federal court litigation.
If the holding of Rochow v. Life Ins. Co. of Am., 737 F.3d 415 (6th Cir. 2013) becomes the law generally, I won’t have to give that talk any more. In this case, in addition to awarding the wrongfully denied LTD benefits, the court also ordered disgorgement of the profits the insurer had earned on the unpaid benefits, which totaled an award of $2.9 million for disgorgement of profits earned, and a benefit award of about $1 million.
The case was re-argued to all the Sixth Circuit judges on June 18, 2014, and we are waiting for a decision. Decisions by the court that decided the case are not binding on federal courts in ERISA benefits litigation in Connecticut, and the federal courts for the district that includes Connecticut have rejected this idea. Considering the hits that plan participants have generally suffered from the courts’ narrow reading of ERISA remedies, I do not expect the decision to stand, but if it does and the holding becomes more wide-spread, my conversations with new clients with LTD claims will certainly be cheerier.