Court Considers “Disgorgement of Profits” as Equitable Remedy for Denial of Disability Insurance Benefits

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

Recovery of the benefits owed under a disability insurance policy can provide compensation to beneficiaries whose claim is wrongfully denied.  However, insurance companies have little incentive to pay claims in a timely fashion if there maximum exposure is the value of the claim.  In Florida, an insurance carrier can be liable for extra-contractual damages for failing to act in good faith to process and pay an insurance claim.  Although there are a multitude of reasons that a policyholder should seek legal advice from an experienced insurance claims attorney, one important advantage involves the ability of insurance legal experts to pursue novel claims and out-of-the-box remedies.

A legal theory recently advanced in federal court while pursuing an unconventional damage award demonstrates the benefits of legal representation when an individual is involved in an insurance dispute.  In the 6th Circuit Court of Appeals case of Rochow v. Life Insurance Company of North America, the policyholder sought to supplement recovery of benefits under a disability insurance policy with equitable relief in the form of disgorgement of profits.  While the decision of a 6th Circuit panel allowing this form of relief was eventually reversed by the Sixth Circuit sitting en banc, the creative theory demonstrates how experienced insurance claims lawyers often use innovative legal theories to maximize recovery for their clients.

The U.S. District Court for the Eastern District of Michigan initially awarded the policyholder disability benefits under ERISA Section 502(a)(1) and equitable relief under ERISA 502(a)(3) in an unprecedented decision.  The Court awarded the insured $900,000 plus interest as benefits owed under the policy and $3.8 million in disgorgement of profits as a form of equitable relief.  The 6th Circuit initially upheld the ruling that ERISA permits both a claim for unpaid benefits under Section 502(a)(1)(B) and breach of fiduciary duty under 502(a)(3) even if the refusal to pay benefits is the basis for both claims, but the decision was reversed.

In considering this request for relief, the Sixth Circuit panel acknowledged that “appropriate equitable relief” is available under ERISA Section 503(a)(3).  Further, the court observed that the available relief is broader than relief designed to compensate for denied ERISA benefits.  Under this analysis, the court concluded that “appropriate equitable relief” would include disgorgement of profits earned from denied benefits.  The court also approved a return-on-equity (ROE) analysis to calculate the amount of profits as opposed to a more conservative approach akin to evaluating prejudgment interest on denied benefits.  The district court determined that the insurer used denied benefits to earn from 11 to 39 percent annually.

While the lower courts approval of this novel approach to holding an insurance company accountable was ultimately reversed, this case demonstrates the value of representation from an experience Miami insurance claim attorney in seeking outside the box remedies.  My law firm represents policyholders in claims disputes in Miami and throughout Florida.  The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations.  No Recovery, No Lawyer Fees.  Call 305-461-1095 or Toll Free 1-866-71-CLAIM.

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