Higher Court upholds federal court's 2005 decision that insurance company violated ERISA law and owed benefits.
Todd R. Rochow sued Life Insurance Company of North America, arguing that it acted in an arbitrary and capricious manner in denying ERISA benefits to the Estate of Daniel Rochow. The elder Rochow, now deceased, was forced out of his job at Universico Insurance Company when he became unable to perform his assigned duties as a result of HSV-Encephalitis, a "rare and severely debilitating brain infection." He filed a claim for long term disability with LINA. LINA denied the claim, arguing that Rochow quit his job before he actually became disabled.
Rochow submitted medical records documenting his memory dysfuntion in 2001, but LINA denied his appeal, claiming that while he suffered from encephalitis in 2001, he was not actually "disabled" until February of 2002. Even when Rochow's supervisor confirmed his incapacity to the insurer, his claim was rejected by LINA, which held that "since Mr. Rochow's LTD claim was not filed until after his termination date, his claim was denied because he was...not considered actively working at time of disability." This insurer double-talk is the modern equivalent of Catch 22: apply while you are working and you aren't disabled: apply after you are not working, and you were not disabled when you quit. The family sued LINA, and thank goodness, the presiding judge looked into the case carefully enough to conclude that the insurer's denial was wrong and arbitrary.
The insurer sought summary judgment based on the content of its file and was startled when the Judge announced that he was rendering judgment in favor of Rochow. The decision was appealed by the insurer, but upheld by a decision of the Court of Appeals in 2007. LINA continued to dispute the payment of benefits after the case was remanded to the District Court, and ultimately, in 2009, the Rochow family sought and obtained a ruling by the Court ordering disgorgement of the benefits and of the insurer's profits resulting from the delay in payment.At a hearing to evaluate the profits earned on the wrongfully withheld money, the Rochows' expert calculated total (stolen) earnings, over almost eight years, of $2.8 million dollars. The insurer used an accountant from CIGNA who claimed that the insurer earned only $32,000.00 by holding Rochow's seven-figure benefit for almost a decade. The judge rejected the insurer's calculations and ultimately ordered the insurer to disgorge 3.7 million dollars to the Rochow survivors. Not surprisingly, the insurer appealed again.
The majority of the Sixth Circuit appellate panel concluded that the District Court enjoyed the equitable power to divest the insurer of its "unjust enrichment" at the Rochow family's expense and upheld the lower court's ruling. Republican appointee David McKeague dissented, arguing that the Court exceeded its powers under ERISA. He argued that paying the disabliity benefits years late, along with attorneys' fees, "made the injured man whole" without regard to the fact that arbitrary and capricious behavior that violated the insurer's fiduciary duty denied Rochow the use of the money during his lifetime. Judge McKeague would not have awarded any interest or ill-gotten profit earned by the insurer to the family. He described the disgorgement of profit award as "overcompensation" and a "second" or "double recovery" for the same injury.
We would agree with the majority: the disability benefit award gave the Rochow family the insurance benefits that Dan Rochow bought; the disgorgement award gave them the interest income they were wrongfully denied by the insurer's years of arbitrary and capricious delay.