Following up on a post we wrote back in January 2014, the Sixth Circuit en banc reversed its prior decision affirming an award of disgorgement as an equitable remedy for an insurer’s allegedly improper failure to pay benefits. By way of reminder, the issue before the Court was whether the plaintiff was entitled to recover unpaid benefits under ERISA § 502(a)(1)(B) and equitable relief in the form of disgorgement of profits earned on the unpaid benefits under ERISA § 502(a)(3), both of which were based on the insurer’s arbitrary and capricious denial of long-term disability benefits. On en banc review, the Sixth Circuit concluded that to allow the plaintiff to recover unpaid benefits under ERISA § 502(a)(1)(B) and disgorged profits under ERISA § 502(a)(3), absent a showing that the remedy available under § 502(a)(1)(B) was inadequate, resulted in an impermissible duplicative recovery and thus was contrary to clear Supreme Court and Sixth Circuit precedent.
The Sixth Circuit cited to the Supreme Court’s decision in Varity Corp. v. Howe, 516 U.S. 489 (1996), and stated that § 502(a)(3) claims function as a “safety net, offering appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere adequately remedy.” The Sixth Circuit continued that the Supreme Court in Varity “limited this expansion of ERISA coverage” because “where Congress elsewhere provided adequate relief for a beneficiary’s injury, there will likely be no need for further equitable relief, in which case such relief normally would not be appropriate.” Thus, the problem with the initial panel decision, as well as the district court’s opinion, was that it focused not on whether the plaintiff was made whole by receiving relief available under § 502(a)(1)(B), but rather on whether the insurer wrongfully gained something by way of its conduct. The Sixth Circuit stated that there was “no showing that the benefits recovered by [the plaintiff], plus the attorney’s fee awarded, plus the prejudgment interest that may be awarded on remand, are inadequate to make [the plaintiff] whole.” As such, there was “no trigger for further equitable relief under Varity.”
The Sixth Circuit also noted that equitable relief only is available where the claim is based on an injury that is separate and distinct form the denial of benefits. The Court found that in Rochow the claim for benefits and the claim for equitable relief were premised upon the denial of benefits.
This case is a big win for insurers and plan administrators. It sets a clear line prohibiting duplicative recovery and provides guidance as to what constitutes “separate and distinct” injuries that would give rise to equitable relief. In addition, it makes clear that equitable relief is available only when relief available elsewhere in ERISA is insufficient, thus reinforcing the usual reading of Varity that § 502(a)(3) is a catch-all provision, and not one that provides relief in conjunction with § 502(a)(1)(B). Finally, it eliminates as a remedy recovery that could have made ordinary benefits decisions prohibitively expensive.