The Sixth Circuit
Court of Appeals recently upheld a lower court's decision to award a
plaintiff $1 million in disability benefits plus $3.8 million in
punitive damages because the disability insurer breached its
fiduciary duty. In doing so, the Sixth Circuit has signaled that a
plaintiff may simultaneously maintain a claim for benefits and a
claim for breach of fiduciary duty under ERISA, and that punitive
damages are appropriate to redress breaches of fiduciary duty.
In Rochow v.
Life Insurance Company of North America, the plaintiff sued a
long-term disability insurer after the insurer denied his claim for
benefits. The lawsuit sought the withheld disability benefits and
also asked for "appropriate equitable relief" for the
insurer's breach of fiduciary duty.
The lower court
concluded that the insurer had acted arbitrarily and capriciously
when it denied the plaintiff's long-term disability claim and, in
addition to the LTD claim, awarded the plaintiff ERISA-permitted attorneys'
fees, plus punitive damages for the breach of fiduciary duty. The
insurer appealed the decision to the Sixth Circuit Court of Appeals,
arguing that ERISA only allows "make whole" relief for
breaches of fiduciary duty and therefore, under ERISA, the additional
$3.8 million could not be awarded.
On appeal, the
Sixth Circuit affirmed the decision, holding that ERISA does not bar
tandem claims for denied benefits and breach of fiduciary duty
claims. In response to the defendant's argument that relief under
ERISA for a breach of fiduciary duty is limited to make-whole relief,
the Sixth Circuit held that where ERISA allows equitable relief to
redress breaches of fiduciary duty, such relief is not limited to
relief aimed at setting right the wrong, but also includes relief to
"avenge the wrong."
opinion reasoned that the decision was incorrect because it
contradicted the Supreme Court's 1996 decision in Varity Corp. v.
Howe, which stands for the proposition that when a plaintiff has
a remedy for benefit denials, there is no an additional remedy on the
same claim for breach of fiduciary duty. Moreover, the dissent
predicted that the majority's decision would serve to undermine
ERISA's goal of creating an efficient system of benefit determinations
which is necessary to ensure that employers continue to offer
The insurer is
expected to appeal the decision to the U.S. Supreme Court. For the
time being, however, there is no doubt that Rochow will spawn
further litigation as benefit claimants and benefit plan fiduciaries
grapple with how the decision may apply to their particular