Appeals Court Denies Collecting Through Double Recovery

By Cyril Tuohy
InsuranceNewsNet

A federal appeals court in Cincinnati has thrown out a $3.97 million award to a former president of the insurance broker Arthur J. Gallagher & Co. after the court ruled that the estate of the former executive couldn’t collect on the profits generated by the disability benefits retained by the insurer.

Writing for the nine-member majority on the 16-judge panel, U.S. Circuit Judge David W. McKeague said that allowing the estate of Daniel J. Rochow to recover profits based on the claim that wrongful denial of disability benefits also constitute a breach of fiduciary duty would result in “an impermissible duplicative recovery.”

The judge also wrote that a duplicative recovery in Todd R. Rochow and John D. Rochow, personal representatives of the Estate of Daniel J. Rochow v. Life Insurance Co. of North America (LINA), would be contrary to precedent set by the U.S. Supreme Court and by the Sixth Circuit Court of Appeals.

The appeals panel agreed to rehear the long-running dispute after a district court in 2012 ordered the carrier to “disgorge” profits from the wrongful denial of benefits under the Employee Retirement Income Security Act (ERISA).

McKeague, however, said that Rochow had indeed been “made whole” under ERISA when the appeals court had previously found that the estate was entitled to recovery of disability benefits, attorney’s fees and prejudgment interest.

Rochow’s estate has already recovered $720,000 in benefits. Earlier this month, the appeals court ordered the district court to decide how much interest the life insurance carrier will pay in the long-running dispute.

But in a dissenting opinion, appellate judge Jane Branstetter Stranch found that Rochow suffered two injuries at the hands of the carrier.

“LINA injured Rochow in two distinct ways: by arbitrarily and capriciously denying his disability benefit and by breaching its fiduciary duties to him,” Stranch wrote. “LINA’s denial of benefit breached the plan terms; LINA’s breach of its fiduciary obligation violated ERISA statutes and added the element of wrongdoing to the contract breach.”

Supreme Court opinion and other appeals court decisions support “dual ERISA remedies” where “two distinct injuries exist,” which requires two remedies.

Disgorgement is appropriate in this case based on the district court’s findings concerning “LINA’s malfeasance, the length of the delay in paying benefits due, and the extraordinary profit LINA reaped from its malfeasance.”

“The court will not often come across a case as troubling as this one,” Stranch also wrote.

Rochow’s estate sued to collect under ERISA’s “other appropriate equitable relief” clause, arguing that the insurer had enriched itself from profits earned on benefits that were due Daniel Rochow, who died in October 2008.

Rochow sued Cigna Group Insurance, LINA’s parent company, in 2004 after LINA denied him disability benefits on three occasions.

LINA denied the disability claim because Rochow, who filed for benefits in December 2002, wasn’t employed at the time, the company argued.

Rochow, who sold his interest in his insurance agency to Gallagher in 2000, was forced to resign in January 2002 after he suffered from memory loss, sweating and stress, and was unable to perform the duties of his job.

He was diagnosed with encephalitis in February 2002.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].