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Rochow v. LINA

Court Holds That Prejudgment Interest May be the Correct Remedy for Wrongful Denial of Disability Benefits



In a split decision by the entire U.S. Court of Appeals for the Sixth Circuit, the court held that disgorgement of profits was not available to make a worker whole in a benefit denial claim but prejudgment interest may be.


Daniel Rochow, an employee of Arthur Gallagher & Co., was enrolled in the company’s disability plan under Life Insurance Co. of North America (LINA) when he applied for benefits because of conditions that were later linked to brain trauma. LINA denied his claim, arguing that his inability to function did not occur until his hospitalization after he stopped working. Rochow challenged the denial, exercising his rights under the federal Employee Retirement Income Security Act (ERISA), the main federal law overseeing employee benefits.

A federal district court agreed with Rochow that LINA’s denial was arbitrary and capricious, awarded Rochow his benefits, and dismissed the case. Upon appeal, the U.S. Court of Appeals for the Sixth Circuit went even further. The court found that LINA was arbitrary and capricious, that its decision was unsupported by the evidence, and the process by which the decision was reached was flawed, finding that LINA violated ERISA’s duty of loyalty, and remanded the case for determination of relief.

On remand Rochow argued that LINA should pay not only the denied benefits, but also the profits it earned on those denied benefits. The district court agreed and awarded almost $3.8 million in profits. LINA appealed, arguing among other things that disgorgement of profits was not the proper remedy in this case, and that Rochow was limited to the amount of the denied benefits, no more.

A Sixth Circuit panel, in a 2-1 decision, agreed with the district court holding that a participant whose benefit had been denied arbitrarily and capriciously could sue for disgorgement of profits on the amount of benefit that had been wrongfully denied. LINA petitioned for a rehearing in front of the whole court, which was granted.

In the Sixth Circuit’s rehearing decision, the majority agreed that allowing a disgorgement award on top of an award of wrongfully withheld benefits would be an impermissible duplicative recovery under the ERISA.  The majority once again remanded the case to the district court to determine whether  the participant was entitled to prejudgment interest, but cautioned the district court that the interest rate could not be so high as to act as a penalty. The decision did not foreclose the possibility that disgorgement could be appropriate when the remedy provided under ERISA’s benefit claim provision would be “inadequate.”

AARP Foundation Litigation attorneys filed AARP’s friend-of-the-court brief along with the National Employment Lawyers Association on behalf of Rochow. The brief pointed out that disgorgement of profits — in essence, requiring the entity to pay back not only the benefits it should have paid in the first place but also the interest and profits earned by LINA in holding on to those monies unjustly — was not only appropriate, but also supported by precedent.  

What’s at Stake

Insurers and plan administrators are now relieved to know that they can arbitrarily and capriciously deny benefits without fear that this action will cost them any more money than if the benefit initially was paid on a timely basis.

Case Status

Rochow v. LINA was decided by the U.S. Court of Appeals for the Sixth Circuit.

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Our legal advocacy initiatives  - conducted by AARP Foundation Litigation (AFL) - reflect nearly 20 years of work in federal and state courts across the country. Through our efforts, we support the Foundation’s four impact areas: Tackling Senior Hunger, Paving the Way to Stable Income, assuring the adequacy and availability of Safe and Afffordable Housing and Reconnecting People to Families and Communities, and ensure that those 50 and older have a voice in the laws and policies that affect their daily lives.