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Unjust Enrichment Award Greater Than Expected

In an unusual case, plaintiff's award is greater than what was requested in his complaint. While this is an insurance matter, the implications for unjust enrichment surrounding legal malpractice claims are worth noting.

Sixth Circuit affirms a $3.8 million equitable award to LTD plaintiff.

January 14 2014. By Amanda Sonneborn and James Goodfellow, Seyfarth Shaw LLP. lexology.com

Recently, the Sixth Circuit in Rochow v. Life Insurance Company of North America affirmed a district court’s award of a $3.8 million award to a long-term disability (“LTD”) plaintiff under an unjust enrichment theory.  By way of background, Plaintiff, who suffered from HSV-Encephalitis, filed a claim for LTD benefits, which was denied.  Plaintiff filed suit, asserting a claim for benefits and for breach of fiduciary duty.  The district court concluded that the defendant had acted arbitrarily and capriciously when it denied Plaintiff’s claim.  The Sixth Circuit affirmed.

After the Sixth Circuit affirmed, the case returned to the district court for litigation over Plaintiff’s appropriate remedy.  During that litigation, Plaintiff filed a motion seeking an equitable accounting and disgorgement, asserting that disgorgement was proper to prevent defendant’s unjust enrichment resulting from its breach of fiduciary duty.  Plaintiff’s motion was supported by an expert report that stated that the defendant earned approximately $3.8 million by retaining his benefits.  The expert estimated that the defendant had earned between 11% and 39% annually on the improperly retained benefits.  Defendant’s expert opined that defendant had earned roughly $33,000 in profits.

The district court granted Plaintiff’s motion for disgorgement, and the Sixth Circuit affirmed.  The Court began its opinion by concluding that the district court’s award of disgorgement as a remedy was proper even though Plaintiff had not requested it in his complaint.  The Court stated that the district court’s consideration of all appropriate remedies was proper regardless of pleading.  The Sixth Circuit also stated that disgorgement was a proper remedy, as it was not a repackaged claim for benefits.  Rather, it provided a different type of remedy than benefits.  Finally, the Court found that the amount of the award was proper because the district court had found that the money that would have been used to pay Plaintiff’s benefit was available to defendant to use as bottom line equity for any business purpose.  Thus the formula used by Plaintiff’s expert (based on return on investment) did not violate clearly established principles of law or equity.

In sum, this case is worth watching, as it may be used by the plaintiffs’ bar as justification for seeking remedies well above and beyond benefits at issue.

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