Some cases discuss federal income tax treatment of monies recovered under I.R.C. Section 104(a)(2) as well.

• (No Link Available)Dishman v. UNUM, 96-0015JSL, U.S. District Court for the Central District of California (Los Angeles) May 9, 1997. The insurer engaged in tactics designed to force the insured into accepting a much lower offer than what would have been reasonable. Ultimately the insurer terminated benefits altogether, and the claimant sued.
  The Court was appalled by the insurer’s conduct and explicitly found that such conduct “may be closer to the norm of insurance company practice than the Court has previously suspected” The Court added that the facts of the case were “disturbing” and illustrated that the absence of penalties results in “no practical or legal deterrent to unscrupulous claims practices.”
  The Court suggested that the “public interest would be served if ERISA contained a statutory penalty which could be imposed by the Court in extraordinary cases.”
  Furthermore Judge Letts stated that the plaintiff “suffered irremediable harm as a result of the termination of benefit payments to him. He has been forced to sell stocks and make distributions from his IRA in order to pay living expenses. As a consequence, he has incurred taxable income which might have been deferred or avoided. Mrs. Dishman has been required to return to full-time employment. Finally the purpose of disability payments is to provide a disabled individual with periodic income with which to pay living expenses. The receipt of a lump sum at the conclusion of an appeal of this case will not compensate Mr. Dishman for his loss of periodic income.”
• Bast v. Prudential Insurance, 97-35429 (9th Circuit 4/98)  (See Also "Wrong Without a Remedy" Area.) Cites McLeod and Mertens, holding that "appropriate equitable relief" [1132 (a)(3)] does not authorize suits for money damages for breach of fiduciary duty. Furthermore, equitable relief in the form of the recovery of compensatory damages is not an available remedy under [1132 (a)(3)].
• McLeod v. Oregon Lithoprint, 92-36928 (9th Circuit 12/96)  "Mcleod argues that the Supreme Court's language in Varity provides this court with the opportunity to re-examine our previous holdings regarding "appropriate equitable relief" under [1132 (a)(3)]. We reject this contention. The plaintiffs in Varity were seeking reinstatement as participants in the employer's ERISA plan. Reinstatement is equitable, not compensatory relief. The Varity opinion does not alter the holding in Mertens that compensatory damages are unavailable under [1132 (a)(3)]."
• Varity Corp. v. Howe, 116 S. Ct. 1065 (1996)  At first glance this case does not appear to be relevant to LTD situations. However, it is a watershed case on ERISA Fiduciary obligations and the right of a participant or beneficiary to sue under Section 1132(a)(3) for individualized equitable relief for breach of fiduciary obligations (as opposed to relief to the plan; also as opposed to compensatory and punitive damages, which are distinguished from equitable relief). LIMITS AND CLARIFIES RUSSELL. Discussion of common law of trusts. Great stuff in here for plaintiffs!
  Note that Justices Thomas, O'Connor, and Scalia joined in a dissenting opinion.
• Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)  (Note: this case often is cited in arguments regarding ERISA pre-emption. However, there's more in here, the Court took the opportunity to get into its thinking on what a plan participant can recover under ERISA. Pay attention to Section III, which says that ERISA's civil enforcement provisions were intended to be exclusive.) Here's a tidbit:
  "Under the civil enforcement provisions of 502 [1132] (a), a plan participant or beneficiary may sue to recover benefits due under the plan, to enforce the accrued benefits due, a declaratory judgment on entitlement to benefits, or an injunction against a plan administrator's improper refusal to pay benefits. A participant or beneficiary may also bring a cause of action for breach of fiduciary duty, and under this cause of action may seek removal of the fiduciary. {502 [1132] (a)(2)}. In an action under these civil enforcement provisions, the court in its discretion may allow an award of attorney's fees to either party. In Russell, we concluded that ERISA's breach of fiduciary duty provision, 409(a) [29 U.S.C. 1109 (a)] provided no express authority for an award of punitive damages to a beneficiary. Moreover, we declined to find an implied cause of action for punitive damages in that section, noting that 'the presumption that a remedy was deliberately omitted from a statute is strongest when Congress has enacted a comprehensive legislative scheme including an integrated system of procedures for enforcement.' Our examination of these provisions made us 'reluctant to tamper with an enforcement scheme crafted with such evident care as the one in ERISA.' (Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134 at 147)"
• Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985)  Section 409 (a) [1109 (a)] does not provide a cause of action for extracontractual damages to a beneficiary caused by improper or untimely processing of benefit claims.
  (after discussing ERISA's legislative history) "The six carefully integrated civil enforcement provisions found in 502 (a) [1132 (a)] of the statute as finally enacted, however, provide strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly."
  "To recover the benefits due her, [Russell] could have filed an action pursuant to [1132] 502 (a)(1)(B) to recover accrued benefits, to obtain a declaratory judgment that she is entitled to benefits under the provisions of the plan contract, and to enjoin the plan administrator from improperly refusing to pay benefits in the future.
  "ERISA authorizes the award of attorney's fees (see 502 (g), 88 Stat. 892, as amended, 29 U.S.C. 1132 (g)(1).)"
  (Summary) "Congress did not provide, and did not intend the judiciary to imply, a cause of action for extracontractual damaages caused by improper or untimely processing of benefit claims."
  NOTE: 4 of the 9 Supreme Court Justices DISSENTED OR ISSUED SEPARATE OPINIONS on this case! Mr. Justice Brennan argued that individual recovery for breach of fiduciary duty is available under 1132(a)(3). (Relief under 1132 (a)(2) for violation of 1109 inures to the Plan as a whole, and not to the individual participants.)
• Maune v. Int. Bro. Elect. Workers (8th Circuit, 5/96)  No. 95-2612 CT:USCA 8, DT:19960513 ABS: If patient loses ERISA case against HMO, lawyers fees shouldn't be awarded if suit was brought in good faith.
• Cement Masons v. Stone (9th Circuit, 12/99) No. 98-16150. This case concerns restitution to an ERISA welfare benefits plan (health insurance) by a beneficiary and therefore is not exactly on topic. However, it gives some hints on the Court's thinking process in the area of restitution and contract damages under ERISA Section 1132 (a) (3), and it does a great job of discussing summary dismissal on the merits vs. dismissal for lack of jurisdiction.
• Hemelt v. United States (4th Circuit, 8/97)  "...Further, we have already seen that employees suing their employer under section 502(a)(3) of ERISA cannot recover"extracontractual" or tort- like damages. See Mertens, supra . Instead, payments based on section 502(a)(3) claims, like claims under Title VII and the ADEA, are analogous to, and were designed to approximate, recovery for lost wages and other economic harms. By holding that ERISA section 502(a)(3) only permits equitable relief, of which lost wages and other economic harms are a major component, Mertens reinforces our conclusion that the settlement payments at issue here are wages."
• Mertens v. Hewitt Associates (508 U.S. 248, 1993)  ERISA does not authorize suits for money damages against nonfiduciaries who knowingly participate in a fiduciary's breach of fiduciary duty.
  The text of ERISA leaves no doubt that Congress intended "equitable relief" to include only those types of relief that were typically available in equity, such as injunction, mandamus, and restitution, but not compensatory damages.
  ERISA section 502(a)(3) cannot be the source of the sort of compensatory damages excluded from income by section 104(a)(2); other issues as well.
  (Another Split Decision: White, with whom Chief Justice Renquist, and Justices Stevens, and O'Connor joined in a dissenting opinion regarding compensatory damages, which they think ERISA supports.)
• Other Cases:
  1. Dishman v. Unum, 269 F.3d 974 (9th Cir. 2001): "Prejudgment interest is an element of compensation, not a penalty. Although a defendant's bad faith conduct may influence whether a court awards prejudgment interest, it should not influence the rate of interest. ... (Such a rate may meet or exceed 16%)
  2. Groves v. Modified Retirement Plan, Etc., 803 F.2d 109 (3rd Cir. 1986): Appropriate rate of prejudgment interest was one that compensated beneficiary for losses incurred due to administrator's nonpayment of benefits
  3. Dunnigan v. Metropolitan Life (2d Cir, Jan 9, 2002). "Because under Section 502(a)(3)(B) we have determined that Dunnigan may recover the interest due her by reason of the Plan's unreasonable delay, if any, in paying her benefits, it makes no difference whether she also has the same entitlement under Section 502(a)(1)(B). (This one was a class action suit.)
• Carpenters v. Knight, 9855547 (9th Circuit, 3/00)  Under ERISA section 502 [1132] (g)(1) costs and fees may be awarded/shifted by the court, but not when it does not have subject matter jurisdiction under ERISA.