Free Response - District Court of Arizona - Arizona

R ANDOLPH G . B ACHRACH
ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 (602) 852-9540
(AZ #12621 - CA #93278)

Attorney for Plaintiff

United States District Court
FOR THE DISTRICT OF ARIZONA

DAVID L. MAZET, Plaintiff, vs. HALLIBURTON COMPANY LONGTERM DISABILITY PLAN; and, HARTFORD LIFE & ACCIDENT INSURANCE COMPANY, Defendants.
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No.: CV 04 0493 PHX FJM RESPONSE TO STATEMENT OF FACTS IN SUPPORT OF DEFENDANTS' CROSS-MOTION FOR SUMMARY JUDGMENT

Plaintiff responds to the Statement of Facts submitted by Defendants in support of their Cross-motion for Summary Judgment, as follows: 1. The plaintiff, David Mazet, was injured on the job in August of 2000. (Ex.2, claim file, at CF-00444 and CF-00520) 1. Admit.

2. He later made a claim for LTD benefits under the employee-benefit plan of his employer, Halliburton. (Ex. 2, at CF-00681-690) 2. Admit.

3. Halliburton funded its LTD benefits by purchasing a group insurance policy from Hartford. (Exhibit 1, policy (aka plan document), at POL00001-54) 3. Admit.

Case 2:04-cv-00493-FJM

Document 68

Filed 08/31/2007

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4. The Hartford policy provides monthly benefits if a participant becomes "disabled." The definition of "disabled" changes over time. During the 180-day elimination period (waiting period) and then the first 24 months of benefit payments, "Disability or Disabled means that . . . you are prevented by . . . accidental bodily injury . . . from performing one or more of the Essential Duties of your Own Occupation, and as a result your Current Monthly Earnings are no more than 80% of your Indexed Pre-Disability Earnings." After a plan participant has received 24 months of benefits, the definition changes from an "own occupation" standard to an "any occupation" standard: "Thereafter, you must be so prevented from performing one or more of the Essential Duties of Any Occupation." (Ex. 2, at CF-00095) 4. Objection, the Policy speaks for itself. Mr. Mazet received only the Summary

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ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

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Plan Description ("SPD") from the Plan Administrators. The Policy conflicts with the SPD in materials provisions. For example, the SPD contains a provision for "Partial Disability" which is not found in the Policy. (See, Plaintiff's Exh. 1 (SOF-MSJ), Docket #22, pg. 104.) The SPD is federally mandated. (29 U.S.C., § 1133.) Where a conflict with the master document is found, the SPD controls. Banuelos v. Construction Laborers' Trust Funds, 382 F.3d 897 (9th Cir. 2004) ("Courts will generally bind ERISA defendants to the more employee-favorable of two conflicting documents -- even if one is erroneous.") 5. In this case, Hartford accepted Mazet's claim. It started paying him benefits on February 26, 2001, after the expiration of the policy's 180-day elimination period. (Ex. 2, at CF-00517-520) 5. Admit.

6. The policy's monthly benefit is 60% of a participant's pre-disability earnings. (Ex. 1, Policy, at POL-00020 (stating that the "Initial Benefit Percentage" is "60% of Monthly Income Loss")). 6. Admit.
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RANDOLPH G. BACHRACH
ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

7. Halliburton had informed Hartford that Mazet's monthly pre-disability earnings were $4,524.09. (Ex. 2, at CF-00682 and CF-00520) 7. Deny. Hartford asked the employer to provide the employee's "Basic Salary or

wage immediately prior to cessation of work. . ." (CF-00682.) This is not the same as "predisability earnings" which is a provision and term of art under the Policy. 8. Hartford therefore paid Mazet a monthly benefit of 60% of that--$2,714.46. (Ex. 2, at CF-00520) 8. Admit.

9. Hartford continued to pay benefits for the entire 24-month, "own occupation" period. But the company discontinued benefits effective February 26, 2003 because it determined that Mazet did not qualify under the more restrictive, "any occupation" definition of disability that went into effect at that point. (Ex. 2, at CF-00190-94) 9. Admit.

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10. Mazet then brought this lawsuit. (Complaint, docket No. 1) 10. Deny. Mr. Mazet administratively appealed the denial of his claim for

continuing LTD benefits. Hartford ignored and never responded to Mr. Mazet's appeal. After Hartford refused to exercise any discretion with respect to the appeal, Mr. Mazet filed his lawsuit. 11. The parties filed cross motions for judgment on the administrative record. (Docket Nos. 21 and 23) 11. Admit.

12. This Court held, in an initial order, that the abuse-of-discretion standard of review applies. (Order dated July 15, 2005, docket No. 38) 12. Admit.

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RANDOLPH G. BACHRACH
ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

13. Approximately one month later, this Court granted judgment on the administrative record in favor of the defendants, Hartford and the Plan. (Order dated August 18, 2005, docket No. 40) In that second order, this Court held that Hartford did not abuse its discretion by deciding that Mazet did not qualify for benefits under the "any occupation" standard. (Id. at 3-5) 13. Admit.

14. The Court also remanded an issue that Mazet had raised for the first time in his motion: Whether Hartford "properly calculated Mazet's predisability earnings when determining his benefits during the initial 24 month disability period [the "own occupation" period]." (Id. at 4) 14. Admit.

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15. Mazet appealed this Court's decision to the Ninth Circuit. Upon the defendants' motion, that Court dismissed the appeal for lack of a final order because of the remanded issue. (Ninth Circuit Judgment, docket No. 52) 15. Admit.

16. This Court subsequently issued an order that stated, in relevant part: "This entire case is remanded to the plan administrator [Hartford] to determine if plaintiff's predisability wages were properly determined and if he was underpaid during the initial twenty-four month period." (Order dated February 9, 2007, docket No. 53) 16. Admit.

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17. Mazet did not submit any new material for Hartford to consider on remand. But rather than simply relying on the documents contained in the administrative record, Hartford sent a letter to Halliburton that asked for Mazet's monthly rate of basic earnings. To assist Halliburton, the letter provided the relevant policy provisions:

RANDOLPH G. BACHRACH

ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

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(Supplement to the Administrative Record, docket No. 56, at CFsupp-00117) 17. Deny. Mr. Mazet provided Hartford and its counsel with copies of his W-2

wage statements prior to the submission of the remand issue for processing by the Plan Administrator. Hartford's denial letter (on remand) refers directly to these W-2 statements. Thus, it is irrefutable that Hartford both possessed and relied upon these documents at the time of making its decision on remand.

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18. In response, Halliburton informed Hartford that on the relevant date (October 1, 1999), Mazet's monthly rate of basic earnings was $4,228:

RANDOLPH G. BACHRACH

ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

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(Id. at CFsupp-00116) 18. Admit.

19. This monthly rate of basic earnings ($4,228) is actually lower than the monthly rate that Hartford used during the claim process ($4,524.09). The higher figure was provided by Halliburton during the claim. (Ex. 2, at CF-00682) 19. Admit.

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20. The monthly rate of basic earnings provided by Halliburton does not appear to include Mazet's "deferred compensation." Mazet's W-2 wage and tax statement for 1999 (which he did not provide to Hartford, either during the claim or on remand) indicates a "Code D" amount of $8,785.65. The 1999 form gives no indication what "Code D" is. (See 1999 W-2 form, Exhibit 3 to Mazet's Statement of Facts In Support of Motion for Summary Judgment Following Administrative Decision on Remand, docket No. 58, at page 12 of 19) 20. Admit (in part) that Mr. Mazet's "deferred compensation" as reported on his

1999 W-2 wage statement (prepared by the employer) is not included in the amount submitted to Hartford by the employer, and, that such wage amount was not supported by any other employment records or documentation, as was required in writing by Hartford's claim forms sent to the employer. Otherwise, deny. I.R.S. forms (including, Form W-2) are accompanied by Instructions. The Instructions to Form W-2 (1999) clearly explain the "coding" and the manner of reporting on the form itself. By referring to the Form W-2 and its Instructions, it is apparent that all of the "deferred compensation" reported for Mr. Mazet in 1999 was a voluntary contribution from his regular salary. 21. But Mazet's W-2 wage and tax statement from the previous year indicates that "Code D" includes "DEF COMP 401(k)." (See id. at page 11 of 19) Presumably "DEF COMP" is an abbreviation for deferred compensation. But Mazet's wage and tax statement gives no indication exactly what Mazet's deferred compensation includes. 21. Deny (in part). (See, response to No. 20, above.) The Form W-2 must be read

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together with its accompanying Instructions (published by the I.R.S.). Had Hartford done so, it would have known that all of the reported "deferred compensation" on Mr. Mazet's 1999 W-2 consisted of voluntary contributions from salary to his 401(k) retirement plan.

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22. According to Black's Law Dictionary, the phrase deferred compensation has a number of possible meanings: deferred compensation. 1. Payment for work performed, to be paid in the future or when some future event occurs. 2. An employee's earnings that are taxed when received or distributed rather than when earned, such as contributions to a qualified pension or profit-sharing plan. Black's Law Dictionary, Compensation (8th ed. 2004). 22. Objection. Irrelevant. The term "deferred compensation" is a term of art as used

in reference to Mr. Mazet's retirement plan which is a qualified plan pursuant to specific and complex I.R.S. rules and regulations, and U.S. statutes governing employer sponsored retirement plans. The general definition found for this term in a law dictionary has almost no relevance or significance to the discussion and resolution of the issues presented to the Court. Utilization of such a general definition will only have the effect of unnecessarily confusing the issues. A relevant definition referencing the term has been provided by the I.R.S.: A section 401(k) plan is a type of tax-qualified deferred compensation plan in which an employee can elect to have the employer contribute a portion of his or her cash wages to the plan on a pre­tax basis. These deferred wages (commonly referred to as elective deferrals) are not subject to income tax withholding at the time of deferral, and they are not reflected on your Form 1040 (PDF) since they were not included in the taxable wages on your Form W-2 (PDF). However, they are included as wages subject to social security, Medicare, and federal unemployment taxes. Topic 424 - 401(k) Plans, http://www.irs.gov/taxtopics/tc424.html, (emphasis added). 23. On remand, Hartford considered Mazet's argument that his deferred compensation should count as part of his monthly rate of basic earnings. (Mazet had made this argument in his briefing to this Court; he submitted no letter or other documents to Hartford for the remand.) Applying the policy's definition of Monthly Rate of Basic Earnings, Hartford determined that deferred compensation does not count because it is not "regular monthly pay from the Employer . . . ." (Supplement to the Administrative Record, docket No. 56, at CFsupp-00117)
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ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

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RANDOLPH G. BACHRACH
ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

23.

Admit that this was the sole basis of denial as stated in the decision letter.

24. Mazet then filed a motion for summary judgment, which challenges Hartford's decision. (Docket No. 57) 24. Admit.

25. This Court previously held that, because the Plan document unambiguously grants Hartford discretion in making claim decisions, the abuse-of-discretion standard applies. (Order dated July 15, 2005, docket No. 38) 25. Admit.

26. The policy states that certain benefits are offset against (deducted from) LTD benefits. Among the benefits that are offset are any "retirement benefit from a Retirement Plan that is wholly or partially funded by employer contributions . . . ." But any portion of retirement benefits "that was funded by your after-tax contributions" is not offset. (Ex. 1, policy, at POL-00026) 26. Admit.

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27. For example, suppose a plan participant purchases an individual disability insurance policy in order to supplement the LTD benefits available under the Halliburton plan. And suppose that employee becomes disabled and collects benefits under both the Halliburton plan and the private policy. The private insurance benefits are not subject to an offset under the Halliburton plan. (Id. (listing the types of funds that are subject to an offset; private disability insurance benefits is not on the list)) 27. Objection. This is not a statement of fact. It is argument of counsel.

Nevertheless, it is a fallacious argument. "Deferred compensation" has no relationship with or relevance to the payment of insurance proceeds. Insurance benefits are just that -- a "benefit" provided through risk pooling. "Deferred compensation," on the other hand, is

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equally self-descriptive -- it is "compensation" which has been deferred from receipt and taken from an employee's regular salary. Defendants' analogy is pointless and inapposite. 28. The second flaw in Mazet's argument is that it assumes, once again, that his deferred compensation includes only his own, voluntary contributions to his 401(k) account. As discussed above, the record contains no support for that argument. Based on the record, it is equally possible that all of Mazet's deferred compensation came from Halliburton, and Mazet could not have chosen to receive it in his paycheck instead. And if that were the case, then the deferred compensation, when ultimately paid out to Mazet, would be offset against plan LTD benefits. (Id. (stating that "retirement benefit[s]" are offset if they are "wholly or partially funded by employer contributions")) 28. Objection (see, Response to No. 27, above). Further, as shown by the I.R.S.

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ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

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Form W-2 with Instructions, all of Mr. Mazet's 401(k) contribution was a voluntary deduction from his regular pay. Thus, Hartford's speculation as to the nature of Mr. Mazet's 401(k) contributions was unnecessary had it simply looked at the relevant I.R.S. forms and instructions, or, perhaps, made inquiry of the employer. Plaintiff suggests that a truly competent and objective Plan insurer seeking the facts and the truth (as opposed to protecting its own financial interests) would have done both. 29. During the claim process, Hartford determined that Mazet is capable of performing at least five occupations, all of which have a monthly earnings potential of $3,103.03. (Ex. 2, at CF-00205) 29. Deny. The term "earnings potential" as used in the Policy and SPD has a

reasonable meaning and interpretation which requires evidence that such earnings are currently available to the claimant. Here, Hartford relied upon the "median" wage of an entire group of occupations, most of which do not fit his documented work restrictions, and which range from "unskilled" to "highly skilled" in nature. "Median" wages are generally not
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available to an entry level worker and thus are not currently available. A Plan Administrator may not arbitrarily interpret plan provisions in a manner which conflicts with the reasonable expectations of the claimant. Mr. Mazet reasonably expected that Hartford would apply a reasonable and common sense interpretation of the term "earnings potential" to include only such occupations and wages as were actually and currently available to him (as opposed to speculative and hypothetical jobs and potential "median" wages). DATED: August 31, 2007 RANDOLPH G. BACHRACH Attorney at Law

RANDOLPH G. BACHRACH

ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

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By s/Randolph G. Bachrach Randolph G. Bachrach 5103 E. Thomas Road Phoenix, Arizona 85018 Attorney for Plaintiff I hereby certify that on August 31, 2007 I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Thomas Klinkel Scott Bennett LEWIS & ROCA, LLP 40 N. Central Ave. Phoenix, Arizona 85004-3329 Attorneys for Defendants

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s/Randolph G. Bachrach

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