You are hanging around your house when a process server knocks on your door and serves you with a Complaint for Interpleader. You may ask, what is this? What must I do next? Will this just go away? It will not just go away. The good news, you have been named as a party because you may be owed a large sum of money. The bad news, you have to make your claim in court.
An interpleader or is a very different type of legal case. Unlike a typical lawsuit in which a plaintiff sues a defendant, an interpleader is filed by a party referred to as a stakeholder who is holding some type of property – probably money – that may be owed to multiple people. The stakeholder initiates the interpleader action because it is concerned that it may give the property or money to the wrong person. Rather than be exposed to double liability, the stakeholder will force all parties with a claim to the property into court to make their claims. That way, the stakeholder avoids the potential liability of giving the property to the wrong party.
Life insurance interpleaders arise when people have competing claims for life insurance proceeds. An insurer will often deposit the money into the registry of the court and file an interpleader action forcing the claimants to work out their claims in court. That way, it will ultimately be up to the court system to determine who is entitled to the money. In essence, the insurance company puts up the money, wipes its hands, and walks away.
What Should You Do Once You Have Been Served?
First, we recommend that you contact an experienced life insurance attorney to discuss your options. Now that you have been forced into this situation, you need to expect the other person claiming the life insurance proceeds will have competent legal counsel. If you truly believe you are entitled to the life insurance proceeds, you need to assert your claim in court or risk losing.
You need to act fast. If the interpleader has been filed in federal court, you have 21 days to file your response. Failure to provide a timely response could lead to default and you losing your claim without even making an appearance in the case.
Federal or State Jurisdiction
Rule 22 of the Federal Rules of Civil Procedure permits an interpleader action to be filed in federal court as long as the court has subject matter jurisdiction over the case. Subject matter jurisdiction exists either because there is a federal question, i.e. a federal law that is implicated, or because there parties have diverse citizenships.
If your life insurance policy was issued through your employment, then there will probably be federal question jurisdiction because ERISA governs employer-sponsored benefits. There are also life insurance benefit programs for federal government workers that are also subject to federal question jurisdiction.
Diversity jurisdiction applies when the claim’s value exceeds $75,000.00 and the parties are citizens of different states.
Insurance carriers tend to prefer to file interpleader actions in federal court.
How Do You Make Competing Claims?
The reason an insurer files the interpleader is because there are multiple or competing claims for life insurance proceeds or to other property. To make a claim, you will need to file an answer to the interpleader action. It is also common to file a cross-claim against other claimants named in the complaint.
It is common for the insurer that filed the interpleader to seek leave of court to be dismissed from the case. It is normally the insurer’s position that they had fulfilled their duty by depositing the funds into the registry of the court and allowing the parties’ to make their claims. Sometimes the claimants may have separate claims against the insurance company. For instance, if the insurance company knew a person is the rightful beneficiary but proceeded to file an interpleader action anyways, the insurance company may be liable for penalties and attorney’s fees under a variety of prompt payment and bad faith claim handling laws.
Once you have filed a response, you will have the opportunity to discover evidence, hire experts, take depositions, and proceed to trial to prove that you are entitled to the life insurance proceeds.
There are a number of different case types that we tend to see more often with life insurance interpleaders:
One: Lack of Capacity to Change Beneficiary.
We see a lot of cases where the insured changed the primary beneficiary later in life when the insured arguably lacks the mental capacity to understand that he was making the change. Along the same lines, we also see situations where people close to the insured may attempt to use undue influence, force, or duress to change the beneficiary. In these types of cases, objective medical evidence that the insured lacked capacity certainly helps challenge the change. In these situations, there are often nefarious actors with past history of wrongdoing involved with the insured. We have worked on multiple cases where a former felon released from prison suddenly becomes the insured’s caretaker. These cases can be difficult to prove and often rely on a combination of medical evidence and testimony to invalidate a beneficiary change.
Many states will void an ex-spouse’s interest as a life insurance beneficiary in the event of divorce. Of course, there are numerous other exceptions to this rule. For instance, sometimes a property separation agreement will stipulate that a spouse is entitled to certain insurance benefits. Other times, an insured may list or re-inscribe the ex-spouse after the divorce.
Third: ERISA Preemption
While most states will invalidate an ex-spouse’s beneficiary designation, life insurance policies that are governed by ERISA – a federal statute, do not follow a similar path. Under ERISA policies, the insured must change the beneficiary. If they do not, then the ex-spouse may be entitled to life insurance benefits.
Most states have “slayer statutes” on the books that preempt someone recovering money on a life insurance policy that killed the insured. Even if the secondary beneficiaries do not make a claim, the insurance carrier will often initiate an interpleader action if there is a chance the primary beneficiary committed murder. This way, the insurer avoids the risk of double liability exposure.
If you have been named as a party to an interplead action, you should act fast because you are required to file responsive pleadings. Since your claim will likely be opposed by another claimant, we recommend that you contact an experienced life insurance attorney to discuss your case.