Interpleader is the legal mechanism used by a third party file a lawsuit. Often times, the third party filing the interpleader lawsuit is an insurance company. When an insured takes out a life insurance policy, and thereafter dies, the insurance company investigates the claim and determines the rightful beneficiary of the life insurance claim payment. Once the insurance company determines the legal beneficiary, the insurance company disperses the life insurance policy funds. If the life insurance company cannot determine which beneficiary is entitled to life insurance claim benefits, the life insurance company will file an Interpleader lawsuit. An insurance company places the life insurance claim funds with the court when it files an interpleader action.
When a life insurance company sues beneficiaries in an interpleader lawsuit, the policy’s beneficiaries may be confused by the process. An interpleader complaint is a very unique type of legal dispute, however, a beneficiary may be best served by seeking a life insurance attorney to represent their best interests.
Examples That May Result In An Interpleader Lawsuit
Beneficiary Designation Error
- No beneficiary designation on file.
- The insured did not comply with the insurance company’s rules regarding beneficiary changes.
- The insured expressed intent to change the beneficiary, completed proper forms, but died before submitting the change to the insurer.
Children From Different Marriages
- Children from different marriages where the marriage ended in divorce and insured were obligated to maintain the same life insurance policy as child support in both divorce decrees.
- The insured’s surviving spouse and ex-spouse make a claim for the policy proceeds.
- The insured never changed the beneficiary designation after their divorce and lived in a state where “automatic revocation upon divorce” laws control.
- The insured’s ex-spouse is entitled to life insurance as part of their final judgment of divorce.
- The insured indicated on the application that he is allocating 100% of policy proceeds to one beneficiary and 100% of the same proceeds to a different beneficiary.
Undue Influence, Duress, & Fraud
- The insured changed the beneficiary several days before death giving rise to suspicion of undue influence, duress, and fraud.
Interpleader Fact Pattern
An insured has a $300,000 life insurance policy with ABC Life Insurance (“ABC”). The insured dies. The insured named a beneficiary. However, another party (contester) believes they’re are entitled to the insured’s $300,000 policy. ABC conducts an assessment. After some investigation, ABC believe the law may entitle the named beneficiary or contester to the proceeds. ABC determines that both beneficiary and contester may have a claim to insured’s $300,000 policy. Even if ABC was almost positive that it knew what party should receive the $300,000, it may not pay. To insulate ABC from liability, ABC does not pay either party, and instead, files an interpleader lawsuit. insurance company may not give money to the wrong party. Otherwise, the legal owner of the funds may sue.
Instead of making an inaccurate payment determination, ABC files an Interpleader complaint with the court. ABC disburses the insured’s funds into escrow with the court. An Interpleader lawsuit allows ABC to participate in an Interpleader lawsuit as a non-interested party. This further protects ABC from liability. Again, an Interpleader action forces the court to resolve the dispute and determine the rightful owner of the insured’s policy proceeds.
Frequently Asked Questions
Why is the life insurance company suing me instead of paying the benefits?
An interpleader gives the life insurance company the ability to have a judge decide which benficiary should be paid if there are multiple claimants to policy benefits.
How are funds from an interpleader suit dispersed to the winning party?
After a verdict or decision from an interpleader complaint is made, the court, after receiving the insurance company, will pay out the money based on the ruling. However, the insurance company may seek legal fees and other costs from the interpleader money.
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