Interpleader & Beneficiary Disputes in Life Insurance and Accidental Death and Dismemberment Insurance Claims

What Is an Interpleader Case?

The short answer is an interpleader case is a lawsuit that a life insurance or AD&D insurance company files when it wants a court to decide who is the proper beneficiary after an insured’s death to avoid any risk of having to pay twice.

Sometimes multiple people claim to be the rightful beneficiary to life insurance or accidental death insurance benefits following an insured’s death. When the insurance company doesn’t dispute that it owes benefits to someone following a death, but is uncertain about who is the right beneficiary to pay, it will usually file an interpleader lawsuit.

The risk of paying twice is because if the insurer pays the beneficiary it thinks is proper, there’s nothing to stop another competing beneficiary from filing a lawsuit against the insurer. If the judge agrees with that competing beneficiary, it will issue a judgment that the insurer has to pay that beneficiary. So the insurer short-circuits that risk by filing the interpleader suit and letting the court decide the proper beneficiary from the start.

When clients retain us to fight a beneficiary dispute in an interpleader action, it usually involves a divorce, a remarriage, or the insured who dies named someone other than their current spouse as the beneficiary. In such cases our clients have either already been served by the insurance company with an interpleader lawsuit that has already been filed, or have received a letter from the insurer that it will file an interpleader if the competing beneficiaries can’t reach a written agreement on who gets paid.

Most often our cases have involved conflicts between a state law requiring benefits to be paid to one beneficiary, and federal law requiring that they be paid to a different beneficiary after divorce, remarriage, or naming someone other than a spouse. The question then becomes which law applies – state or federal law. Federal law applies if the policy is governed by the federal ERISA statute. Federal ERISA law “preempts” state law where applicable, and determines who is the proper beneficiary who gets paid.

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How Does an Interpleader Lawsuit Process Work?

1. The insurance company files its lawsuit, and serves it on all competing beneficiaries who have asserted a right to the benefits to notify them of the lawsuit.
   
2. The interpleader rules give federal courts nationwide jurisdiction over competing beneficiaries who live in separate states, and the interpleader action can be filed in the state where any competing beneficiary resides.
3. Judges will often order that no competing beneficiary can file any other lawsuits claiming the right to benefits. That way, all claims are resolved in one proceeding.
4. The beneficiaries then file their answers to the insurer’s lawsuit, asserting the legal and factual grounds they believe support their right to the benefits.
5. The presiding judge will usually permit the insurance company to deposit the full policy benefits into the court registry, and dismiss them from the case.
6. The beneficiaries then proceed without the insurer as a party, and the judge ultimately decides whether federal or state law governs the case, and who is the proper beneficiary.
7. Some interpleader cases are resolved within a few months, before any trial by either motions for judgment on the pleadings or motions for summary judgment when it is relatively clear who is legally the right beneficiary. These motions are filed by the attorneys for the competing beneficiaries arguing their clients’ right to the policy proceeds.
8. In other cases, the process takes longer, potentially involving depositions, other forms of discovery, and trial in court with witness testimony. Cases that go this route can usually get resolved by court judgment within a year, but may take longer depending on a number of factors.
9. Whether resolved by motion practice or a trial, the judge will issue a judgment for the proper beneficiary.
10. Once a judgment is issued, the judge will order the Clerk of Court to pay that beneficiary the money that was deposited in the court registry by the insurance company. This ends the case.

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How Interpleader Lawyers Help

Interpleader lawyers help their clients with complicated court procedural rules, and with presenting motions, evidence and arguments to the court to establish their client’s rightful claim.

An attorney with experience in life insurance disputes, federal court, and federal ERISA law understands the complexities of policy terms, beneficiary designations, and the legal standards the court will apply.

Some examples of interpleader clients we have helped to secure benefits include:

1. Our Texas interpleader client was the fiancee of the insured, and was the named designated beneficiary of the insured’s accidental death and dismemberment policy even though the insured was still married to someone else. When he died in a motorcycle accident, the wife claimed benefits under a state law that required that the spouse get the benefits over the named beneficiary. Securian Life Insurance Company Filed a federal court interpleader lawsuit. The insurance policy in question was governed by federal ERISA law. ERISA law required that my client, as the sole designated beneficiary get benefits. Because ERISA law preempted state law, the judge ruled for my client.
   
2. Another Texas Interpleader client involved almost an identical fact pattern after the insured died in a motorcycle accident. This interpleader action, also filed by Securian Life Insurance Company, and also governed by federal ERISA law, was resolved in our client’s favor as the sole designated beneficiary. At first, the competing beneficiary attorney’s position was that since his client was married to the insured when he died, state law required that she be paid. In this case, once we provided him with clear legal precedent that under ERISA law, the designated beneficiary must be paid, he agreed with our position, and had no objection to my client receiving full benefits. That agreement allowed us to resolve the case early, without going through a complete disputed claim process to judgment.
3. A New York interpleader client was the executor of the estate of the deceased insured, and as such, the designated beneficiary under a National Union Life Insurance Company life insurance policy governed by federal ERISA law. There were potential competing claimants, prompting National Union to file an Interpleader action. The court ultimately ruled in our client’s favor.

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Factors That Can Complicate Interpleader Lawsuits

Interpleader actions can be complicated and often involve several challenges, including:

• Conflicting Beneficiary Designations: Sometimes, multiple versions of beneficiary forms exist, or the policyholder made changes that are unclear or unsigned.
• Outdated or Incorrect Information: A beneficiary may have been named years ago and no longer reflects the policyholder’s intentions, especially after divorce or remarriage.
• Lack of Proper Documentation: Claimants may struggle to produce the necessary documents to prove their status, such as a valid beneficiary designation or related legal papers.
• Disputes Over Validity: Claims can be contested on grounds such as fraud, undue influence, or incapacity when the beneficiary designation was made.

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Get Help with Interpleader & Beneficiary Disputes

Price McNamara: Disability, Life, AD&D Insurance Attorneys have helped many clients resolve interpleader cases by handling claims, negotiating settlements, and fighting in court.

Call today at 225-412-6235 or contact us online to discuss your case.

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