After a person with a life insurance policy dies, a situation may arise where more than one party believes they are the rightful beneficiary of the life insurance benefit at issue. As a result, two or more people file a claim with the insurance company for the life insurance benefit under the same policy and an insurance company is faced with competing claims for a single life insurance benefit. The insurance company is responsible for determining the rightful beneficiary under the insurance policy, and if it pays the wrong person the life insurance benefit it could potentially have double or multiple liability under the policy. Many times when an insurance company is faced with two or more competing claims filed for the same life insurance benefit, it will begin an interpleader action, which is a lawsuit the insurance company files forcing all parties involved into court.
It is relatively common for an insurance company faced with competing claims under a life insurance policy to file an interpleader action, because there are definite advantages for the insurance company. The insurance company literally throws up its hands, and complains to the court that it does not know who the rightful beneficiary is, there is an actual dispute among the persons who have filed the competing claims as to who the rightful beneficiary is, and the insurance company has concerns of double or multiple liability for the single life insurance benefit at issue. The insurance company is required to deposit the life insurance benefit with the court, and the insurance company will ask the court to allow it to withdraw from the lawsuit, and the court will then ultimately decide who will receive the life insurance benefit. The insurance company customarily requests the court to first allow it to be paid attorney fees from the life insurance benefit deposited with the court, and despite this reducing the life insurance benefit that someone should rightfully be paid, if a party to an interpleader action does not have a skilled and experienced attorney to dispute that the insurance company should receive any fees, the court will likely allow attorneys’ fees to be paid from the life insurance money (and only serves to benefit the insurance company who promised to pay that life insurance benefit if the insured person died). Almost always, the court will agree to allow the insurance company to withdraw from the interpleader lawsuit, and then the insurance company is removed from all liability under the life insurance policy. The parties who filed the competing life insurance claims, however, are left hauled into court beyond their control to deal with a lawsuit, and left scrambling to find an experienced attorney qualified to get involved quickly to handle their case (which again will involve attorneys’ fees reducing the life insurance benefit they are concerned about).
Interpleader actions can be filed by life insurance companies in either state or federal courts, and many times involve the following circumstances (though not always):
•- There is no beneficiary designation on file.
•- The insured person attempted to change the beneficiary designation on file, but due to an issue the change of beneficiary did not occur.
•- The insured person completed a change of beneficiary form prior to death, but never submitted the change of beneficiary form to the insurance company.
•- The beneficiary designation form on file with the insurance company does not reflect the intent of insured person at the time of death, and the insured person took steps to change the beneficiary of the policy but died before completing the process.
•- The insured person did not follow the rules under the life insurance policy to change the beneficiary under the policy, and thus the beneficiary was never changed or the change of beneficiary is disputed.
•- There is a problem with the beneficiary designation on file, or not able to be understood.
•- The insured person changed the beneficiary designation close in time to death, which caused concerns of undue influence, duress, and/or fraud involved – all of which could invalidate the change of beneficiary.
•- The insured person was divorced, but never changed the beneficiary designation following the divorce, and the ex-spouse was still listed.
•- The insured person was divorced, but the life insurance benefit was made a part of the final judgment of divorce or a separate settlement agreement, designating the life insurance benefit as property of the ex-spouse. But the insured person changed the beneficiary designation to someone other than the ex-spouse.
•- The insured person was murdered, and the listed beneficiary is a possible suspect. (There are “Slayer Statutes” in various states which prohibit the payment of life insurance proceeds to the named beneficiary if the person was responsible for the murder of the insured person).
Our law firm regularly gets involved early in life insurance claims when there are competing life insurance claims at issue. Our goal is to prevent an interpleader action from being filed, and for our client to receive the life insurance benefit to which they are entitled without having to go through a lawsuit and so they can promptly be in receipt of the life insurance proceeds and handle necessary affairs with the money. However, we likewise become involved only after an interpleader lawsuit has been commenced by an insurance company in court, and aggressively advocate for our client’s position and ensure our client’s interests and rights are protected. If you are facing a situation involving competing life insurance claims or an interpleader action over life insurance benefits, contact one of our experienced attorneys today for a free consultation.