Many times, an interpleader action is pursued by a life insurance company after two or more individuals file a competing life insurance claims for the same death benefit that is only required to be paid once under a life insurance policy. A life insurance company usually pursues an interpleader action in court by initiating a lawsuit as a plaintiff, whereby it sues all individuals who may have a claim to the life insurance benefit at issue as defendants to the lawsuit, and lets the claimants litigate who is entitled to the money at issue. The court then decides which claimant prevails, which has the effect of the insurance company avoiding a risk of double liability to more than one claimant.
However, if a life insurance company is sued first by one of the competing claimants, the insurance company still has a right to initiate an interpleader action as a defendant to the lawsuit by way of either a crossclaim and/or counterclaim. A crossclaim is where a defendant asserts a claim against another defendant to a lawsuit (here, there could possibly be another defendant sued by the plaintiff in addition to the insurance company, likely a rival claimant that the plaintiff asserts does not have a right to the life insurance benefit at issue and is wrongfully interfering with his/her contractual right to the life insurance benefit). A counterclaim is where a defendant asserts a claim against the plaintiff filing the lawsuit (here, the plaintiff is usually one of the competing claimants asserting that he/she is the rightful beneficiary of the life insurance benefit which the insurance company has wrongfully failed to pay to him/her in a timely manner).
When pursuing the interpleader action, the insurance company typically claims to the court that it has no interest in the life insurance benefit, it is ready and willing to pay the benefit, but it is unable to determine who is the rightful beneficiary of the benefit at issue given the competing life insurance claims. At the time the interpleader action is pursued and granted by a court, the funds in dispute are deposited into the court’s registry. After the court has decided the rightful beneficiary of the moneys, the court orders the funds be paid from the court registry accordingly.
Thus, no matter if the insurance company is on the offense in filing the interpleader action in court, or if the insurance company is sued by you or a rival claimant and defends the lawsuit by asserting an interpleader action – the effect is largely the same. Insurance companies are likely to put a freeze on a life insurance benefit and refuse to release the funds and instead commence an interpleader action when two or more individuals assert claims to the same life insurance benefit.
If you are facing a situation where competing claims have been filed for a life insurance benefit that you believe you are entitled to, or you are facing an interpleader action by your insurance company, contact one of our experienced attorneys today. At Disability Insurance Law Group our attorneys have handled numerous interpleader actions, as well as pre-litigation matters involving life insurance and annuity contract disputes.