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.
In the recent case of McCravy v. Metropolitan Life Insurance Company, 690 F.3d 176 (4th Cir. 2012), the Fourth Circuit Court of Appeals determined that a return of life insurance premiums to Mrs. McCravy after her daughter's death was insufficient where Mrs. McCravy continued to pay premiums through the date of her daughter's death with the understanding that there was continued life insurance coverage for her daughter. The Court ruled that under these circumstances, Mrs. McCravy was entitled to pursue her claims for the full life insurance benefit promised to her under the life insurance policies that she paid continued premiums for until her daughter's death.
Stories about unfair and what can often be described as despicable behavior by insurance companies are not all that uncommon. A recent segment on the CBS news show 60 Minutes, titled "Not Paid", exposed the unethical practice of many life insurance companies in which they purposely fail to contact life insurance beneficiaries in order to avoid paying them the life insurance benefits to which they are entitled. Go to http://www.cbsnews.com/news/60-minutes-life-insurance-investigation-lesley-stahl/ for the full story. As part of a settlement, approximately 25 life insurance companies, including well-known companies like MetLife and Prudential, agreed to pay more than $7.5 billion dollars in back death benefits. More than 35 other life insurance companies have not settled and remain under investigation. In many of these cases, the beneficiary was unaware they were named in the policy and entitled to benefits. While many of the unpaid benefits were in the $10,000.00 range (although there were several very large payouts that were not made) this was money the deceased purposely left to a loved one, family member, or friend and most certainly would have been of some benefit to the intended beneficiary. By paying the premiums on the policy the insured relied on their insurance company to do the right thing and contact the beneficiary upon notice of death. In these cases, the insurance company made no effort to locate the beneficiary; and instead chose to keep the funds. Unfortunately, this type of behavior is not atypical for many insurance companies whose actions strongly suggest that their own bottom line is more important than the rights of the insureds to whom they collected premiums and made promises.
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.
Many individuals purchase life insurance policies to ensure that their loved ones are protected and provided for in the event that they are unable to do so as the result of an untimely death. Following the loss of a loved one who may also be a financial provider, a beneficiary can suffer another financially devastating problem - their loved one's life insurance company may deny or dispute payment of their life insurance claim. The most unfortunate part of life insurance law disputes is that they affect people when they are going through one of the most difficult and stressful times of their lives.