Typically, receiving a life insurance benefit is a straightforward process: when the insured dies, the life insurance company pays the policy proceeds to the named beneficiary. In reality, however, circumstances surrounding the payout can become very complicated. One of the most common issues leading to a delayed claim is a dispute between claimants. This occurs when two or more people claim they are entitled to the same life insurance benefit.
Definition: What Is an Interpleader Action and How Does It Work?
An interpleader is a civil lawsuit that a life insurance company (the neutral stakeholder) initiates if it faces competing life insurance claims from different individuals who each claim to be the rightful beneficiary of a life insurance policy.
The life insurance company in these cases is a neutral party. It does not always decide who the payout should go to and prefers to allow the competing claimants to settle the dispute amicably. If the parties come to an agreement, the insurance company will make a payment according to the terms of this agreement.
If, however, after a reasonable time passes and the parties are unable to split the proceeds amicably, the insurance company will file a lawsuit called an interpleader. This is done mainly to avoid the insurance company being sued by one of the parties who disagrees with the distribution.
Since the insurance company’s main objective is to not get sued for wrongful distribution of the proceeds, it deposits the life insurance proceeds with the court’s escrow account and withdraws from the lawsuit. The disputing parties are then left to resolve their conflict in court. The death benefit will be paid out once a settlement is reached or the litigation is finalized.
Common Interpleader Examples
There are many cases in which life insurance companies file an interpleader. Below are the most common situations our life insurance attorneys have handled over the years:
When a couple divorces, life insurance policies often become part of the property settlement agreement. For example, an ex-husband agrees during divorce to maintain his life insurance policy for the benefit of his minor children and ex-wife. When the divorce is finalized, he changes the beneficiary to his parents. After his death, his parents, his ex-spouse and children have competing claims for the same policy. The life insurance company will file an interpleader to allow the court to decide who should be receiving the payout.
Another common scenario where an interpleader is likely to be filed is when state laws automatically revoke an ex-spouse as a life insurance beneficiary. If an ex-spouse is revoked, the life insurance benefit is usually distributed to the insured’s estate or the next of kin. An ex-spouse who decides to dispute automatic revocation may file a beneficiary contest which will result in an interpleader action being initiated.
Invalid or Suspicious Beneficiary Change
Last minute beneficiary changes often raise red flags, especially if the insured is mentally incapacitated, incompetent to read and sign documents at the time the change is made. Such changes look suspicious and insurance companies are reluctant to make a payment to the new beneficiary if there are contesting parties alleging wrongdoing. An insurance company is more likely to file an interpleader than to be forced to decide who should receive the payout.
If you’re in a similar situation, we can help. Our lawyers have dealt with many cases involving suspicious beneficiary changes. This is an example of how we have reached a settlement agreement in an interpleader filed for this very reason.
Our lawyers explained more about invalid beneficiary changes in our blog post about contesting beneficiary designation.
No Named Beneficiary
If there is no beneficiary listed on the life insurance policy at the time of the insured’s death and two or more people claim the same benefit, an interpleader will be filed unless the parties agree to settle their dispute amicably prior to litigation.
For example, the administrator of the deceased insured’s estate may want the policy to be paid to the estate, while the insured’s children or ex-spouse may claim that they are the rightful recipients. Since these cases are complex, the insurance company will prefer to file a lawsuit rather than make a decision on the validity of the parties’ claims.
Our lawyers talk about such cases in our blog post about what happens when the beneficiary of a life insurance policy dies.
Murder-suicide life insurance disputes occur when a beneficiary on a life insurance policy kills the insured and then commits suicide. These tragic cases are rare, but when they do occur, they present a real problem in terms of who receives the life insurance payout.
Under the Slayer Rule, if a beneficiary of a life insurance policy is under investigation for the murder of the insured or has been charged with the murder of the insured, the life insurance company often will not pay the death benefits until issues related to the beneficiary’s alleged involvement in the murder are resolved. If the beneficiary is the killer of the insured, the life insurance company will not pay to the estate of the beneficiary and the estate of the deceased insured passes as if the killer had predeceased the insured.
You can read more about such cases in our article about denied life insurance claims due to murder and suicide.
ERISA is a federal law that controls many group life insurance policies. ERISA trumps conflicting state laws. When someone is named a beneficiary on an ERISA life insurance policy, that person has the right to receive the proceeds even if state laws automatically revoke the beneficiary or otherwise prevent them from collecting the benefit. Since there are many exceptions to this general rule, ERISA policies often become subject to interpleaders when there are several competing claimants.
We have years of experience in handling ERISA claims, ERISA appeals as well as ERISA lawsuits. Here, you can read about one of our interpleader cases where we recovered $1.1 million for our client whose ERISA claim was disputed.
Whether you find yourself in any of these situations or think you may be a party to an interpleader action, consult with an experienced interpleader attorney. Call 888-510-2212 to speak with one of our life insurance attorneys free of charge.
What To Do If You Receive an Interpleader Complaint?
If you have been served with an interpleader complaint, you need to act fast. Once the action is initiated, you are subject to court filing deadlines. You have a certain number of days to answer the complaint. Failure to do so could lead to a default and you losing your claim without even making an appearance.
You need to hire an experienced life insurance attorney as soon as possible or even before an interpleader is filed. Interpleader attorneys at our firm have the experience you need to file a proper response in a timely manner and protect your life insurance beneficiary rights.
What Fees Do Attorneys Charge for Handling Interpleaders?
Our life insurance lawyers work on a contingent fee basis. This means that we do not get paid unless and until you recover your policy proceeds. Only then will we charge a reasonable legal fee. We take pride in offering competitive contingent fee structures and will work with you to ensure you are comfortable with the fee.
If you think there may be a competing claim to your life insurance proceeds or if you suspect the change in beneficiary designation was obtained through fraud or undue influence, call us at 888-510-2212 for a free consultation.