Chapter §22.7 Significant Authorities

JurisdictionWashington

§22.7 SIGNIFICANT AUTHORITIES

The following authorities address the application of interpleader in specific contexts.

(1)Insurance

An interpleader action may adjudicate rights to proceeds from insurance policies. Aetna U.S. Healthcare v. Higgs, 962 F. Supp. 1412 (D. Kan. 1997). It is not necessary that the claimants reduce their claims to judgments, but an insurer cannot use interpleader as an all-purpose "bill of peace" when there are claims arising from a mass tort. State Farm & Cas. Co. v. Tashire, 386 U.S. 523, 535-37, 87 S. Ct. 1199, 18 L. Ed. 2d 270 (1967). Insurers may, and commonly do, use interpleader in life insurance cases by interpleading the named beneficiary and, as an adverse claimant, a creditor with claims on the policy or a person claiming as equitable beneficiary. Minn. Mut. Life Ins. Co. v. Ensley, 174 F.3d 977 (9th Cir. 1999).

Although an alleged tortfeasor cannot initiate an interpleader action against all potential claimants, the liability insurer may do so if the insurance coverage is not sufficient to satisfy all the potential claims against the insured, even though not all claims have been reduced to judgment. Underwriters at Lloyd's v. Nichols, 363 F.2d 357 (8th Cir. 1966). This does not mean that the interpleader action necessarily relieves the tortfeasor of further litigation or relieves his or her insurer of its duty to defend. See Tashire, 386 U.S. at 534-35.

A holder of a finite fund may use interpleader to determine rights of claimants with claims having the potential to exhaust the fund. Great Am. Ins. Co. v. Spraycraft, Inc., 844 F Supp. 1188 (S.D. Ohio 1994). The Spraycraft court applied New York law, which recognizes a "first in time, first in right" principle in equity to determine priority of distribution.

When litigation involves a single insurance company plaintiff, a distinct period of time, an identifiable set of claimants, and a single source of liability, interpleader will not be denied on the basis that there is not a "single fund." Thus, the court refused to dismiss an action brought as a statutory interpleader suit under 28 U.S.C. §1335 and involving multiple claims to the proceeds of multiple professional liability insurance policies. Progressive Cas. Ins. Co. v. Belmont Bancorp, 199 F.R.D. 219,228 (S.D. Ohio 2001) (this case also involves an interesting analysis of joinder and indispensable parties to an interpleader action).

One commentator has suggested, without supplying a supporting decision, that because interpleader has its roots in equity, it is subject to the equitable defense of laches, so that an interpleader action would be dismissed if an insurer inexcusably delays in asserting a right of claim, resulting in undue prejudice to its insureds or other claimants under the policy. 20 John A. Appleman & Jean Appleman, Insurance Law and Practice §11312 (1980 & Supp. 2002). An insurer that unreasonably delays filing an interpleader action relating to the proceeds of a life insurance policy may be liable to pay interest on the policy proceeds. Messinger v. N.Y. Life Ins. Co., 20 Wn.App. 790, 581 P.2d 1381 (1978).

An insurer sued by an alleged beneficiary for the face value of life insurance policies was authorized by statute to set up, by way of equitable defense, a bill of interpleader against a plaintiff and others allegedly claiming proceeds of the policies and be dismissed from the suit. Aetna U.S. Healthcare, 962 F. Supp. 1412. The same is true of an insurer acting as an ERISA fiduciary. Interpleader is recognized as a "valuable procedural device for ERISA plans who are confronted with conflicting multiple claims upon the proceeds of an individual's benefit plan." Trs. ofDirs. Guild of Am. v. Tise, 234 F.3d 415, 426 (citing Aetna Life Ins. Co. v. Bayona, 223 F.3d 1030 (9th Cir. 2000)), amended on denial ofreh'g, 255 F.3d 661 (9th Cir. 2000).

When an insurer seeks to obtain dismissal through interpleader and the outstanding claims exceed policy limits, the insurer must supply at least the full policy amount to the court. Under such circumstances, the insurer has both the right to bring an interpleader action and the right to be free of multiple suits. Therefore, the insurer should be entitled to maintain an interpleader action against potential claimants even when the insured denies liability. In such a case, it has also been held that the insurer did not have to wait until all claims had been reduced to judgment before bringing a federal statutory interpleader claim, particularly when the total of such claims clearly exceeded available policy limits. Am. Family Mut. Ins. Co. v. Roche, 830 F. Supp. 1241 (E.D. Wis. 1993).

If it appears that the insurer's real motive in bringing an interpleader action is to avoid its contractual duty to defend its insured, the court should not allow interpleader. Under Washington law, the duty of an insurer to defend is broader than the duty to indemnify. Truck Ins. Exch. v. Vanport Homes, Inc., 147 Wn.2d 751, 760, 58 P.3d 276 (2002) (citing Hayden v. Mut. of Enumclaw Ins. Co., 141 Wn.2d 55, 64, 1 P.3d 1167 (2000)). It therefore is questionable whether an insurer would be permitted to bring an interpleader action while the underlying claims remain undecided, particularly when the insured denies liability and the insurer has assumed the insured's defense or is obligated to do so by the terms of its policy. Filing an interpleader action does not negate an insurer's obligation to provide or to pay for the insured's defense. Farmers Ins. Co. of Wash. v. Romas, 88 Wn.App. 801, 808, 947 P.2d 754 (1997), review denied, 135 Wn.2d 1007 (1998).

Practice Tip: A disinterested stakeholder insurance carrier may want to interplead and join all the interested parties but not request dismissal (and presumably, retain possession of the funds) if the case is likely to involve issues on appeal that may have a significant effect on the insurer's business in the state of Washington. For example an annuity company may want to submit a brief on a perceived unsettled area of community property law. See Harris v Harris, 60 Wn.App. 389, 804 P.2d 1277, review denied, 116 Wn.2d 1025 (1991).

The claims of the interpleaded defendants need not have a common origin, nor need they be identical to each other. N.Y. Life Ins. Co. v. Lee, 232 F.2d 811 (9th Cir. 1956). Alife insurer's legitimate fear of multiple liability on competing claims to policy proceeds by a deceased's first and second wives made interpleader action appropriate. Traveler's Ins. Co. v. Johnson, 579 F. Supp. 1457 (D.N.J. 1984). An insurer may deposit policy proceeds and obtain dismissal when the primary beneficiary to a policy of life insurance may potentially have murdered the insured, so that the insurer might later face multiple claims from contingent beneficiaries. Aetna U.S. Healthcare, 962 F. Supp. 1412.

The court should deny interpleader by a liability insurer if the total claims do not exceed the policy limits. Joseph F. Hughes & Co. v. Harry S. Mickey, Inc., 211 F. Supp. 298 (D. Md. 1962). An insurer can bring an interpleader action against potential claimants of its insured even when the claims have not been reduced to judgments. Underwriters at Lloyd's, 363 F.2d 357.

The right to interplead is based on the stakeholder's good faith fear of adverse claims, regardless of the merits of those claims. Union Cent. Life Ins. Co. v. Hamilton Steel Prods., Inc., 448 F.2d 501, 504 (7th Cir. 1971).

(2)Garnishment

Garnishees often use interpleader when more than one person claims the funds at issue. Smith v. Dement Bros., 100 Wash. 139, 170 P. 555 (1918). Failure to bring an interpleader action may result in the garnishee's liability for two or more payments. RCW 6.27.200. The garnishee mustbringthe interpleader action promptly, however, because once a creditor obtains a judgment, the garnishee will have to begin proceedings to set it aside, and attempts to interplead other claimants will constitute a collateral attack on the garnishment judgment.

In Mosher v. Bruhn, 15 Wash. 332, 46 P. 397 (1896), a complaint for interpleader based on garnishment was sufficient when it alleged that the plaintiff was indebted to a firm, two creditors of the firm had garnished the plaintiff, one creditor had obtained a judgment against the plaintiff, the other creditor alleged the judgment was void, and the plaintiff was willing to pay the money to whichever creditor established a superior claim. Mosher, 15 Wash. 332.

(3)Funds in escrow

Escrow holders can use interpleader as an important tool to determine who, as between specific devisees or residuary legatees and devisees or executors, should receive purchase money held after the death of the testator. Wash. Escrow Co. v. McKinnon, 40 Wn.2d 432, 243P.2d1044 (1952). They also can use interpleader to determine who is entitled to earnest money on an uncompleted sale when there is a dispute between the buyer and seller regarding the reasons for failure of the sale. Koncicky v. Sekac, 103 Wn.App. 292, 298, 12P.3d645 (2000), review denied, 143 Wn.2d 1021 (2001).

(4)IRS tax liens

The Washington Supreme Court has prevented the Internal Revenue Service from recovering interest accrued during an interpleader proceeding on interpleaded funds, but permitted the IRS to seek recovery of interest directly from the debtor. Wash. Irrig. & Dev. Co. v. United States, 110 Wn.2d 288, 751P.2d1178 (1988).

If a federal case satisfies the interpleader requirements of FED. R. CIV. P. 22, the United States as a party "is not entitled to sovereign immunity as to the interpleader action." Pub. Sch. Ret. Sys. of Mo. v. United States, 221 F.R.D. 502,503 n. 1 (WD. Mo. 2005) ("[United States] may be named a party in any civil action ... of interpleader or in the nature of interpleader with respect to real or personal property on which [United States] has or claims a mortgage or other lien." (quoting 28...

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