I. Interpleader

• Library: The Law of Automobile Insurance in SC (SCBar) (2015 Ed.)

I. Interpleader

Interpleader is an equitable remedy designed to protect a holder of property or funds — but who does not own the property or funds being held and has no claims to them — to avoid multiple, inconsistent judgments and to relieve it of the obligation of determining which claimant is entitled to the fund.¹

"The historic and still the primary purpose of interpleader is to enable a neutral stakeholder, usually an insurance company or a bank, to shield itself from liability for paying over the stake to the wrong party."² Because they are remedial in nature, interpleader provisions are to be liberally construed so as best to effectuate their purposes.³ The right to interpleader depends merely upon the stakeholder's good faith fear of adverse claims. Therefore, a stakeholder needs to justify that interpleader is a good faith "real and reasonable fear of exposure to double liability or the vexation of conflicting claims."⁴

Interpleader in federal court arises from two sources: Rule 22 of the Federal Rules of Civil Procedure and the Federal Interpleader Act.

In comparison, South Carolina has no state law equivalent of the Federal Interpleader Act. Therefore, Rule 22 of the South Carolina Rules of Civil Procedure provides the basis for state court interpleader. Because South Carolina does not have a lot of state court interpleader case law, the South Carolina Supreme Court has stated that Rule 22(a) is substantially the same as its counterpart in the Federal Rules of Civil Procedure; therefore in the absence of prior state law on the issue in question, federal cases interpreting the rule are persuasive.⁵

A. Automobile Insurers and Interpleader

In the area of automobile insurance, interpleader is a potential remedy for an automobile insurance carrier faced with multiple and conflicting claims to its policy limits. When multiple lawsuits may be asserted against an insured and exhaustion of policy limits may occur, automobile insurers frequently interplead their policy limits and ask the court to allow them be discharged from all further liability; thus, the multiple claimants are left to fight among themselves as to their respective rights to the fund created by the policy limits placed in the court. Usually, the contesting claims in the automobile insurance context all arise from a single accident or occurrence, and the policy limits are inadequate considering the magnitude and number of claims.

The leading case on the use of interpleader when the policy limits are insufficient to satisfy the totality of claims is the United States Supreme Court decision in the case of State Farm Fire & Casualty Co. v. Tashire.⁶ In that case, the Court stated:

Considerations of judicial administration demonstrate the soundness of this view which, in any event, seems compelled by the language of the present statute, which is remedial and to be liberally construed. Were an insurance company required to await reduction of claims to judgment, the first claimant to obtain such a judgment or to negotiate a settlement might appropriate all or a disproportionate slice of the fund before his fellow claimants were able to establish their claims. The difficulties such a race to judgment for the insurer, and the unfairness which may result to some claimants, were among the principal evils the interpleader device was intended to remedy.⁷

As the Tashire case demonstrates, multiple claims need not have been reduced to final judgment before an interpleader is appropriate. Insurers attempting to avoid the threat of multiple and vexatious lawsuits, as well as the very real fear of multiple liability or bad faith exposure, usually file their interpleader actions as soon as they become aware that their policy fund will be exhausted because of the number and size of claims or potential claims. Counsel representing claimants to the fund must be prepared to handle the issues and procedure associated with interpleader actions and either defeat the interpleader when appropriate or enhance their share of the proceeds.

B. Federal Court Actions: "Rule" and "Statutory" Interpleader

Federal court has two types of interpleader practice: (1) interpleader under Rule 22 of the Federal Rules of Civil Procedure ("rule interpleader") and (2) interpleader under the Federal Interpleader Act, 28 U.S.C. § 1335, which is referenced in Federal Rule 22(b) ("statutory interpleader").

The general trend among federal courts interpreting interpleader has been "toward increasing the availability of interpleader and eliminating those technical restraints on the device that are not founded on adequate policy considerations."⁸ In that regard, federal courts have granted interpleader remedies liberally and have banished any harsh interpretation of "neutral" that might logically exclude most parties, such as banks and insurance companies: "It is no longer required that . . . the interpleading party be a wholly neutral stakeholder."⁹

Instead, federal courts require the stakeholder to be an "innocent stakeholder," meaning the stakeholder did not cause the underlying dispute.¹⁰ In other words, the party seeking interpleader should not have been at fault in causing the dispute underlying the insurance proceeds.¹¹

1. Federal "Rule Interpleader"

Rule 22 is the basis for federal rule interpleader:

(a) Grounds.

(1) By a Plaintiff. Persons with claims that may expose a plaintiff to double or multiple liability may be joined as defendants and required to interplead. Joinder for interpleader is proper even though:

(A) the claims of the several claimants, or the titles on which their claims depend, lack a common origin or are adverse and independent rather than identical; or
(B) the plaintiff denies liability in whole or in part to any or all of the claimants.

(2) By a Defendant. A defendant exposed to similar liability may seek interpleader through a crossclaim or counterclaim.

(b) Relation to other rules and statutes. This rule supplements — and does not limit — the joinder of parties allowed by Rule 20. The remedy this rule provides is in addition to — and does not supersede or limit — the remedy provided by 28 U.S.C. §§ 1335, 1397, and 2361. An action under those statutes must be conducted under these rules.

Fed. R. Civ. P. 22.

Also, for "rule" interpleader under Rule 22(a), an independent basis for federal jurisdiction must exist apart from the interpleader.¹² Therefore, the plaintiff must assert a federal question or diversity jurisdiction. Because federal questions are rare in interpleader actions, most plaintiffs must show diversity of citizenship.¹³ Therefore, to obtain diversity jurisdiction, the plaintiff stakeholder must be of diverse citizenship from all claimants and¹⁴ the amount in controversy must exceed $75,000 exclusive of interest and costs, and necessarily, the plaintiff's citizenship must be diverse as to all of the defendants.¹⁵ In Allstate Insurance Co. v. McNeil, the Fourth Circuit Court of Appeals held that the insured was not an adverse claimant, since he asserted no claim to the insurance proceeds.¹⁶ Accordingly, the insured was not required to be joined as a necessary party.¹⁷

Under Rule 22 interpleader in the federal courts, service of process is governed by the provisions of Rule 4 of the Federal Rules of Civil Procedure. This means that (as opposed to statutory interpleader) the nationwide service of process provisions are not available, as will be discussed below.

Still another consideration affecting the use of Rule 22 interpleader in the federal courts is that a deposit or bond for the amount interpleaded is not required under a rule interpleader. It is, however, required under statutory interpleader. As a matter of practice, the court may still require deposit of the funds.¹⁸ In situations involving multiple claims exceeding the policy limits, the deposit would normally be in the amount of the policy limits. A credit on the bond can be given for prior good faith settlements.¹⁹

Two or more adverse claimants are always required, whether proceeding under rule interpleader or statutory interpleader.²⁰

Parties making use of either the Federal Rule 22...