Ideally, the death benefit on a life insurance policy is paid directly from the insurance company to the named beneficiary or beneficiaries. However, disputes frequently arise over who is rightfully entitled to the death benefit. One claimant might allege that the other claimant changed the insured’s beneficiary designation through forged paperwork, or that the named beneficiary is invalid because he or she was responsible for the insured’s death. When multiple parties claim the same death benefit, an insurance company may choose to file an interpleader action.
“Interpleader” refers to a specific type of lawsuit. Instead of a single claimant suing a single stakeholder, interpleader involves multiple claimants suing one another for rights to the stakeholder’s property. For instance, let’s say that John owned a house. In his will, John dedicated the property to his daughter, Kate, but John also verbally agreed to give the house to his son, Ben. After John dies, the executor of his estate doesn’t know to whom he should give the house. The executor then files an interpleader action, such that Kate and Ben are now litigating against one another for rights to John’s house. This allows the executor to avoid any liability resulting from paying the wrong person.
Similarly, life insurance companies may encounter multiple parties who all claim the same death benefit. The company may choose to file an interpleader action, such that the claimants are fighting against one another instead of against the company. The company is acknowledging it owes the benefit to someone but requests that the court determine the correct party.
Court costs & attorney fees
Generally speaking, when a “neutral stakeholder” such as a life insurance company asks for reimbursement of any court/attorney fees, the court will grant reimbursement by taking from the winning claimant’s death benefit. If a winning interpleader claimant were to receive a $10,000 death benefit, the insurance company (as neutral stakeholder) could subtract $500 in attorney and court fees, leaving $9,500 to the winning claimant. These fees are usually insignificant, as the stakeholder is only filing, drafting, and serving a few documents. However, in a more complex case, the costs may be substantial.
Dealing with competing claims for a life insurance policy’s death benefit can be a complex, heavily litigated process. If your claim has been wrongfully denied, don’t hesitate to contact an experienced life insurance lawyer.