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What Is A Life Insurance Interpleader Action (2024)?

Life Insurance Interpleader 2023. Photo of front of Federal Court building.
Has a process server served you with a Complaint for Interpleader? If so, that is good news and bad news. The good news is that you are a party because someone may owe you a large sum of money. The bad news, you have to make your claim in court. As a party to a life insurance interpleader action, you need to assert your rights in court. That means getting an experienced attorney on your side. Let us be your advocate.

Introduction to Life Insurance Interpleader

A life insurance interpleader case is unlike a typical lawsuit in which a plaintiff sues a defendant. It often involves life insurance. Life insurance interpleaders arise when people have competing claims for life insurance proceeds. In other words, there is a dispute over who is the proper beneficiary of a life insurance policy. The life insurance company doesn’t want to make a mistake. It doesn’t want to pay one person and then get sued, having to pay the proceeds a second time.
To avoid this, the life insurance company will file an interpleader action. The company forces all possible claimants to fight in court over who gets the money. That way, it avoids possible liability of giving the life insurance money to the wrong person.
When the insurer files an interpleader, it deposits the money into the registry of the court. Then the insurer files an interpleader action. That forces the claimants to work out their claims in court. That way, it will be up to the court system to determine who gets the money. In essence, the insurance company puts up the money, wipes its hands, and walks away. 

What Should You Do Once You Have Been Served

 First, contact an experienced life insurance attorney to discuss your options. Assume that the other persons claiming the life insurance proceeds will have attorneys. If you are entitled to the life insurance proceeds, then you need to assert your claim in court or you’ll risk losing it. 
You will need to act fast. You only have 21 days to file your response if the interpleader has been filed in a federal court. Failure to provide a timely response could lead to default. That means you lose your claim without even making an appearance in the case. 

Federal or State Jurisdiction

An interpleader action can be in federal court if there is subject matter jurisdiction. Subject matter jurisdiction requires one of two things. Either there is a federal question, i.e. the case involves a federal law. Or the parties have diverse citizenships.
If an employer issued the life insurance policy, then there will probably be federal question jurisdiction. That’s because ERISA governs employer-sponsored benefits. There are also life insurance benefit programs for federal government workers. Those are also subject to federal question jurisdiction.
Diversity jurisdiction requires two things. It applies when the claim’s value exceeds $75,000.00 and the parties are citizens of different states.
Insurance carriers tend to prefer to file interpleader actions in federal court.

How Do You Make Competing Claims? 

An insurer files an interpleader when there are competing claims for life insurance proceeds or to other property. To make a claim, you will need to file an answer to the interpleader action. It is also common to file a cross-claim against other claimants named in the complaint.  
It is common for the insurer that filed the interpleader to seek leave of court to be dismissed from the case. The insurer normally claims that they fulfilled their duty by depositing the funds into the registry of the court. The insurer doesn’t want to be involved beyond that. But, sometimes the claimants may have separate claims against the insurance company. For instance, the insurance company knew a person is the rightful beneficiary, but it filed an interpleader action anyways. In that case, the insurance company may be liable under a variety of prompt payment and bad faith claim handling laws. The court could force the insurer to pay for penalties and attorney’s fees.
Once you have filed a response, you will have the opportunity to gather evidence. This includes hiring experts and taking depositions. After you have the evidence you need, you proceed to trial to prove that you are entitled to the life insurance proceeds
There are many different case types that we tend to see more often with life insurance interpleaders:

First: Lack of Capacity to Change Beneficiary 

If a person lacked the mental capacity to change the beneficiary, the court can unwind the change. That happens when the person didn’t understand that he or she was making the change.
Also, if the person changed the beneficiary because of undue influence, force, or duress, the change can be unwound. In these types of cases, objective medical evidence that the insured lacked capacity helps challenge the change. In these situations, there are often nefarious actors with past history of wrongdoing involved with the insured. We have worked on many cases where a former felon released from prison becomes the insured’s caretaker. These cases can be difficult to prove. They often rely on a combination of medical evidence and testimony to invalidate a beneficiary change

Second: Divorce

Many states will void an ex-spouse’s interest as a life insurance beneficiary in the event of divorce. Of course, there are many other exceptions to this rule. For instance, sometimes a property separation agreement will stipulate that a spouse is entitled to certain insurance benefits. Other times, the insured may list or re-inscribe the ex-spouse after the divorce. 

Third: ERISA Preemption

Most states will invalidate an ex-spouse’s beneficiary designation. But, under ERISA policies, the insured must change the beneficiary. If they do not, then the ex-spouse may be entitled to life insurance benefits. 

Fourth: Homicide 

Most states have “slayer statutes” on the books. Such a statute prohibits someone from getting life insurance money if they killed the insured. The insurance carrier will often start an interpleader action if there is a chance the primary beneficiary committed murder. This way, the insurer avoids the risk of double liability exposure. 

The First Thing To Do Is Hire A Lawyer

An experienced lawyer will help you understand how the law works and what options are available to you. They will also advise you on whether you have a legitimate claim to the insurance money.

Let Us Fight For Your Right To The Life Insurance Money

If you are a party to an interpleader action, you should act fast. You must file responsive pleadings within a certain time frame. Another claimant will likely oppose your claim. That’s why we recommend that you contact an experienced life insurance attorney to discuss your case.
Your interpleader case was probably filed in a federal court. That means wherever you are in the U.S., we can help you. Attorney Paul Deloughery has extensive experience in the area of life insurance interpleader. Act now to get us on your side.
Schedule a Strategy Session to discuss if we can take your case. Or just call us at 602-443-4888. We’re here to help fight for your money.


Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.