Inter-pleader Actions

Life insurance lawyers need to read this 5th Circuit opinion.  The case is styled, Jackson National Life Insurance Company v. Lance Dobbins, et al.

Inter-pleaders are cases where the insurance company knows they owe life insurance proceeds to someone but they are unsure who to pay because there are competing claims to the funds.  As a result the insurance company files a lawsuit asking the court to distribute the funds and as part of this process the insurance company asks that money be withheld to compensate them for the costs and attorney fees associated with filing the inter-pleader.

Generally stated, the purpose of an inter-pleader action is to protect a stakeholder from liability when faced with the threat of multiple inconsistent claims to a single fund.  It does this by allowing the stakeholder to tender the contested funds to the court in lieu of defending against multiple possible lawsuits.  An inter-pleader action allows the stakeholder to pay the money in dispute into court, withdraw from the proceedings, and leave the claimants to litigate between themselves their entitlement to the funds.

In the Jackson case, Dobbins and other business entities were seeking proceeds from the $1 million policy at issue.  Dobbins and these other entities did not oppose the money being filed into the court but they did protest Jackson seeking to recover it’s costs and attorney fees.

The court has broad powers in an inter-pleader action.  Inter-pleader actions are decided through two stages.  First, the court determines whether the requirements for an inter-pleader action have been met by deciding if there is a single fund at issue and whether there is a single fund at issue and whether there are adverse claimants to that fund.  Second, if the court determines that the requirements for inter-pleader are met, the court determines the rights of the claimants.

The court allowed the funds to be inter-pled into the court and allowed Jackson to be dismissed from the case.  In deciding the request of Jackson to recover it’s costs and attorney fees, the court is to examine the following: 1) whether the case is simple; 2) whether the inter-pleader insurance company performed any unique services for the claimants or the court; 3) whether the inter-pleader acted in good faith and with diligence; 4) whether the services rendered benefited the inter-pleader; 5) whether the claimants improperly protracted the proceedings.

In this case, the court ruled in favor of Jackson.  The case is good reading to understand what the courts are suppose to be looking at when deciding whether or not to allow the insurance company to withhold monies to compensate for costs and attorney fees.

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