Life Insurance And Interpleaders

Dallas life insurance attorneys will encounter situations where the funds to be recovered from a life insurance policy are “inter-plead” into a court. A Texas Supreme Court opinion issued in 2007, is a must read for lawyers handling interpleader cases. The style of the case is, State Farm Life Insurance Company v. Toni Wasson Martinez.
It has long been the rule in Texas that if an insurer promptly interpleads policy proceeds, it cannot be subjected to statutory penalties for delayed payment even if it missed the statutory deadlines.
After 13 years of marriage, Ed and Linda Martinez divorced in 1994. In their Agreement Incident to Divorce, Ed agreed to pay Linda contractual alimony of $5,000 per month for ten years, with his estate to continue paying if he died earlier. Ed also agreed to name Linda as irrevocable beneficiary on three life insurance policies, providing that he could drop those policies or change beneficiaries so long as the unpaid alimony amount was covered.
The policy at issue here is a $500,000 policy issued by State Farm. Beginning in 1994, this policy listed as beneficiary “Linda Martinez, 41, ex-wife, in accordance with divorce decree dated 09-15-94.” On August 1, 2002, shortly before he died, Ed signed a State Farm “Change of Beneficiary” form naming Toni, his current wife, as beneficiary. State Farm refused to process the request, returning it on August 16th with a request for proof that the change complied with the divorce agreement.
Ed died on August 25th — 24 days after signing his request, and before acting on State Farm’s response. Within three weeks, State Farm received three conflicting claims to the policy proceeds: (1) from Ed’s daughter (Lisa) on September 2nd; (2) from his ex-wife (Linda) on September 5th; and (3) from his surviving spouse (Toni) on September 10th. Toni sued State Farm on November 20th. Two days later State Farm filed this interpleader, depositing $506,061 in the court’s registry.
Lisa (Ed’s daughter and successor beneficiary on the policy) and Toni filed cross-motions for summary judgment seeking the proceeds. During the summary judgment hearing in February 2003, after the trial judge indicated Toni could not get the policy proceeds without a constructive trust imposed to secure Linda’s alimony, Linda and Toni agreed to precisely that. Thereafter, the trial court granted Toni’s summary judgment and denied Lisa’s; the final judgment ordered State Farm to pay all the policy proceeds to Toni with $70,000 to be held in trust and paid $5,000 per month to Toni if Ed’s estate continued to pay the balance of Linda’s alimony.
But the case was not over. Toni claimed State Farm violated the Texas prompt payment of claims statute by failing to pay her within 60 days, thus entitling her to penalty interest of 18 percent and attorney’s fees.
State Farm received Toni’s claim on September 11th, so the 60‑day period elapsed on November 10th. State Farm interpleaded the funds 12 days later.
State Farm also argued that the prompt payment statute does not apply when rival claims require an insurer to file an interpleader. This is where the case needs to be read in order to understand the reasoning the court used in reaching their decision.
In this case, the court ultimately ruled that State Farm did not owe prejudgment interest, penalty interest, or attorney fees after State Farm filed the interpleader.

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