Saturday, September 14, 2013

Putative Slayer Must Pony Up for Insurer's Interpleader Fees

Farmers New World Life Insurance Co. v. Rees., No B241099 (Aug. 30, 2013)

In an interpleader case involving insurance proceeds, the insurance company is entitled to recover its fees incurred in bringing the action from the interpleaded res. 

Defendant Frank’s wife, Rosamaria, was shot and killed out front of her house while on her way to pick up Frank from a Gamblers Anonymous meeting. Rosamaria was insured to $150,000 with plaintiff Farmers. Frank was the beneficiary. (A footnote explains that there was a second $250,000 policy with another carrier on which Frank was also the beneficiary.) Rosamaria died intestate, but was survived by her mother, who would be next in the line of succession were Frank to be barred from inheritance by virtue of the slayer rule. See Probate Code, § 252.

For several months, the police repeatedly refused to rule out Frank as a suspect in Rosamaria’s death.* When Frank tried to collect on the policy, Farmers refused to pay out pending the police investigation. After Frank hired counsel and began to agitate for the payment, Farmers filed an interpleader action, naming Frank and Rosamaria’s intestate estate as the potential defendants and deposited $154,587 with the clerk. Frank cross-claimed against Farmers for bad faith and against Rosamaria’s mother for dec relief. Farmers then amended its complaint to add Rosamaria’s mother as a defendant. Rosamaria’s mother subsequently defaulted, and the court entered a default judgment in Frank’s favor.

Farmers demanded about $8,000 in attorneys’ fees out of the res under Code of Civil Procedure § 386.6, which gives the court discretion to award fees in an interpleader action. Frank opposed, arguing that the interpleader action was entirely unnecessary because there was never a viable conflicting claim to the res. The court overruled the objection, awarded fees, and released balance of the funds to Frank. Frank appealed.

The court of appeal explained that, under the structure of the interpleader statute, an interpleader plaintiff must plead a reasonable probability of double vexation—i.e, that multiple defendants will stake a claim on the same res. Once that threshold is met, the potential defendants are required to interplead and litigate their claims under Code of Civil Procedure § 386. To satisfy the first step, there do not need to be two actual conflicting claims, just a reasonable probability of them. Thus, given that Farmers had a reasonable anticipation that the benefits would be disputed under the slayer rule, the fact that Rosamaria’s mother eventually defaulted did not mean that the funds were never “in dispute” as required by the interpleader fee statute, Code of Civil Procedure § 386.6. Fees were thus properly awarded.

The court further rejected Frank’s argument that the Insurance Code precluded any risk of double liability. The court found that these arguments were waived because Frank had not raised them in response to Farmers’ petition. And in any event, an interpleader action was a proper venue to resolve the issue of to whom, of several parties with potentially viable claims, benefits should be paid. So even if the Insurance Code or other statutes prevented Farmers from being on the hook twice, there were still potentially conflicting claimants and Famers was entitled to invoke the procedure to determined to whom the benefits should be paid.


*The court does the reader no favors by leaving us hanging on whether and how the murder investigation was eventually resolved.

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