Why Did the Life Insurance Company File an Interpleader Lawsuit?
A life insurance company files an interpleader lawsuit when it believes more than one person may have a claim to the same policy proceeds and does not want to decide who should be paid. Instead of choosing a beneficiary, the insurer asks a court to determine who is legally entitled to the money.
Interpleader usually means the insurer agrees the policy is payable. The dispute is over who gets paid, not whether benefits exist.
What Typically Triggers an Interpleader Lawsuit
Insurance companies most often file interpleader when they receive competing or conflicting claims. Common triggers include:
• Multiple people submitting claims for the same policy
• Conflicting or unclear beneficiary designation forms
• Divorce or remarriage creating disputes between spouses and former spouses
• Claims by estates that conflict with named beneficiaries
• Allegations of forgery, undue influence, or lack of capacity
• Employer or plan records that do not match policy records
Rather than investigating further or taking a position, the insurer shifts the decision to the court.
Is Interpleader the Same as a Claim Denial?
No. Interpleader is not a denial of benefits. The insurance company is admitting that someone is entitled to the proceeds but claims it cannot safely determine who that is.
Once interpleader is filed, the dispute becomes litigation between the claimants, not a disagreement with the insurer.
What Happens to the Life Insurance Money
In most interpleader cases, the insurer deposits the full policy proceeds with the court. After doing so, the insurer usually asks to be dismissed from the case.
Once the money is deposited:
• The insurer typically exits the lawsuit
• The court takes control of the funds
• The claimants litigate against each other
• A judge decides who receives the proceeds
The funds remain protected while the case is pending.
Why Insurers Prefer Interpleader
Interpleader protects the insurer from being sued by the losing claimant. By letting the court decide, the insurer avoids the risk of paying the wrong person.
In practice, insurers sometimes file interpleader even when the rightful beneficiary could have been determined through careful claims handling. Interpleader shifts the cost and risk of the dispute away from the insurer and onto the beneficiaries.
What Claimants Are Required to Do After Interpleader Is Filed
Once served with interpleader papers, each claimant must take affirmative legal action. This usually includes:
• Filing a response or answer with the court
• Asserting a legal claim to the proceeds
• Producing beneficiary and policy evidence
• Meeting strict court deadlines
Failing to respond can result in default and permanent loss of any right to the funds.
Who Decides Who Wins an Interpleader Case
The insurance company does not decide who wins. The court evaluates:
• Beneficiary designation forms
• Policy requirements
• Governing state or federal law
• Evidence of capacity, intent, or wrongdoing
Interpleader simply creates the forum for the decision.
Can an Interpleader Lawsuit Be Challenged?
Yes. Claimants may challenge whether interpleader was appropriate, oppose insurer requests for attorney fee deductions, and contest competing claims to the proceeds.
Interpleader does not determine entitlement. It only sets the process in motion.
Does Interpleader Mean the Money Will Be Lost?
No. Interpleader delays payment, but it does not eliminate the benefit. The money is preserved until the court determines the rightful recipient.
The outcome depends on documentation, law, and how effectively the case is handled.
What to Do If You Are Named in an Interpleader Lawsuit
If you are served with interpleader papers:
• Do not ignore court documents
• Obtain the policy and beneficiary records immediately
• Preserve all correspondence with the insurer
• Understand that the dispute is now active litigation
• Act promptly to protect your claim
Interpleader cases move quickly, and early action often determines the result.
Related Guidance
For a broader discussion of beneficiary disputes and interpleader actions, see our Life Insurance Interpleader page, and Life Insurance Interpleader Fact Sheet.
If a life insurance company has filed an interpleader lawsuit, the outcome depends on how the competing claims are presented and resolved in court.
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Written & Reviewed by Christian Lassen, Esq., Nationally recognized life insurance lawyer: 25 years experience, hundreds of millions recovered. Quoted in The Wall Street Journal ( May 17, 2025).
Last reviewed: Jan 3, 2026 | Contact 800-330-2274
Our FAQ
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A grace period is the time after a missed payment during which the policy remains in force, usually 30 to 60 days depending on state law and policy terms.
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No. In most states, insurers must send a written notice of overdue premiums and warn of pending lapse before terminating coverage.
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The policy may still be enforceable. Beneficiaries can challenge the lapse based on the insurer’s failure to provide required notice.
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Yes. If the insured dies during the grace period, the policy is still considered active, and benefits should be paid.
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Yes. In group life insurance policies, employers sometimes fail to forward premiums properly, leading to wrongful lapse denials.
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Yes. If automatic payment setups fail through no fault of the insured, lapses may be challenged.
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Some policies automatically borrow against cash value to cover missed payments. Failure to apply this correctly can lead to wrongful lapse claims.
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Possibly. Some courts excuse nonpayment if the insured was mentally incapacitated and missed premiums without proper notice.
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No. Reinstatement must occur while the insured is alive, but wrongful lapse denials can still be challenged posthumously.
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Not without following strict notice and grace period rules. Beneficiaries can often challenge technical denials.
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Deadlines vary by state, but it’s critical to act within 1 to 5 years depending on the policy and jurisdiction.
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Not necessarily. Payments mailed within grace periods or accepted by insurers may keep coverage active.
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Bank records, payment receipts, insurer correspondence, and premium notices are key evidence.
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If the insurer used an outdated address despite updated information, lapse denials can often be overturned.
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Possibly. If the insured submitted a reinstatement application before death, it may help challenge a lapse denial.
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In some states, special grace periods and protections applied during COVID-19 emergencies. They can help fight wrongful lapses.
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Only if the insurer followed all legal notice and grace period requirements. Otherwise, beneficiaries may still recover.
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Misapplied premiums can lead to wrongful lapses — and courts often hold insurers accountable for these errors.
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An attorney can obtain records, challenge improper lapses, negotiate settlements, and litigate if necessary to enforce payment.
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