Our firm specializes in representing people who have been wronged by life insurance companies. Most of the time, our clients are individuals who were named beneficiaries under a policy and are completely shocked when their claim is denied after their loved one passes away. Sometimes, however, we receive a call from a new client who is absolutely frantic.
These are people who have just been served with a lawsuit filed by a life insurance company. Many times, they call our office before they even read the complaint. Even if they have read it, they are fully confused by it. Nine times out of ten, we know what the lawsuit is about without even having to look at it.
An action in interpleader
More often than not, the lawsuit is what’s known as “an action in interpleader.” While it may sound complex, it’s really not. In the life insurance context, an action in interpleader is a fairly common occurrence. Basically, it means that more than one person has claimed to be the rightful beneficiary under a life insurance policy. The policyholder has died and the insurance company knows it has to pay the policy benefit to someone. If it makes a decision about who to pay on its own, the company risks being wrong (and possibly having to pay out the policy benefit to multiple parties). Rather than incur that risk, the insurance company files an action in interpleader and asks the court to decide who it should pay.
Below we discuss a fairly common set of facts that result in an insurance company filing an action in interpleader.
The insured has been divorced and remarried
To illustrate how an action in interpleader comes about, we’ll use the example of a man named John. John was married to his first wife, Adriana, for thirteen years. The couple had two children just a few years before they parted ways.
As part of the divorce settlement, the family court ordered John to maintain a life insurance policy worth $400,000 and to name Adriana as the sole beneficiary. Typically, a court will require that someone like John maintain this policy up until the time his two children reach the age of majority. Family courts often mandate this sort of arrangement to ensure a couple’s children will be financially secure should one or the other of their parents pass away while they are still dependents.
In John’s case, however, he fell in love and got remarried just a year after his divorce was final. His new wife, Sally, dislikes Adriana and insists that John change his life insurance beneficiary to name Sally as the sole recipient. Not wanting to upset his new wife, John complies. He does not alert the court or his first wife of this arrangement.
What happens when John dies?
Of course, when John makes this change, he assumes it doesn’t really matter because he isn’t even 40 yet and the chances of him dying before his kids are 18 are slim to none. Life has a way of dealing harsh blows to people who make these sorts of assumptions.
One night on his way home from work, John is involved in a head-on car accident. He is killed instantly. Within a few weeks’ time, both Adriana and Sally file a claim against John’s life insurance policy. Both women are confident they will receive the full policy benefit within a matter of weeks.
Both of them are wrong. What they receive is a lawsuit where the life insurance company is named as a plaintiff and each woman is named as a defendant. The lawsuit is titled “an action in interpleader.” Both women are shocked and scared out of their minds because they think the lawsuit means they’ve done something wrong.
Of course, that’s not the case. All the lawsuit means is that the insurance company wants the court to tell it who to pay.
So, who wins?
In an interpleader action, the “winner” is the person who receives the insurance payout based on the court’s decision. The outcome of a case like this depends on a number of factors, including state law regarding the impact of divorce on life insurance.
Both Adriana and Sally would be wise to hire an attorney specializing in life insurance law. The attorney will know the ins and outs of local statutes that may impact the outcome. The attorney will also have experience in gathering evidence to determine if the beneficiary change was handled properly in the first place.
Let’s say, for example, that John never submitted a Change of Beneficiary form to his life insurer at all. What if Sally forged the form and sent it to the insurer? Or what if the relevant laws require that a Change of Beneficiary form be notarized or witnessed by other individuals? What if John’s children were under 18 at the time of his death but are over 18 by the time the action in interpleader is filed?
Obviously, there are a myriad of legal issues that can impact the outcome of an action in interpleader. One thing you can know for sure is that the insurance company will be represented by experienced lawyers throughout the lawsuit. Although those attorneys really have no stake in the outcome, they will stop at nothing to find the rightful beneficiary. As the case progresses, their dogged determination may jeopardize the chances of recovery for one side or the other.
In light of all this, the best thing to do when served with an action in interpleader is to take a deep breath and commit to hiring your own lawyer. Gather all the relevant information that you can concerning the policyholder. You’ll want a copies of the policy, the death certificate, any Change of Beneficiary forms, any police or autopsy reports, and any correspondence between you and the insurer and/or you and the other alleged beneficiary. Once you have all this, contact a firm like ours immediately. We can help you sort it all out and, if you are the rightful beneficiary, we can help you prevail in court.