Interpleader lawsuits are commonly used in life insurance disputes when there are multiple individuals or entities claiming entitlement to the same death benefit. Although life insurance companies usually initiate these lawsuits, they are not the only parties who can be involved. Policyholders and beneficiaries may also find themselves drawn into interpleader actions, or even compelled to initiate legal proceedings themselves to protect their rights.
Understanding who can file an interpleader lawsuit and why is crucial if you are facing a conflict over a life insurance policy.
The Role of the Insurance Company
Insurance companies most frequently file interpleader lawsuits to protect themselves from legal liability when multiple parties claim the same benefit. Rather than deciding who should receive the proceeds, the insurer deposits the funds with the court and removes itself from the dispute. The court then decides who is entitled to the money.
Example: An insurer filed an interpleader action in federal court after both a current spouse and an ex-spouse submitted claims on a $400,000 life insurance policy. The insurer had no way to determine the rightful beneficiary and sought to avoid paying the wrong party. The court reviewed the evidence, including the divorce decree and beneficiary designation, and awarded the proceeds to the current spouse.
When a Policyholder May Be Involved
Although interpleader actions usually occur after the death of the insured, there are limited situations in which a policyholder may be involved. If there is confusion over beneficiary designations or if creditors are attempting to seize the policy value before the insured's death, the policyholder may initiate legal proceedings to clarify ownership or protect the policy.
Example: A policyholder discovered that a former spouse was still listed as the primary beneficiary despite their divorce being finalized years earlier. Concerned about potential disputes after death, the policyholder filed a legal action to have the court resolve the beneficiary designation in advance and ensure that the correct party would receive the proceeds.
Beneficiaries and Interpleader Lawsuits
As a beneficiary, you may be pulled into an interpleader lawsuit when there is a dispute over who should receive the policy proceeds. This often happens when multiple individuals claim to be the rightful beneficiary, or when a claim is contested by family members, creditors, or other interested parties. Even if you are confident you are entitled to the benefit, you must participate in the litigation to assert your claim.
Example: A daughter was named as the sole beneficiary of her father's policy, but the deceased's second wife filed a competing claim, arguing the designation had been changed verbally. The insurer filed an interpleader action, and the court ultimately upheld the written beneficiary designation, awarding the funds to the daughter.
What Are Your Options During a Beneficiary Dispute?
When faced with a dispute over life insurance proceeds, you have two primary options. You can either resolve the matter through court by participating in an interpleader action, or attempt to negotiate a settlement with the other parties involved.
Option One: Proceed with an Interpleader Lawsuit
If the insurer files an interpleader or if you need to initiate one, you should work with a life insurance attorney who can represent your interests in court. This process involves responding to legal filings, presenting evidence of your entitlement, and arguing your case before a judge.
This route is often necessary when there are strong disagreements or when one or more parties refuse to cooperate. While the process may involve court fees and take several months, it ensures that a binding legal decision is made.
Example: Two adult children from different marriages each claimed they were the primary beneficiary of a parent’s life insurance policy. The insurer could not resolve the conflict and filed an interpleader action. We represented one of the children, submitted the original beneficiary designation, and successfully defended the claim through trial.
Option Two: Negotiate a Settlement
In some cases, it is possible to resolve a life insurance dispute without litigation. A settlement can be reached when all parties are willing to negotiate and agree on a division of the proceeds. This option is often faster and less costly than court proceedings, but it requires a cooperative approach.
An experienced attorney can contact the competing claimants or their legal counsel to propose a resolution. If a settlement is reached, the insurer will release the funds in accordance with the signed agreement.
Example: Three siblings each believed they were entitled to their mother’s life insurance benefit. Rather than fight in court, we helped them reach a settlement that divided the proceeds evenly and avoided further legal expenses. The insurer disbursed the funds once all parties signed the release.
Why You Should Consult a Life Insurance Attorney
Life insurance disputes involving interpleader actions are complex and often emotionally charged. Whether you are a named beneficiary, a disinherited family member with a claim, or someone wrongly accused of interfering with a policy, having an attorney who understands life insurance law is essential. If you have a Rhode Island life insurance policy dispute call us.
A skilled attorney will:
Review the life insurance policy and related documents
Evaluate the strength of your claim under state and federal law
Respond to court filings in an interpleader case
Present evidence to prove your legal entitlement
Attempt to negotiate a favorable settlement when possible
Call us today.