Attorney Fees, Costs, and the “Neutral Stakeholder” Argument
When a life insurance company files an interpleader action, it often presents itself as neutral.
The insurer claims it is simply a stakeholder caught between competing beneficiaries. It deposits the death benefit with the court and asks to be dismissed from the case.
Then comes the part many families do not expect.
The insurer asks the court to pay its attorney fees and costs out of the very death benefit at issue.
In other words, it asks the court to reduce the policy proceeds before any beneficiary receives a dollar.
Here is how these fee requests work and how courts analyze them.
When you are facing an interpleader lawsuit, we are here for you. Look at our interpleader fact sheet for more information.
What Is Interpleader
Interpleader is a legal procedure used when an insurer faces competing claims to the same policy proceeds. Rather than choosing sides, the insurer files a lawsuit, deposits the funds with the court, and asks the judge to decide who is entitled to the money.
Interpleader is common in disputes involving:
• Conflicting beneficiary designations
• Divorce related disputes
• Allegations of undue influence
• Minor beneficiaries
• Guardianship issues
• Claims involving estate representatives
The insurer argues that it should not have to decide which claimant is correct and seeks protection from multiple lawsuits.
The “Neutral Stakeholder” Argument
In most interpleader cases, the insurer argues that it is a disinterested stakeholder. It claims:
• It does not benefit from the outcome
• It simply seeks to avoid double liability
• It acted promptly and in good faith
• It deposited the funds with the court
Based on this framing, insurers often request reimbursement for:
• Attorney fees
• Court costs
• Service of process fees
• Administrative expenses
They ask the court to deduct these amounts directly from the policy proceeds.
Why Fee Requests Matter
Interpleader fee awards come directly out of the death benefit.
If the policy is worth $500,000 and the insurer is awarded $25,000 in fees, the beneficiaries divide $475,000 instead of the full amount.
That reduction can be significant, especially in cases where the policy is modest in size.
Beneficiaries are often surprised to learn that the insurer may try to shift its litigation expenses onto the family.
When Courts Grant Fee Requests
Courts have discretion to award fees in interpleader cases, but the award is not automatic.
Judges often consider:
• Whether the insurer was truly disinterested
• Whether the insurer created or contributed to the dispute
• Whether the dispute was straightforward
• Whether the requested fees are reasonable
If the insurer promptly filed interpleader upon learning of a legitimate conflict and did not contribute to the confusion, courts may award modest fees.
However, courts typically limit awards to reasonable amounts reflecting the minimal work necessary to file the action and deposit the funds.
When Courts Deny or Reduce Fees
Interpleader fee requests are frequently challenged, and courts often reduce or deny them.
Common reasons include:
The Insurer Created the Dispute
If the insurer’s own administrative errors caused the conflict, courts may deny fees.
Examples include:
• Failing to process a beneficiary change properly
• Losing paperwork
• Accepting inconsistent designations without clarification
• Delaying payment without clear justification
An insurer that contributed to the problem is less likely to be viewed as neutral.
The Dispute Is Routine Business
Some courts reason that handling competing beneficiary claims is part of an insurer’s ordinary business.
From this perspective, filing interpleader is not extraordinary and does not justify shifting costs to beneficiaries.
The Fee Request Is Excessive
Even when courts allow fees, they often scrutinize billing entries closely.
Excessive hours, high rates, or work unrelated to the basic interpleader filing may be reduced.
Courts frequently emphasize that fee awards in interpleader cases should be modest.
Strategic Considerations for Beneficiaries
When an insurer seeks fees from the death benefit, beneficiaries can:
• Challenge whether the insurer is truly disinterested
• Argue that the insurer’s conduct caused the dispute
• Contest the reasonableness of billing records
• Request detailed documentation of hours and rates
In some cases, the threat of an objection leads insurers to voluntarily reduce their request.
If the insurer delayed payment for months before filing interpleader, that delay may also undermine the argument that it acted promptly and neutrally.
The Bigger Picture
Interpleader can be a legitimate tool to resolve genuine disputes. But fee requests are not automatic entitlements.
Insurers often frame themselves as passive stakeholders. Courts look more closely.
Was the company truly neutral
Did it handle the claim properly
Are the requested fees reasonable
Should beneficiaries bear the cost of routine business activity
These questions shape the outcome.
The Bottom Line
In life insurance interpleader cases, insurers frequently ask courts to award attorney fees and costs from the policy proceeds.
Courts have discretion to grant or deny those requests. Fee awards are typically limited and may be reduced or rejected if the insurer contributed to the dispute or overreaches.
If you are involved in a beneficiary dispute and the insurer seeks to take fees from the death benefit, that request can often be challenged.
The death benefit belongs to the rightful beneficiary, not to fund unnecessary litigation expenses.