Court denies fees to life insurance company
In Hartford Life v. Lecou, et al, Judge Susan Watters of the Montana federal district considered an application for attorney’s fees by a life insurance company. She denied the request for fees.
Hartford filed the interpleader lawsuit because it could not determine how to distribute payable life insurance benefits. It then deposited the disputed benefits into the registry of the court. Hartford sought a dismissal, an order enjoining the parties from bringing further legal action against Hartford, and an award of attorney’s fees.
The dispute involved an ERISA life insurance policy. The court noted that Hartford properly filed the interpleader lawsuit:
Hartford’s interpleader is proper, and the Court has jurisdiction to preside over it. The purpose of interpleader is for the stakeholder to protect itself against the problems posed by multiple claimants to a single fund. An interpleader action typically involves two stages: first, the court determines whether the requirements for a rule or statutory interpleader action are met—that is, whether there is a single fund at issue and whether there are adverse claimants to that fund. Second, if the interpleader action is proper, the court then establishes the respective rights of the claimants. Although subject-matter jurisdiction is rarely established for a Rule 22 interpleader by federal question under 28 U.S.C. § 1331, federal courts have jurisdiction to hear interpleader actions brought by fiduciaries under the Employee Retirement Income Security Act. Hartford meets those conditions here: it brings this interpleader action under ERISA, it has established a single fund at issue (the Plan Benefits), and it has established multiple adverse claimants to that fund (Hill and LeCou). Therefore, the interpleader action is proper, and the Court dismisses Hartford.
The competing parties opposed Hartford’s request for an award of attorney’s fees from the policy proceeds, for bringing the interpleader. The court noted that fees are often awarded to the insurance company that brings an interpleader. However, the award of fees in interpleader cases is within the discretion of the court:
“First, courts have found ... that insurance companies should not be compensated merely because conflicting claims to the proceeds have arisen during the normal course of business. Second, courts have declined to follow the general rule where the stakeholder is an insurance company, reasoning that “insurance companies, by definition, are interested stakeholders and that filing of the interpleader action immunizes the company from further liability under the contested policy. Lastly, “some courts have exempted insurance companies from the general rule based on the policy argument that such an award [would] senselessly deplete the fund that is the subject of the preservation through the interpleader.”
This dispute involved a small policy: $25,000. The court found that, in this case, the fees would substantially cut into the amount awarded: “any award of attorneys’ fees would seriously deplete the amount left available to the rightful beneficiary. Accordingly, the Court will deny Hartford’s request for attorneys’ fees and costs.”
In my experience, courts will typically award fees. But my experience is generally with larger policies. In most cases, the competing parties and the life insurance company can agree on a modest award of fees.
