North Carolina court denies interpleader relief

A decision out of North Carolina is a bit unusual. The court denied interpleader relief sought by a life insurance company. Also the life insurance company had paid a portion of the life insurance proceeds because of an incorrect view of Texas community property law.

Background of the life insurance beneficiary dispute

In 2008, Tyasha Person (the “Decedent”), obtained a life insurance policy worth $400,000 from American General Life Insurance Company. She initially designated her uncle, Shamberger, as the primary beneficiary, with her mother, Sarah Jeane Person, as the contingent beneficiary. The following year, Tyasha married Donnell Pearson.

A decade later, in 2019, American General received a Change of Beneficiary form intending to designate Pearson as the primary beneficiary. However, the form was incomplete; it lacked a signature. On the same day, the insurance company received paperwork for a “Name and Address Change”, reflecting Tyasha's marital status and new address.

In May 2019, Pearson reported Tyasha’s death to American General. Pearson submitted a completed Proof of Death Claimant’s Statement. The insurance company advised Pearson that Shamberger was still listed as the primary beneficiary, with Sarah Jeane Person as the contingent beneficiary. Pearson insisted on claiming the policy benefit, maintaining that the Change of Beneficiary form - albeit unsigned - signified Tyasha's intention to name him as the beneficiary.

American General also alerted Shamberger of his right to make a claim under the Policy. According to his counterclaims, Shamberger contacted the insurance company several times for assistance and updates on his claim.

American General paid Pearson $166,740 plus interest, representing his purported community property share of the policy death benefit. This payment was calculated as 83.38% of $200,000, signifying the proportion of time Pearson was married to Tyasha while the policy was in effect. Shamberger, unaware of this payment, continued to call American General for updates on his claim.

In October 2019, American General filed a Complaint for Interpleader relief in federal court in North Carolina. American General filed its motion to deposit the remaining funds of $233,260.00 plus interest (the rest of the death benefit) and sought dismissal from the case. This motion also sought a court order fully discharging it from any other liability related to the life policy. Shamberger filed a motion to dismiss American General’s Complaint, contending the court lacked jurisdiction over the effort to interplead the disputed life insurance proceeds.

The court’s holding regarding interpleader jurisdiction

The court denied American General’s interpleader request. Shamberger argued that the complaint should be dismissed as American General failed to interplead the full amount of the Policy, which is $400,000. Although the Fourth Circuit has not dealt with this issue before, precedents from other circuits state that a district court does not have jurisdiction if the stakeholder deposits an amount smaller than that claimed by the claimants.

American General, on the other hand, argued that there was no need to deposit the entire life insurance benefit from the Policy. However, the court found the argument unconvincing as Shamberger was claiming the full policy amount while American General sought to deposit only a portion.

Because of American General's failure to deposit the full policy amount, as well as the potential for undue prejudice to Shamberger and the partial payment made to Pearson, the court granted Shamberger’s motion to dismiss for lack of subject matter jurisdiction.

Why did American General pay a portion of the proceeds to Pearson?

Typically when facing competing claims to life insurance proceeds, the life insurance company will interplead the entire death benefit to a court. In the situations when they make a partial payment, it is with the agreement by all claimants that there is no dispute as to that portion.

But in this case, American General just decided to pay a portion of the proceeds to the decedent’s husband, Donnell Pearson. According to American General, he was entitled to the payment based on Texas community property law. But that was just flat out wrong. Tyasha Person bought the life insurance policy before she married Donnell Pearson. Under the inception of title rule in Texas, the policy was Tyasha’s separate property and Donnell would have been limited to a claim for reimbursement of the policy premiums paid during the marriage.