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Civil Procedure--Federal Interpleader Does Not Extinguish Independent Tort Claims

Lee v. West Coast Life Ins. Co., ___F3d __No. 11-55026 (9th Cir., July 31, 2012) (J. Paez)


Steve Lee Sr. owned a life insurance policy with an $800,000 death benefit issued by West Coast Life. He changed the beneficiaries and ownership of the policy several times. After Lee Sr. died several surviving relatives came forward claiming to be the rightful beneficiaries under the policy. West Coast Life took the position that at least one of the attempted beneficiary changes was made improperly and was therefore ineffective. These disallowed beneficiaries then sued for breach of contract, negligence and bad faith in California state court. West Coast Life removed the case to federal court on diversity and counterclaimed in interpleader, interpleading the $800,000 and bringing in the other individuals claiming a right to the proceeds. Thereafter West Coast Life moved for partial summary judgment on the contract claim which was granted and thereafter the parties agreed to a division of the interpleaded funds. The trial court ruled this agreed division resolved all claims and granted defendant's Rule 52 (c) motion for directed verdict. Plaintiffs appealed stating that their claim that the botched beneficiary change that allegedly rendered their beneficiary designation ineffective was the result of West Coast Life's negligent processing of the change request and could not be extinguished by a mere interpleading of funds. The court of appeals reversed and remanded.

While an interpleader is designed to resolve all claims to a fund where the stakeholder holding the funds has no independent obligation to the claimants other than to pay the funds to somebody, it will not resolve a claim that the stakeholder is independently liable to a claimant. The right to interpleader was not intended to extinguish independent tort claims, nor intended to relieve the stakeholder from liability in excess of the stake. Here the independent claim that the defendant was negligent in processing the beneficiary change withstands the interpleader action. Plaintiffs are entitled to proceed on this negligence theory and recover any damages proximately caused by the alleged negligence, despite the division and acceptance of proceeds in the interpleader action.

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