In order to know how interpleader laws affect life insurance, it’s first essential to understand what interpleader means and what interpleader laws are. In August we won a $100,000.00 Genworth Life Insurance Interpleader case. In July we resolved a $200,000.00 North American Life interpleader case. Read more about a life insurance beneficiary dispute .
An interpleader action is a civil lawsuit that a life insurance company sets in motion when facing competing claims from multiple individuals who claim to be the rightful beneficiary of a life insurance policy. In this circumstance, the life insurance company is a neutral party. Generally, they prefer that the two parties in dispute amicably decide who the payout should go to. If this happens, the life insurance company will make payment accordingly. We will handle your denied life insurance claim or your delayed life insurance claim.
If a reasonable amount of time passes and the disputing parties are unable to come to an agreement about who gets the proceeds or how they should be split, the life insurance company will file a lawsuit referred to as an interpleader. This is done by the insurance company as a way to avoid being sued by one of the disputing parties.
Once the insurance company files the lawsuit, they deposit the proceeds into the court’s escrow account. The two parties who are disputing the payout are then left to resolve their issue in court. Once the court determines who is the rightful beneficiary, they will pay out the benefit from the escrow account.
This is different from an ordinary lawsuit because the life insurance company, a neutral third party, is filing the lawsuit. They want to ensure that they don’t pay money to the wrong person and end up in a lawsuit themselves.
The laws and procedures regarding interpleader will change depending on the state you’re in and whether there is federal jurisdiction or not. Most life insurance policies issued through employment raise a federal question when there is a dispute, so an interpleader action would be handled in federal court. If it’s a life insurance policy that isn’t issued through work and there’s no federal jurisdiction, the dispute will be handled in state court. If there’s a dispute over a life insurance claim and you’re wondering what the state laws are, you should contact an experienced life insurance lawyer from that state to make sure you have all of the relevant and vital information.
Divorce
When a couple gets divorced, there are often uncertainties surrounding life insurance beneficiaries. In some states, divorce automatically triggers a revocation of a spouse as the life insurance beneficiary. In other states, such as community property states, the ex-spouse will be entitled to a portion of the life insurance policy, even if they are no longer the beneficiary. When a couple gets divorced, it’s common that upon the passing of one of them, there could end up being an interpleader action because more than one person is or believes they are the rightful beneficiary.
No Named Beneficiary
If there is no named beneficiary, this can often lead to interpleader actions. There might be multiple children and/or a spouse who believes they are entitled to the life insurance money, which can lead to complications.
Suspicious Beneficiary Changes
Last-minute or suspicious beneficiary changes can raise red flags, especially in the case of an insured who is not competent to read and sign documents at the time the change was made. When a change looks suspicious, insurance companies are often reluctant to make payments. In this circumstance, the insurance company may feel like they have no choice but to file an interpleader action so the courts can decide who receives the payout.