Fifth Circuit affirms denial of negligence claim
A common question I get from clients is can we sue the life insurance company for filing the interpleader instead of just paying me? My typical answer is "no" under most circumstances. The law provides substantial cover for a life insurance company to file an interpleader and let a court decide the proper beneficiary. This is the common process of a prudent life insurance company.
In Berry v. Banner, the Fifth Circuit Court of appeals affirmed this concept. The underlying facts were that the insured had a policy governed by state law. He designated his then wife as the beneficiary. They were divorced in 2005 in Oklahoma. The divorce decree specified that he would maintain her as the beneficiary of the Banner Life policy. The ex-wife sent a copy of the divorce decree to Banner, who put it in its file.
Two years later, he submitted a change of beneficiary form to Banner, seeking to designate a friend as beneficiary under the plan. Banner processed the change of beneficiary. He died two years later.
Both the ex-wife and designated beneficiary friend filed claims with Banner Life. Banner decided to pay neither while competing claims were pending. The friend filed suit to enforce the designation in her favor. The insurance company removed the suit and sought interpleader in the United States District Court for the Western District of Texas. The district court found the ex-wife was entitled to the policy proceeds because of the divorce decree.
Not satisfied, the ex wife sought damages from Banner Life for negligence in not paying her. She contended the insurance company should have never accepted and processed the later attempted designation, because it had knowledge of the divorce decree. The Fifth Circuit agreed with the district court that such claim is unfounded:
"First, a number of Viney's factual allegations underlying that claim are based on nothing more than Banner's “failure to resolve its investigation in [Viney's] favor and pay out the life insurance proceeds to [her].” Any claim for a breach of the duty of good faith and fair dealing under these facts is barred under the interpleader because it is not “truly independent of who was entitled to the life insurance proceeds.” “To allow [Banner] to be exposed to liability under these circumstances would run counter to the very idea behind the interpleader remedy—namely, that a ‘stakeholder [should] not [be] obliged at his peril to determine which claimant has the better claim.
Second, under Oklahoma law, “[t]he tort of breach of a duty to deal fairly with an insured is an intentional tort and as such requires conduct by an insurer to be willful, malicious, or oppressive for the purposes of delaying or avoiding payment of the insured's claim.” Though Viney alleged that Banner failed to adequately investigate its records prior to changing the beneficiary, she also alleged that Banner was not aware of that mistake until Viney made her claim to the Policy proceeds. Banner could not have committed an intentional tort, willfully and maliciously, if Banner was not even aware of the mistake at the time of the change."
On a relative basis, the ex wife had a plausible claim that the life insurance company was negligent. This case emphasizes how far the courts will typically go to provide safe harbor to a life insurance company that seeks cover through the interpleader process.