A federal district court in Utah has allowed a life insurance company that brought an interpleader action to deposit life insurance proceeds with the court – but has refused to award the insurer its attorneys' fees from the fund given that the insurer was “in the business of administering claims for life insurance benefits.”
The Case
When Tracy Johnson obtained life insurance through her employer, she designated The Church of Jesus Christ of Latter-day Saints as her sole beneficiary. At that time, the group life insurance policy provided by her employer was underwritten by Humana.
At some point, Ms. Johnson's group life insurance policy came to be underwritten by Guardian Life Insurance Company of America instead of Humana. The terms of the Guardian policy permitted Ms. Johnson to name a beneficiary. The policy further provided that if she did not name a beneficiary, the benefits would be paid to one of the following: her estate, her spouse, her parents, her children, or her brothers and sisters.
After her group life insurance policy was rolled forward to a new underwriter, Ms. Johnson did not name a new beneficiary or amend her prior designation of the Church as her beneficiary.
When Ms. Johnson passed away, the life insurance policy was worth $300,000. Her estate filed a claim for the proceeds of the life insurance policy.
Unsure whether the Church or the estate was the proper beneficiary of the life insurance proceeds under the terms of the policy, Guardian initiated an interpleader action, naming the Church and the estate as defendants. In its complaint, Guardian alleged that it was merely a stakeholder and disclaimed any beneficial interest in the life insurance proceeds “except for the recovery of its reasonable attorneys' fees and costs included in bringing [the] action for interpleader.”
The complaint sought permission to pay the policy benefits into the registry of the court and to be dismissed from the suit.
Both the Church and the estate asserted counterclaims against Guardian and opposed the request for attorneys' fees.
The District Court's Decision
The district court first granted Guardian's motion to dismiss the counterclaims asserted by the Church and the estate, and ruled that, upon payment of $300,000 plus interest into the court registry pursuant to Rule 67 of the Federal Rules of Civil Procedure, Guardian would be dismissed from the lawsuit.
The district court then turned to Guardian's request for an award of attorneys' fees to be paid out of the fund to be deposited with the court.
It noted the “common practice” of awarding attorneys' fees incurred by a stakeholder, but pointed out that it had discretion when deciding whether to award fees.
The district court observed that Guardian was “in the business of administering claims for life insurance benefits,” and it said that it would exercise its discretion “not to shift these costs to the rightful claimant” through an award of attorneys' fees incurred in bringing the interpleader action. Accordingly, it denied Guardian's request for fees.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].