Insurance

State Farm Life Insurance Co. v. Martinez

2/9/2007 – 05-0812

Justice Brister

Interpleader Filed Late Allows Recovery of Penalties for Late Period, but not after Interpleader is filed.

In this dispute over life insurance proceeds, involving competing claims to the proceeds, the insurer interplead the proceeds of the policy, but did so 12 days after the time required by the “prompt payment statute” (current version at Tex. Ins. Code 542.051-.061). Held: Once State Farm interpleaded the entire policy proceeds, it owed nothing more on the policy. Thus, the courts below erred in awarding penalty interest and attorney’s fees for more than those 12 days. When insurers receive notice of adverse bona fied claims, Texas law does not require them to act as judge and jury, or to pay one claim and risk liability on the other. Instead, if a reasonable doubt exists in law or fact as to whom the proceeds belong, an insurer should interplead them and let the courts decide. Every reasonable doubt should be resolved in favor of the stakeholder’s right to interplead. If an insurer promptly interpleads policy proceeds, it cannot be subjected to statutory penalties for delayed payment, even if it missed the statutory deadlines. But in 1991, the Legislature changed the prompt payment statute, raising the penalty interest to 18 percent and the deadline for payment (in most cases) to 60 days. The Legislature’s 1991 changes to the Insurance Code suggest the courts should not continue imposing a different deadline. But nothing in those changes suggests that statutory penalties should apply after interpleader occurs. Assessing penalty interest and attorney’s fees after an interpleader is filed would punish insurers for doing what Texas law encourages. Indeed, the more difficult and protracted the dispute between rival claimants (and thus the more justified the interpleader), the larger those penalties would grow.

Interpleader Halts Prejudgment Interest.

The interpleader of funds, by depositing those funds with the registry of the court, halts prejudgment interest. Once funds are deposited into the registry, they are held in trust for the litigant who establishes his right thereto, and interest accrues to its ultimate owner. Allowing the prevailing beneficiary to recover interest on proceeds in the registry and interest from State Farm at the same time would constitute a double recovery. Accordingly, the trial court erred in assessing prejudgment interest against State Farm after the interpleader.