An Insurance Company Cannot Shield Itself from Negligence Liability by Filing an Interpleader

Posted in: Breach of Contract, Case Updates, Insurance Bad Faith, Interpleader, Negligence August 20, 2012

In Lee v. West Coast Life Insurance Company, 2012 U.S. App. LEXIS 15768 (9th Cir. July 31, 2012), the Ninth Circuit Court of Appeals ruled that a stakeholder insurance company cannot use an interpleader filing to shield itself from tort liability for its negligent actions.  With this holding, the Court of Appeals confirmed that “where the stakeholder may be independently liable to one or more claimants, [an] interpleader does not shield the stakeholder from tort liability, nor from liability in excess of the stake.”

In 1998, West Coast Life Insurance Company issued a policy on the life of Steve Lee, Sr.  Over the next ten years, West Coast received numerous change of ownership and change of beneficiary forms from members of the Lee family.  However, in 2005, West Coast’s Director of Policy Administration gave erroneous instructions regarding who should sign particular forms, and in what capacity those forms should be signed.  Assuming that West Coast had properly instructed them in completing those forms, the Lee family made several subsequent changes to the policy’s ownership and beneficiaries.  When Mr. Lee died in 2009, West Coast realized that the 2005 changes were not properly executed, and informed certain members of the Lee family that they were not entitled to the life insurance benefits.

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