Lee v. West Coast Life Insurance

Consistent with Supreme Court and other circuit courts’ reasoning, the Ninth Circuit found that the federal interpleader remedy was not created to protect negligent stakeholders from tort liability for their creation of a conflict over entitlement to interpleaded funds. Claimants are thus entitled to recover all damages that flow directly and proximately from a negligent stakeholder’s actions.

Plaintiffs, relatives of deceased, insured by a West Coast Life Insurance Company policy, filed suit in Los Angeles Superior Court for breach of contract and breach of covenant of good faith and fair dealing based on West Coast’s approval of several different changes to the policy’s ownership and beneficiaries. Other relatives and beneficiaries filed crossclaims against Plaintiffs and counterclaims against West Coast for negligence and declaratory relief. Under diversity jurisdiction, West Coast removed the case to district court, and counterclaimed in interpleader. The district court granted West Coast’s 52(c) motion for judgment as a matter of law and counterclaimants appealed. The Ninth Circuit held that the district court’s grant of West Coast’s 52(c) motion was done in error because “the federal interpleader remedy does not shield a negligent stakeholder from tort liability for its creation of a conflict over entitlement to the interpleaded funds.” The Court reasoned that negligent stakeholders cannot be shielded from claim liability under the interpleader remedy when claimants are not just seeking the amount of the policy but also claim damages for tortious behavior which caused the conflict, as claimants alleged in this case stemming from West Coast’s negligent approval of ownership and beneficiary changes. REVERSED and REMANDED.