Michelman v. Lincoln National Life

Interpleader is appropriate, even if competing stakeholders' claims are frivolous, as long as the interpleader has a good faith belief that its claims are colorable.

Gail and Irwin Michelman had a policy with Lincoln National Life Insurance Company for their daughter. Gail and Irwin later divorced. When their daughter died, there was confusion as to whether Irwin was a beneficiary. Irwin claimed that he was a joint beneficiary and urged Lincoln to investigate whether Gail was implicated in his daughter’s death. Lincoln refused to pay either party until it could determine the rightful beneficiaries. Gail filed suit in state court against Lincoln for breach of contract, bad faith, and violation of Washington’s Consumer Protection Act (CPA). In an attempt to interplead the insurance funds, Lincoln removed to federal court, filed a counterclaim against Gail, and filed a third party claim against Irwin. The district court found interpleader appropriate, gave summary judgment in favor of Lincoln on Gail’s breach of contract claim, but denied summary judgment for the bad faith and CPA claims. The Ninth Circuit ruled that Lincoln interpleaded in good faith because its claims were colorable. Lincoln’s claims were colorable because it could reasonably fear the uncertainty of Gail and Irwin’s competing claims, even though Irwin's claims were likely frivolous. Summary judgment in favor of Lincoln was appropriate because the district court did not abuse its discretion and Gail’s motion for continuance was not appropriately based on the breach of contract claim. Finally, the Court found insufficient evidence to establish a claim of bad faith or a violation of Washington’s CPA. AFFIRMED.