In short: An interpleader is a lawsuit the insurer files so a court can decide between competing claims. The insurer usually steps aside, and the claimants litigate against each other. If you are served, you generally must file an answer that asserts your claim, in federal court usually within 21 days. A claimant who does not answer can lose the money by default.
On this page
What an interpleader is
Interpleader is a procedure for a stakeholder that holds money it admits it owes but cannot safely pay. For a life insurer, the problem is usually that two people have claimed the same death benefit and paying the wrong one could mean paying twice. So the insurer files a lawsuit naming every claimant, deposits the benefit with the court or posts a bond, and asks to be released from the case.
Federal courts hear most life insurance interpleaders. There are two routes:
- Statutory interpleader, under 28 U.S.C. § 1335, applies when the amount is $500 or more and at least two claimants are citizens of different states. The insurer must deposit the money or post a bond. Venue is proper in any district where a claimant lives (28 U.S.C. § 1397), and the court can serve claimants nationwide and bar other lawsuits over the same money (28 U.S.C. § 2361). The Supreme Court held in State Farm Fire & Casualty Co. v. Tashire, 386 U.S. 523 (1967), that this kind of minimal diversity is enough.
- Rule interpleader, under Federal Rule of Civil Procedure 22, uses the court’s ordinary jurisdiction, such as complete diversity between the insurer and the claimants with more than $75,000 at stake, or a federal question such as an ERISA plan.
Why insurers interplead
Insurers file these cases when the facts or the law leave real doubt about who is entitled to the money. The disputes we see most often:
- Divorce. A former spouse is still named, and the question is whether a state revocation-on-divorce statute, the divorce decree, or federal law controls. See our beneficiary disputes page for how these rules differ.
- A late or disputed change of beneficiary. A change form was submitted shortly before death, was incomplete, or is challenged as forged or as the product of undue influence or incapacity.
- A slayer allegation. Someone claims the named beneficiary caused the death.
- Minors and estates. A minor beneficiary needs a guardian or court approval before money can be paid, or the estate claims the benefit because no valid beneficiary survived.
- Competing documents. A policy, a will, a trust, a divorce settlement and an assignment to a funeral home may point in different directions.
What happens after you are served
1. The answer deadline. Read the summons carefully. In federal court, a defendant generally has 21 days after service to answer, or 60 days after the request was sent if the defendant agreed to waive formal service (Fed. R. Civ. P. 12(a)). The answer is where you assert your claim to the money. A claimant who does not answer risks a default judgment that forfeits the claim.
2. Deposit and discharge. The insurer asks the court to accept the money into its registry, where it usually earns interest, and to discharge the insurer from further liability. This is often the right moment to raise any objection to the insurer’s request for fees from the fund, or to any claim that the insurer mishandled the case before filing.
3. The dispute between claimants. Once the insurer is out, the case becomes a contest between the claimants. It moves through ordinary litigation: exchanging documents, requests for admission, depositions of family members or agents, and subpoenas for the insurer’s claim file, medical records or divorce records.
4. Decision or agreement. Many interpleaders are decided on summary judgment, because the key documents are not in dispute and the question is which legal rule applies. Others go to trial on issues like capacity or undue influence. Claimants can also settle at any time, and the court then orders the fund divided as agreed.
5. Payment. The court enters judgment and orders the clerk to pay the money, with the interest it earned, to the winning claimant or claimants.
What usually decides these cases
Each case turns on its documents and the law that governs them. Questions we work through at the start:
- Which law applies. An employer-sponsored plan governed by ERISA follows the plan documents, and federal law can override state divorce statutes, as the Supreme Court held in Egelhoff v. Egelhoff, 532 U.S. 141 (2001). Federal programs like FEGLI and SGLI have their own rules. Private policies follow state law, and the state whose law applies is not always the state where the insured died. In Modern Woodmen of America v. Harris, Alabama law applied to a certificate bought in Alabama even though the insured died in Oklahoma.
- What the insurer actually recorded. The insurer’s file shows what was submitted, what was rejected and why. In American General Life Insurance Co. v. O.H.M., a rejected change form left the earlier designation in place.
- Timing. Revocation-on-divorce statutes are not all retroactive. Compare American General Life Insurance Co. v. Martin (Illinois) with State Farm Life & Accident Assurance Co. v. Hobin (New York).
- Evidence, not suspicion. Claims of forgery, undue influence, incapacity or wrongdoing need proof. The cases in our results show courts granting summary judgment when a challenger offers only belief.
How we handle interpleader cases
Interpleader Law’s practice centers on interpleader and life insurance beneficiary disputes. We represent claimants nationwide. Our attorneys have appeared in more than 300 interpleader and life insurance cases spanning 59 federal district courts in 35 states and in six federal courts of appeals. We have also handled more than 1,000 claims that never made it to court. When you contact us, we review the complaint, the policy or plan, any change forms and divorce papers, and the deadlines, at no cost to you. If we take the case, we explain the fee arrangement in a written agreement before any work begins.
For a deeper, plain-English guide to interpleader procedure, see interpleader.com, a reference site published by our founder.
Common questions
How long do I have to respond to an interpleader complaint?
In federal court, a defendant generally has 21 days after being served to answer, or 60 days after the waiver request was sent if service was waived under Rule 4(d). Check the summons, and talk to an attorney promptly.
Can I lose my claim if I do nothing?
Yes. Courts regularly hold that a named interpleader defendant who fails to answer and assert a claim forfeits it, and the remaining claimants divide the fund.
Does the insurer take its attorney's fees out of the benefit?
Sometimes. Many federal courts allow a disinterested insurer to recover reasonable fees from the fund, while others limit or deny them. A claimant can oppose a fee request, and the amount at stake is often negotiable.
Do I need a lawyer where the case was filed?
Not necessarily. Federal courts allow attorneys admitted elsewhere to appear in a particular case, often with local counsel. What matters is an attorney who has interpleader experience.
Can an interpleader settle?
Yes. Claimants can agree on a split at any point, and the court will enter an order dividing the fund. Many cases settle after the key facts come out in discovery.
Written by the attorneys of Interpleader Law. General information, not legal advice; the law differs by state and by policy, and every case turns on its own facts.