Ninth Circuit Holds That Interpleader Does Not Shield Insurer From Independent Tort Liability

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The Ninth Circuit recently joined its sister circuits to find that the federal interpleader remedy does not limit an insurer's independent tort liability for damages directly and proximately caused by its conduct. Lee v. West Coast Life Insurance Company, Case No. 11-55026 (9th Cir. July 31, 2012).

In Lee, family members of a life insurance policyholder executed numerous change of ownership and beneficiary forms over the years. One of those forms, in 2005, was executed incorrectly at the direction of a West Coast agent, ultimately leaving two family members with the mistaken belief that they were beneficiaries under the policy. After the insured died, one family member submitted a claim, and other family members claimed entitlement to the proceeds. West Coast urged them to reach a mutual agreement, but they did not. Three claimants then sued West Coast for breach of contract and bad faith. West Coast filed a counterclaim in interpleader and deposited the policy proceeds with the court. Three other claimants filed counterclaims for negligence and declaratory relief against West Coast and crossclaims against the plaintiffs.

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