In Farmers New World Life Insurance Company v. Rees (--- Cal.Rptr.3d ----, Cal.App. 2 Dist., August 30, 2013), a California court of appeal considered whether a life insurance company that delayed paying benefits to the spouse of a decedent, who had been a suspect in causing her death, was entitled to be awarded attorney fees from the benefits after pursuing an interpleader action to determine how to proceed with the claim. The court ruled that the trial court’s award of fees was proper because the funds were “disputed funds,” the company asserted no interest in the funds, and nothing in law excludes a life insurance company from being awarded costs and fees.
Frank and Rosamaria Rees were married in 1997. In 1998, they each purchased life insurance policies from Farmers New World Life Insurance Company (“Farmers”), naming each other as beneficiaries, with benefits of $150,000. In September 2009, Rosamaria was shot and killed in the street outside the home she shared with Frank.
Frank submitted a claim to collect the benefits from Rosamaria’s life insurance policy. Farmers replied that it had communicated with the Los Angeles Police Department (“LAPD”), which indicated that it was investigating the death as a homicide. Farmers told Frank it would await the results of the LAPD investigation before determining how to handle the claim. Several similar conversations occurred in the months that followed. During this period, according to Farmers, a detective from the LAPD informed Farmers that the investigation was ongoing and that Frank was considered a suspect in Rosamaria’s killing.
In July 2010, Frank retained counsel who wrote Farmers to ask if the benefits had not been paid because Farmers believed Frank may have been responsible for Rosamaria’s death. Farmers filed an interpleader action that stated because the LAPD considered Frank a suspect in the homicide of Rosamaria, Farmers was unable to determine how to proceed with the benefits. Farmer’s asked to deposit the funds with the court and sought costs and reasonable attorney fees in connection with the case.
Frank filed a cross-complaint against Farmers and Rosamaria’s mother (who would have received the funds had Frank been found responsible for Rosamaria’s death), requesting a determination that he was entitled to the benefits of $150,000. Rosamaria’s mother did not respond to the complaint, and the court entered a default judgment against her. In November 2011, the court granted Frank’s motion and ordered that he be paid the funds plus interest, less the $7,997.49 requested by Farmers. Frank received a check for $146,589.51.
Frank appealed the award of costs and fees to Farmers.
Code of Civil Procedure Section 386.6 states that a court has discretion to award costs and reasonable attorney fees from an amount “in dispute” that is deposited with the court. Whether attorney fees were appropriate here rests on the question of whether the life insurance benefits deposited with the court were “in dispute.” Frank claimed they were not in dispute because no one other than him had claimed the funds.
However, Probate Code Section 252 provides that a beneficiary who “feloniously and intentionally kills” the insured person is not entitled to receive any benefit. The LAPD had advised Farmers that Frank had been a suspect in causing Rosamaria’s death. Therefore, Farmers recognized a dispute over how it should handle payment of the benefits and initiated the interpleader proceeding. Accordingly, the court ruled that the funds were “in dispute,” for purposes of attorney fees and costs pursuant to Section 386.6.
Frank further contended that Farmers was not entitled to fees and costs because it had ceased being a disinterested stakeholder in the funds when it postponed payment to him pending the investigation. In fact, the court said, Farmers never asserted an interest in the interpleaded funds, and the trial court recognized as much when it granted Frank’s motion to release the funds.
Finally, the court rejected Frank’s claim that the trial court abused its discretion by granting attorney fees because that cost of doing business should be spread among all policy holders, not a single beneficiary. In fact, the court said, nothing in the statutory scheme allowing courts to award attorney fees suggests that life insurance companies should be exempt from such an award. The court noted, “[t]he provision does not contemplate that a trial court may exercise its discretion to award attorney fees and costs to only a particular type of party.”
Since the funds were “in dispute,” Farmers had not asserted an interest in the funds, and nothing in law exempts life insurance companies from receiving attorney fees and costs, the appellate court held that trial court correctly awarded the fees and costs to Farmers. The judgment was affirmed.