A life insurance company can recover the attorney’s fees and costs it incurred during an interpleader action following the murder of a policyholder, a California appellate court has ruled. 

The case

Frank and Rosamaria Rees were married in 1997. In May 1998, they each obtained from Farmers New World Life Insurance Company a life insurance policy with benefits of $150,000. Ms. Rees’ policy insured her life, and Mr. Rees’ policy insured his life. They named the other as the sole primary beneficiary and listed no contingent beneficiaries.  

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On Sept. 18, 2009, Ms. Rees, on her way to pick up Mr. Rees from a Gamblers Anonymous meeting, was shot and killed in the street outside the home she shared with him. She died without a will and without having borne any children. She was predeceased by her father but survived by her mother.

After a Farmers insurance agent informed the company of Ms. Rees’ death, a claims officer contacted Mr. Rees, who indicated that the Los Angeles Police Department (LAPD) was investigating Ms. Rees’ death as a homicide.

Mr. Rees subsequently submitted a claim to Farmers for the $150,000 in life insurance benefits. Farmers responded by a letter to Mr. Rees in which it said, “During our claims evaluation we have contacted the [LAPD] Robbery/Homicide Division and have been informed that their investigation is ongoing and that no one has been ruled out as a suspect in the homicide of our insured [Ms. Rees] at this time. Therefore, we will await the results of the police investigation before discharging our obligation in this case.”

After counsel for Mr. Rees contacted Farmers, the insurer filed an interpleader action. Mr. Rees answered the complaint and asserted a cause of action for declaratory relief against Farmers and Ms. Rees’ mother, as the person who would receive the policy benefits through Ms. Rees’ estate if he were found to have feloniously and intentionally killed her.  

Ms. Rees’ mother did not answer or otherwise respond, and the clerk entered a default against her. Farmers then moved for an order releasing the noncontested portion of the interpleaded funds to Mr. Rees, i.e., the $150,000, plus interest, in policy benefits, less $7,997.49 in attorney’s fees and costs requested by Farmers. The trial court ordered the clerk to pay Mr. Rees the interpleaded funds less the $7,997.49 requested by Farmers in attorney’s fees and costs. It then awarded Farmers attorney’s fees $7,506.30 plus $491.19 in costs and directed the clerk to pay Farmers that amount, which was the balance of the interpleaded funds. 

Mr. Rees appealed.

The appellate court’s decision

The appellate court affirmed, ruling that the award of attorney’s fees and costs had been proper.

It explained that the funds deposited with the court were “in dispute,” as required by applicable California law, because of the ongoing investigation. That Ms. Rees’ mother defaulted in the action, and that the trial court determined that Mr. Rees was entitled to the funds, did not mean the funds were not in dispute, the appellate court said.

The appellate court also observed that Mr. Rees had not contested Farmers’ decision to interplead the funds but had answered the original complaint, without asserting any affirmative defenses. As a result, the appellate court decided, Mr. Rees could not challenge the award of attorney’s fees and costs on the ground that Farmers had not been entitled to bring an interpleader action.

In any event, it said, given Mr. Rees’ status as a suspect in Ms. Rees’ homicide, and the statutory requirement that Farmers administer the policy as though Mr. Rees had predeceased Ms. Rees if he were found to have feloniously and intentionally killed her, “a reasonable probability of double vexation existed at the time Farmers filed the interpleader action.”

Moreover, the appellate court ruled, Farmers had not ceased being a disinterested stakeholder to preclude an award of attorney’s fees and costs during the course of the litigation.

Finally, it concluded, the award of attorney’s fees and costs was not an abuse of discretion. It explained that the statutory scheme for interpleader contemplated an award of attorney’s fees in the trial court’s discretion — and that nothing in that scheme suggested that life insurance companies should be exempt from such an award as a routine cost of doing business.

The case is Farmers New World Life Ins. Co. v. Rees, No. B241099 (Cal.Ct. App. Aug. 30, 2013). Attorneys involved include: Blumberg Law Corporation, Ave Buchwald and John P. Blumberg for Defendant and Appellant; Fulbright & Jaworski, Peter H. Mason and Ryan T. McCoy for Plaintiff and Respondent.

Originally published on FC&S Legal: The Insurance Coverage Law Information Center. FC&S Legal is theindustry’s ONLY single-source, comprehensive portal developed specifically for insurance coverage law professionals.To find out more, visit www.fcandslegal.com. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.


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