Interpleader is a special kind of lawsuit. It usually involves three parties. There is the stakeholder and two claimants. In this scenario the insurance company, who is obligated to pay out the proceeds, is faced with two conflicting claims. Party A makes a claim for benefits, but so does Party B. When the insurance carrier is faced with this situation it may need the court to step in and resolve the dispute. This is the function of an interpleader action.
In a dispute over life insurance benefits, the interpleader suit would normally be filed by the insurance company, who is the stakeholder. Based on experience, life insurance carriers seem to prefer to file interpleader suits in federal court. There are two distinct stages to a federal interpleader action. In the first stage, the court makes the decision as to whether the requirements for an interpleader suit are met. If the court decides there is a basis for an interpleader suit, the case then moves on to the second stage.
The second stage of an interpleader action is the substantive part of the case. This is where the competing claims to the life insurance benefits are adjudicated by the court. The winner of the case is entitled to the funds; or, the parties will settle.
When there is a competing claimant to the death benefit often times that claimant will argue that the other party exercised undue influence.
In a nutshell, the claimant argues that the beneficiary is not entitled to the proceeds because the beneficiary exercised undue influence over the deceased. If the claimant can successfully make this argument, the beneficiary could be denied the funds.
The notion of undue influence is often found in the context of a will contest. But this principle can also apply in life insurance cases. In sum, undue influence occurs where the mind of the insured is controlled or affected by persuasion or pressure that is exercised by the insidious influence of a person who is close to that insured; so much so, that the insured is not acting on his or her own voluntary will, but is instead truly acting in response to the will of the influencing person.
To put it in more laymen’s terms, undue influence will involve a state of affairs where the insured makes a beneficiary designation in the policy, but only because there is someone else who is actually directing the insured to do it.
Cases involving undue influence tend to be fact-intensive, and even quite heated.
The beneficiary, who is accused of acting with undue influence, will argue that he or she did nothing wrong, and that the insured made a completely voluntary decision with respect to the policy. The claimant, to the contrary, will bring up facts and evidence to support the claim of undue influence. Such evidence might point to the nature of the relations between the beneficiary and the insured, the insured’s medical condition and mental capacity at the relevant time, and other pertinent evidence.