Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-01716/USCOURTS-caed-2_05-cv-01716-7/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Interpleader Action

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

UNITED INVESTORS LIFE No. 2:05-cv-1716-MCE-DAD

INSURANCE COMPANY,

Plaintiff,

v. ORDER

DONNA GRANT, individually and

as Administrator of the Estate

of George H. Grant, HELEN

FAUERBACH, JIM GRANT, KENNY

GRANT, BRANDON GRANT, and DOES

1 through 20, inclusive,

Defendants.

_________________________________/

DONNA GRANT, individually and as

Administrator of the Estate of 

George H. Grant,

Cross-Plaintiff,

v.

UNITED INVESTORS LIFE INSURANCE

COMPANY, and DOES 1 through 100,

inclusive,

Cross Defendants.

----oo0oo----

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Case 2:05-cv-01716-MCE -DAD Document 156 Filed 02/15/07 Page 1 of 11
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According to a Motion to Quash Deposition Subpoena filed by 1

Solano County in this matter on December 1, 2006, the homicide

investigation into George’s death remains open and active, and

Donna still has not been eliminated as a suspect. (Motion to

Quash, 2:28-3:1). Judicial Notice of that Motion to Quash, along

with other filings in this case, is unopposed and is hereby

granted.

2

This action arises from a life insurance policy issued by

Plaintiff United Investors life Insurance Company (“United

Investors”) on the life of George Grant (“George”). Following

George’s death as a result of an apparent homicide, his wife,

Donna Grant (“Donna”), as the primary beneficiary on the United

Investors policy, submitted a claim to United Investors for the

policy benefits. On August 25, 2005, more than fourteen months

after that claim was submitted, United Investors filed a

Complaint in Interpleader under Federal Rule of Civil Procedure

22 and deposited the face amount of the policy, plus interest

(for a total of $518,616.44) with the Clerk of this Court. 

According to the Complaint, the interpleader action was brought

because the Solano County Sheriff’s Department, in investigating

George’s death, had not ruled out anyone, including Donna, as a

suspect in the homicide. (Complaint, ¶ 14). Because California 1

Probate Code § 252 prohibits a beneficiary involved in a murder

from collecting on a policy insuring the life of the murder

victim, United Investors cited a bona fide concern of multiple

liability justifying interpleader if it were to pay Donna while

she remained a suspect. 

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3

United Investors’ concern in this regard was grounded upon the

possibility that if it paid Donna, and if she later were found to

be responsible for George’s death, other claimants could step

forward and claim that they should have been paid instead of

Donna, thereby raising the specter of having to pay the same

claim twice.

Donna responded to the Complaint in Interpleader by filing

her own Cross-Complaint against United Investors, alleging that

it willfully delayed paying the benefits to her under the United

Investors policy. By Memorandum and Order dated May 8, 2006,

this Court granted United Investors’ request for judgment in

interpleader, thereby absolving United Investors of any further

liability with respect to distribution of the policy proceeds

deposited with the Court on grounds that the threat of multiple

liability and competing claims did indeed exist. At the same

time, however, the Court denied United Investors’ concurrentlyfiled request for summary judgment as to Donna’s Cross-Complaint

on grounds that whether or not United Investors was reasonable in

waiting fourteen months before instituting interpleader

proceedings presented a factual issue not amenable to disposition

as a matter of law.

Through the present Motion for Summary Judgment, United

Investors in essence asks the Court to revisit that ruling, and

cites case law outside of California in arguing that its decision

to file an interpleader action cannot subject it to liability

sounding in either contract or tort. It is nonetheless well

settled that in a diversity action like this one the Court must

follow the law of the forum state, here California. 

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Because the May 8, 2006 Order already contains a general 2

discussion of the facts underlying this matter, as well as a

recitation of the legal standard applicable to consideration of a

motion for summary judgment, it is not necessary to discuss

either the facts or the law governing summary judgment at this

juncture.

4

Moreover, despite United Investors’ apparent contention to the

contrary, it is equally clear that Donna’s Cross-Complaint

initially survived scrutiny on summary judgment not because of

any impropriety in National Investors’ resort to interpleader

itself, but rather because of the factual issues implicit in

determining whether its claim handling before that filing was

reasonable. (May 8, 2006 Memorandum and Order, 16:8-26). As 2

the Court previously stated, under California law an unreasonable

delay in paying a covered claim may support a claim both for

breach of contract and breach of the implied covenant of good

faith and fair dealing. See Austero v. Nat’l Cas. Co., 84 Cal.

App. 3d 1, 26, 29-30 (1978); Amadeo v. Principal Mut. Life Ins.

Co., 290 F.3d 1152, 1162 (9th Cir. 2002) (insured may be liable

for bad faith if it is “arbitrary or unreasonable” in withholding

benefits under its policy). Here, it is uncontroverted that

United Investors claims personnel waited more than a year before

forwarding Donna’s life insurance claim to its legal department

to assess whether the claim should be paid pursuant to an action

in interpleader. Even Denise Oliver, who was in charge of

supervising the handling of the claim for United Investors,

admitted that such a delay was “unusual”, and that normally a

claim like Donna’s, where she was not cleared of responsibility

for her husband’s demise, would have been referred to legal

within ninety days. 

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At the request of the Court, Donna electronically lodged a 3

complete transcript of the depositions of both Donna Oliver and

Joyce Flowers on January 25, 2007.

While United Investors renews its objections to the 4

Declaration of Clinton Miller previously submitted in opposition

to United Investors’ earlier summary judgment request, again it

is not necessary to rule upon those objections inasmuch as the

Court did not rely upon the Miller Declaration in ruling upon the

instant motion.

See, e.g., Benefit Trust Life Ins. Co. v. Union Nat’l Bank 5

of Pittsburgh, 776 F.2d 1174 (3d Cir. 1985) (no duty to

interplead where insurer held life insurance proceeds for six

years pending investigation and trial of insured’s wife for

murder); Monumental Life Ins. Co. v. Lyons-Neder, 140 F. Supp. 2d

1265 (M.D. Ala. 2001) (summary judgment granted on breach of

contract and bad faith claims where no interpleader action filed

for nearly a year after receipt of claim by potential

beneficiary); Doe v. Am. Gen’l Life Ins Co., 526 N.Y.S.2d 904

(N.Y. Sup. 1988) (withholding of policy proceeds for three years

not unreasonable pending murder investigation). 

5

(Denise Oliver Depo., 50:6-23; 52:19-25; 144:1-14). In 3

addition, it is also undisputed that United Investors did no

investigation of their own to help determine Donna’s involvement,

if any, in George’s death prior to interpleading the policy

proceeds some fourteen months after the claim was initially

submitted.

These circumstances all present triable issues of fact with

respect to the reasonableness of United Investors’ claims

handling that make this case not amenable to disposition on

summary judgment. While United Investors does cite several 4

cases which found no duty to interplead on an insurer’s part in

cases of potential beneficiary involvement, even with the passage

of more time that elapsed here before United Investors deposited

its funds, all of those cases come from outside California and

are consequently not binding on this Court. 

5

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The Court notes that United Investors tries to distinguish 6

Austero on grounds that it was limited to an unreasonable delay

in paying a “covered” claim, arguing that the present claim in

not “covered” because Donna cannot establish her entitlement to

the policy proceeds at this time. That distinction lacks merit,

however, inasmuch as it is undisputed that United Investors owes

its policy proceeds to someone and hence is faced with a

“covered” claim. The fact that Donna’s claim remains problematic

does not alter the fact that United Investors has a covered,

payable loss following George’s death.

While United Investors cites Chateau Chamberay Homeowner’s 7

Ass’n v. Assoc. Int’l Ins. Co., 90 Cal. App. 4th 335, 346-47

(2001) in favor of a conclusion to the contrary, that case holds

that where there is a genuine issue as to the insurer’s

liability, there can be no bad faith liability on the part of the

insured for not paying the claim. Here, however, it is

undisputed that United Investors was obligated to pay the claim,

the only question was to whom. United Investors hence cannot

rely upon Chateau Chamberay to avoid the general proposition that

delay in paying an admittedly payable claim may be actionable.

6

As stated above, California law indicates that dilatory claims

handling, and failing to pursue resolution of a claim with

reasonable diligence, may sound in both tort and contract. 

Austero, 84 Cal. App. 3d 1, 26, 29-30; see also Fleming v. 6

Safeco Ins. Co. Inc., 160 Cal. App. 3d 31, 37 (1984); Gruenberg

v. Aetna Ins. Co., 9 Cal. 3d 566, 574 (1973). Given that general

statement of California law, as well as the fact that a delay in

initiating interpleader has not been squarely addressed under

California law, this Court cannot say as a matter of law that

United Investors’ delay in initiating interpleader proceedings is

not potentially actionable. Significantly, too, even the non- 7

California cases cited by United Investors may be

distinguishable. In Monumental Life, unlike the present matter,

the insurer had done investigation on its own during the period

of time preceding institution of its interpleader action. 140 F.

Supp. 2d at 1268. 

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7

In Benefit Trust, while the court found no mandatory duty to

resort to interpleader interpleader, it nonetheless noted that a

dissatisfied beneficiary still had the option of suing for breach

of contract as Donna has done here. 776 F.2d at 1177.

United Investors’ claim that Donna has not identified any

damages, even if she can identify a breach, is similarly

unavailing. According to United Investors, Donna cannot have

been damaged by any delay on its part given the fact that she

currently remains unable to establish her entitlement to the

interpled funds. That does not rule out the possibility that

this entire process could have concluded sooner had interpleader

proceedings been instituted earlier, thereby obviating Donna’s

claimed financial distress and damages flowing therefrom. 

Donna’s claimed damages present classic questions of fact

inappropriate for resolution on summary judgment.

For all these reasons the Court declines to enter summary

judgment as to Donna’s breach of contract and breach of the

covenant of good faith and fair dealing claims. With respect to

Donna’s causes of action for intentional and negligent infliction

of emotional distress, however, the Court agrees that Donna has

not stated cognizable claims.

 Intentional infliction of emotional distress requires a

plaintiff to identify “outrageous” acts that are “so extreme as

to exceed all the bounds of that usually tolerated in a civilized

society.” Schlauch v. Hartford Acc. & Indem. Co., 146 Cal. App.

3d 926, 936 (1983). Donna has identified no facts even arguably

sufficient to satisfy that high standard. 

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8

Even if United Investors did delay the processing of Donna’s

claim so as to expose it to contractual and tortious breaches as

discussed above, the fact remains that it did so in the face of

an ongoing homicide investigation. Under those circumstances,

United Investors’ claims handling cannot possibly be deemed so

“outrageous” and beyond the scope of socially tolerated behavior

so as to lay the foundation for a claim of intentional infliction

of emotional distress.

Donna also has not stated a viable claim for negligent

infliction of emotional distress. First of all, there is no

independent tort of negligent infliction of emotional distress;

instead the claim is for negligence that may under limited

circumstances give rise to emotional distress damages ordinarily

unavailable in standard negligence proceedings. Potter v.

Firestone Tire & Rubber Co., 6 Cal. 4th 965, 984-85 (1993). 

Those circumstances revolve around judicially recognized

instances where the defendant is deemed to have assumed a duty

related to the emotional condition of the claimant. Id. Such

instances include the so-called “innocent bystander” theory of

liability wherein a tortfeasor is charged with the foreseeability

of emotional distress to a close family member who directly

observes injury to a relative (see Dillon v. Legg, 68 Cal. 2d

728, 740 (1968)), as well as imputed responsibility under a

“direct victim” model wherein the probability of similar direct

injury is increased because of a preexisting relationship like

that between a doctor and patient. See Marlene F. v. Affiliated

Psychiatric Medical Clinic, Inc., 48 Cal. 3d 583, 590 (1989). 

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9

Donna has not established that her case fits within these narrow

confines, and hence her claim for negligent infliction of

emotional distress must fail.

Donna has similarly not demonstrated that this case

qualifies for the potential imposition of punitive damages, which

under California Civil Code § 3294(c) are reserved for instances

where clearly and convincing evidence has been adduced which

shows that defendant acted with “oppression, fraud or malice”.

The statute goes on to frame such behavior in terms of

“despicable conduct” that must be “so vile, base, contemptible,

miserable, wretched or loathsome that it would be looked down

upon and despised by ordinary decent people.” Mock v. Mich.

Millers Mutual Ins. Co., 4 Cal. App. 4th 306, 331 (1992). 

Punitive damages go even beyond conduct amounting to a breach of

the covenant of good faith and fair dealing in requiring

additional evidence of an intent to injure the insured. See Beck

v. State Farm Mutual Ins. Co., 54 Cal. App. 3d 347, 355-56

(1976). No such intent has been demonstrated here. Withholding

payment of insurance policy proceeds during the pendency of a

ongoing murder investigation, even if ultimately determined to be

misguided, cannot satisfy this rigorous standard, especially

since California law does not favor imposition of punitive

damages in the first place. Id. 

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10

Nor is coverage by estoppel applicable to the present

proceedings, since Donna does not dispute United Investors’

characterization of her argument in favor of such estoppel as

hinging solely on the contention that United Investors must be

bound to its contractual promise to pay her as the beneficiary

under her husband’s life insurance policy in the event of his

death. Given the prohibitions of California Probate Code § 252,

which, as stated above, prohibits a beneficiary found responsible

for an individual’s death from collecting insurance proceeds

payable on that person’s life, Donna’s estoppel claim is clearly

misplaced.

United Investor’s last claim upon which summary adjudication

is requested rests with its allegation that because its conduct

in handling Donna’s claim cannot be considered tortious, by

definition there was no bad faith conduct triggering entitlement

to attorney’s fees expended in the face of that conduct in order

to recover benefits due under the policy. In short, United

Investors argues that because its conduct was proper it cannot be

subject to attorney’s fees under the doctrine enunciated in

Brandt v. Super. Ct., 37 Cal. 3d 813, 817-18 (1985), which

authorizes recoupment of attorney’s fees necessary to recover

benefits wrongfully withheld. Again, for the same reasons

delineated above, the reasonableness of United Investors’ conduct

in the face of Donna’s claim, and the corresponding necessity of

attorney’s fees in the fact of that conduct, all involve the

weighing of factual matters not appropriate for disposition on

summary judgment.

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Because oral argument will not be of material assistance, 8

the Court orders this matter submitted on the briefs. E.D. Cal.

Local Rule 78-230(h).

11

Based on the foregoing, United Investors’ request for

summary judgment as to Donna’s Cross-Complaint in its entirety is

hereby denied. Summary adjudication is granted with respect to

Donna’s claims for intentional infliction of emotional distress,

negligent infliction of emotional distress, coverage by estoppel

and punitive damages but is otherwise denied. 

8

IT IS SO ORDERED.

Dated: February 14, 2007

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

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