In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 14-1464

STATE FARM LIFE INSURANCE COMPANY,

Plaintiff-Appellee,

v.

TROY JONAS, et al.,

Defendants-Appellants.

____________________

Appeal from the United States District Court for the

Southern District of Indiana, Indianapolis Division.

No. 1:12-cv-1500-WTL-MJD — William T. Lawrence, Judge.

____________________

ARGUED DECEMBER 5, 2014 — DECIDED DECEMBER 31, 2014

____________________

Before FLAUM, EASTERBROOK, and KANNE, Circuit Judges.

EASTERBROOK, Circuit Judge. Troy Jonas and his wife Jennifer purchased reciprocal policies of life insurance: she 

owned the policy on her life, with him as beneficiary; he 

owned the policy on his life, with her as beneficiary. When 

they divorced in 2011, the court reassigned the policies’ 

ownership: after the divorce, Troy owned the policy on Jennifer’s life. Each policy provided that “[a] change of Owner 

or Successor Owner does not change the Beneficiary Desig-
2 No. 14-1464

nation.” Troy therefore thought it unnecessary to redesignate himself as the beneficiary of the policy insuring Jennifer’s life.

Jennifer died on August 30, 2012. Troy promptly submitted a claim for the proceeds ($1 million). State Farm Life Insurance did not pay. It expressed concern that the proceeds 

might belong to the couple’s children (who had been named 

as secondary beneficiaries) or to Jennifer’s estate as a result 

of Tex. Family Code §9.301, which provides that if a divorce 

occurs after one spouse has designated the other spouse as a 

beneficiary of an insurance policy, the designation lapses 

(with some exceptions) and, unless a new designation is 

made, the proceeds belong to any alternative beneficiary or 

the decedent’s estate. (Jennifer was domiciled in Texas when 

she died, and the policy had been issued there; the parties 

agree that Texas law applies to this litigation.) Troy replied 

that this provision does not apply when the divorce decree 

reassigns the policy’s ownership to the named beneficiary.

Texas law requires an insurer to pay within 60 days of 

receiving a claim, Tex. Ins. Code §542.058(a), and provides 

for “damages” if payment is delayed. Damages under Tex. 

Ins. Code §542.060 are interest at 18% a year plus reasonable 

attorneys’ fees that the claimant incurs in collecting. But an 

insurer that receives “notice of an adverse, bona fide claim” 

within 60 days of the initial claim may defer payment and

properly file an interpleader action and tender the benefits into 

the registry of the court not later than the 90th day after the date 

the insurer receives [the initial claim]. A life insurer that delays 

payment of the claim or the filing of an interpleader and tender 

of policy proceeds for more than 90 days shall pay damages and 

other items as provided by Section 542.060 until the claim is paid 

or an interpleader is properly filed.
No. 14-1464 3

Tex. Ins. Code §542.058(c). One final provision of Texas law 

plays a role in this federal litigation. Tex. Ins. Code §1103.103

provides that if an insurer does not receive a competing 

claim before it pays the policy’s designated beneficiary, it is 

absolved of any liability to a later claimant, whether or not 

the belated claimant had a superior entitlement to the proceeds. See also State Farm Life Insurance Co. v. Martinez, 216 

S.W.3d 799, 806 n.31 (Tex. 2007).

State Farm did not receive any claim other than Troy’s. 

Still, it did not pay. Instead it filed this action in federal 

court, nominally as an interpleader under 28 U.S.C. §1335, 

on October 16, 2012—before the 60 days had run, and well 

inside the 90 days allowed by §542.058(c). But there were 

two problems, one with Texas law and one with federal law. 

The problem under Texas law is that State Farm had not received “notice of an adverse, bona fide claim”. We’ll come 

back to the problem under federal law.

Troy replied to State Farm’s action by asking the district 

court to award him the proceeds plus 18% interest and attorneys’ fees. He contended that the suit was unnecessary 

(State Farm not having received an adverse claim) and that 

delay in payment contravened Texas law. The district court 

disagreed. Relying on Clements v. Minnesota Life Insurance 

Co., 176 S.W.3d 258, 263 (Tex. App. 2004), it treated State 

Farm’s concern about the potential rights of the children 

(and Jennifer’s estate) as equivalent to a bona fide claim adverse to Troy’s. That was enough to permit State Farm to 

commence an interpleader—and since it had done that within 90 days of Troy’s claim, Texas law permitted it to use the 

2% contractual rate of interest rather than the 18% rate under 

§542.060. 2013 U.S. Dist. LEXIS 81720 (S.D. Ind. June 11, 2013), 
4 No. 14-1464

reconsideration denied, 2013 U.S. Dist. LEXIS 86703 (June 20, 

2013). The judge ordered State Farm to remit the proceeds to 

the court’s registry. State Farm complied on June 17, 2013, 

and the court disbursed the money to Troy on February 6, 

2014. (The record does not explain why the court held onto 

the money for almost eight months.) Troy contends in this 

appeal that he is entitled to recover his attorneys’ fees and 

that the rate of interest should have been 18% rather than 

2%, and should run until he received the money.

This brings us to the federal problem, which has implications under Texas law too. The problem is this: State Farm 

did not file an interpleader under 28 U.S.C. §1335. It may 

have thought that it did, but it didn’t. Section 1335 creates 

jurisdiction of interpleader actions if two conditions are met. 

Subsection (a)(1) specifies minimal diversity among claimants, which was satisfied. (Jennifer was domiciled in Texas 

on her death, so her estate also has Texas citizenship, 28 

U.S.C. §1332(c)(2); Troy and the children were domiciled in 

Indiana when the suit began.) Subsection (a)(2) requires the 

deposit of the stakes in the district court’s registry. That 

condition was not satisfied. State Farm filed a complaint but 

not a check or any other financial instrument. Both parts are 

jurisdictional. Section 1335(a) reads: “The district courts shall 

have original jurisdiction ... if (1) ... and if (2) ... .” State 

Farm satisfied (1) but not (2), so §1335 does not provide subject-matter jurisdiction.

The consequence under Texas law is that Ins. Code 

§542.058(c) drops out of the picture, for it requires an insurer 

not only to file an interpleader action but also to “tender the 

benefits into the registry of the court not later than the 90th 

day after the date the insurer receives [the initial claim].”
No. 14-1464 5

Texas may permit interpleader actions in state court based 

on promises to pay rather than contemporaneous deposits, 

but federal procedures govern in federal litigation, see Shady 

Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 559 

U.S. 393 (2010), and §1335(a)(2) requires cash on the barrelhead. Moreover, whether or not Texas allows an interpleader without a cash deposit, §542.058(c) requires a deposit to 

avoid damages under §542.060. This means that State Farm 

cannot use the federal action to defend against Troy’s demand for damages under §542.060.

Troy wants us to remand with instructions to calculate 

and award attorneys’ fees and the extra interest. But we can’t 

do that either. A remand with any instruction other than 

dismissal depends on the existence of subject-matter jurisdiction. Section 1335 does not supply jurisdiction.

Section 1332, the general diversity statute, also must be 

considered. Interpleader using the §1332 jurisdiction has 

been authorized by Fed. R. Civ. P. 22, which does not require 

a cash deposit. See Gelfgren v. Republic National Life Insurance 

Co., 680 F.2d 79, 81–82 (9th Cir. 1982); Murphy v. Travelers Insurance Co., 534 F.2d 1155, 1159 (5th Cir. 1976). The lack of a 

deposit means that §542.058(c) remains unsatisfied, even if 

we treat this action as a rule interpleader (the parties have 

not done so; their briefs do not mention Rule 22), but before 

considering whether we can order any relief, we must address subject-matter jurisdiction. Complete diversity exists 

(State Farm is incorporated and has its principal place of 

business in Illinois; the other parties are citizens of Indiana

or Texas; the stakes exceed $75,000), but where is the controversy necessary to satisfy Article III of the Constitution?
6 No. 14-1464

State Farm acknowledges that it must pay the proceeds 

(and interest) to someone, and Troy is the only claimant. A 

genuine risk of multiple liability—being ordered to pay Troy 

plus the children, or Troy plus Jennifer’s estate—could provide a justiciable controversy, but Texas law eliminates that 

risk. Section 1103.103 of the Tex. Ins. Code protects insurers 

that pay the named beneficiary when no one else makes a 

competing claim. At oral argument, State Farm’s lawyer told 

us that it was not “comfortable” relying on §1103.103, but it 

is not the role of a federal court to provide comfort to litigants. Federal courts resolve concrete disputes between real 

adversaries, and this suit lacks such a controversy. Section 

1103.103 means that State Farm has never faced a realistic 

prospect of multiple liability. Compare Susan B. Anthony List 

v. Driehaus, 134 S. Ct. 2334 (2014) (a “credible threat” of liability creates a justiciable controversy), with Steffel v. Thompson, 415 U.S. 452, 459 (1974) (an “imaginary or speculative” 

risk of liability does not).

Troy takes a different position. He concedes that there 

was no justiciable controversy when the suit was filed—not 

even one about the rate of interest, since State Farm filed the 

suit before the 60th day after his claim, and thus before the 

rate of interest stepped up from 2% to 18%. But he contends 

that once the 60th day passed a controversy arose about 

whether State Farm is liable under §542.060. The problem 

with that contention is that a case or controversy must exist

when a suit begins—and on that date there was no live controversy. If disputes about attorneys’ fees and interest during

the litigation could create a justiciable controversy, then no 

case could be dismissed for lack of one, if only because the 

winner of every suit is presumptively entitled to costs under 

28 U.S.C. §1920.
No. 14-1464 7

Several times the Supreme Court has encountered the 

contention that a dispute about the allocation of costs, attorneys’ fees, or other post-filing expenses justifies adjudication 

of a suit that is otherwise not within federal jurisdiction. For 

example, in Diamond v. Charles, 476 U.S. 54 (1986), an intervenor who had been ordered to pay the prevailing side’s legal fees contended that this kept the controversy alive, even 

though the only litigants with standing had dropped out,

since if the judgment were reversed on the merits the award 

of fees would fall with it. The Justices held, however, that 

awards of legal fees and other post-filing procedural events 

could not supply a case or controversy. 476 U.S. at 68–71. 

The Court followed up by holding that a litigant cannot 

sidestep the need for a controversy on the merits by bringing 

suit for the costs of bringing suit. Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 107 (1998). See also Lewis v. Continental Bank Corp., 494 U.S. 472 (1990).

When this litigation began, there was no justiciable controversy. The current disputes about the rate of interest and 

whether State Farm must pay the attorneys’ fees that Troy 

has incurred in this litigation do not retroactively create jurisdiction. Troy must turn to state court in order to seek any 

further award—though we hope that what we have said in 

this opinion will enable the parties to settle.

The judgment of the district court is vacated, and the case 

is remanded with instructions to dismiss for lack of subjectmatter jurisdiction.