Opinion ID: 894821
Heading Depth: 1
Heading Rank: 4

Heading: Does Interpleader Halt the Statutory Penalties?

Text: The court of appeals assessed the prompt payment statute's penalties until final judgment was signed almost nine months after State Farm's interpleader. [29] While assessing penalties before interpleader is consistent with both the statutory and common-law rules, assessing them thereafter is not. When insurers receive notice of adverse bona fide claims, Texas law does not require them to act as judge and jury, [30] or to pay one claim and risk liability on the other. [31] Instead, if a reasonable doubt exists in law or fact as to whom the proceeds belong, an insurer should interplead them and let the courts decide. [32] [E]very reasonable doubt should be resolved in favor of the stakeholder's right to interplead. [33] Assessing penalty interest and attorney's fees after an interpleader is filed would punish insurers for doing exactly what Texas law encourages. Indeed, the more difficult and protracted the dispute between rival claimants (and thus the more justified the interpleader), the larger those penalties would grow. We must avoid construing the prompt payment statute to reach such an absurd result. [34] The statute itself does not mention interpleader, and only refers to prompt payment of a claim. [35] But as a result of the historical interpleader exception discussed above, it has always been the case that interpleader sufficed in place of payment. While the Legislature's 1991 adoption of a 60-day deadline suggests the courts should not continue imposing a different one, nothing in the 1991 changes suggests the Legislature intended to begin discouraging interpleaders. Moreover, the purposes behind the statute are advanced by encouraging interpleaders, not punishing them. The statute penalizes insurers who delay payment; an insurer who interpleads is no longer doing so. Thereafter, any delay in payment is the fault of the mistaken claimant, who is not punished by assessing penalties against the insurer. While the statute seeks to get policies paid as quickly as possible, it is not advanced by paying the wrong party, a consequence that interpleader avoids. Finally, treating interpleader as payment is consistent with our other interpretations of the prompt payment statute. The statute's penalties have always been payable only to those who can recover on a policy, [36] and only to the extent of amounts ultimately determined to be owed. [37] Thus, an insurer that tenders part of the policy proceeds must pay penalties only on the remainder, [38] and if the ultimate award is less than the tender no penalties are due at all. [39] Similarly, an insurer that interpleads the entire policy proceeds owes nothing more, and should not have to pay penalties on the presumption that it does. Of course, the same reasoning would not apply when an interpleader has no basis. If there are no rival claims, interpleader merely delays payment and should not toll the statute's penalties. [40] But interpleader is not improper merely because it is delayed; while some courts have listed prompt filing as an interpleader requirement, [41] the rules of procedure require only conflicting claims. [42] When rival claims exist, courts must decide who gets the proceeds no matter how tardy the deposit; [43] we cannot simply toss the money back out the clerk's window, [44] or return it to a stakeholder who makes no claim to it. Thus while delay may bar recovery of attorney's fees and incur the statutory penalties, only the absence of rival claims justifies continuing statutory penalties after interpleader occurs. Here, the parties agree the prompt payment deadline was 60 days, and State Farm's interpleader was filed 12 days later. Once State Farm interpleaded the entire policy proceeds, it owed nothing more on the policy. Thus, the courts below erred in awarding penalty interest and attorney's fees for more than those 12 days. The court of appeals seemed to believe that larger penalties were required because State Farm should have changed beneficiaries upon receiving Ed's written request. [45] We have at least suggested that an insurer might face liability for processing a change of beneficiary with knowledge of conflicting rights. [46] But in any event, whether State Farm should have added Toni as beneficiary is not the same question as whether it should have paid her. Again, in Great American Reserve Insurance Co. v. Sanders , we held interpleader was proper when a current wife questioned whether the named beneficiary (a former wife) should be paid on a policy purchased with community funds. [47] That the answer ultimately turned out to be Yes did not make interpleader any more improper than it was here. In this case, Linda unquestionably had not received all the alimony she was due, and the divorce agreement unquestionably prohibited Ed from dropping her as named beneficiary on his policies to that extent. While Linda and Toni ultimately agreed to impose a constructive trust to protect Linda's interest, State Farm could not impose such a settlement on them. Moreover, its right to interpleader must be determined by the conditions existing at the time of the filing, [48] not several months later when Linda released her claim, or several years later when Lisa released hers. Even assuming State Farm erred in not changing Ed's beneficiary immediately, it properly filed an interpleader after receiving adverse bona fide claims.