Murphy v. Travelers Ins. Co.

• Decision Date: 12 July 1976
• Docket Number: No. 74-3986,74-3986
• Citation: 534 F.2d 1155
• Parties: Sandra Joanne MURPHY, Plaintiff-Third Party Defendant-Appellant-Cross Appellee, v. The TRAVELERS INSURANCE COMPANY, Defendant-Third Party Plaintiff-Appellee-Cross Appellant, v. Barbara A. MURPHY, Individually and as parent and natural guardian of minors Lee S. Murphy, et al., etc., Third Party Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1155

534 F.2d 1155

Sandra Joanne MURPHY, Plaintiff-Third Party Defendant-Appellant-Cross Appellee, v. The TRAVELERS INSURANCE COMPANY, Defendant-Third Party Plaintiff-Appellee-Cross Appellant, v. Barbara A. MURPHY, Individually and as parent and natural

guardian of minors Lee S. Murphy, et al., etc.,

Third Party Defendants-Appellees.

No. 74-3986.

United States Court of Appeals, Fifth Circuit.

July 12, 1976.

Philip A. Masquelette, Houston, Tex., for appellant.

Michael G. Terry, Houston, Tex., for Travelers Ins. Co.

Sidney L. Farr, Houston, Tex., for Barbara A. Murphy, etc., et al.

Appeals from the United States District Court for the Southern District of Texas.

Before GODBOLD and RONEY, Circuit Judges, and FREEMAN, District Judge.

RICHARD C. FREEMAN, District Judge:

This interpleader action concerns the competing claims of the widow and the former wife and children of Donald Lee Murphy to the proceeds of a group life insurance policy. At the time of his death, Donald's life was insured for $48,000.00 under a group life insurance policy issued by Travelers Insurance Co. (hereinafter "Travelers" ) covering the employees of Texaco, Inc. Following a nonjury trial, the district court entered judgment awarding $8,000.00 to Michael Murphy, Donald's son, and $16,000.00 to Donald's former wife, Barbara Murphy, as guardian ad litem for Lee and John, Donald's other children (hereinafter appellees). Sandra Murphy, Donald's second wife, had already been paid $3,000.00 by Travelers, because she was the designated beneficiary under the policy; and on entry of judgment, she was allowed to withdraw the remaining $21,000.00 from the registry of the court. The trial court ordered Travelers to pay interest on the proceeds of the policy to the claimants and also taxed costs against Travelers. The trial court refused to assess a statutory penalty and award attorneys' fees in the action.

Sandra has appealed from this judgment, arguing that the court lacked subject matter jurisdiction over the interpleader action, that the court erred in awarding $24,000.00 to appellees, and that the court erred in failing to enter judgment against Travelers for attorney's fees and statutory damages. Travelers has filed a cross appeal contesting the award of interest and costs. Before proceeding to the merits of these issues, some further review of the salient facts is warranted.

As noted above, the dispute in issue concerns competing claims to the proceeds of a group life insurance policy covering the employees of Texaco, Inc. Donald became an insured under the policy in 1958, shortly after he commenced working for Texaco as a geophysicist. At that time, he designated Barbara as his beneficiary under the policy. Donald and Barbara had been married in 1951 and had three children, Michael, born July 10, 1952; Lee, born September 27, 1959; and John, born July 4, 1962. Barbara, Michael, John, and Lee are residents of California. On May 23, 1968, Barbara and Donald signed a property settlement agreement providing for the division of property, the payment of alimony to Barbara, and the payment of child support. In addition, the agreement made reference to two insurance policies, one designated as "the family insurance policy presently in effect," and the other designated as a "group life insurance policy." The parties do not dispute the fact that the second policy is the policy in issue in this case. The relevant portions of the property settlement relating to this policy provide as follows: "Husband further agrees to make the minor children of the parties irrevocable beneficiaries of up to one-half of his pension plan and group life insurance policy, for a period of twenty (20) years." This property settlement agreement, including the terms relating to the group life insurance policy, was incorporated into an interlocutory judgment of divorce, dated September 20, 1968 and entered by the Superior Court of Orange County, California. A final judgment of divorce was approved by that court on January 20, 1970.

Donald did not comply with the provisions of the divorce decree and property settlement agreement concerning the designation of his children as beneficiaries; but instead, following his marriage to Sandra, named her as the sole beneficiary of the policy proceeds. The change of beneficiary form naming Sandra as beneficiary was dated July 27, 1971. Donald died on December 14, 1972, while the insurance policy was in full force and effect. As noted above, Travelers paid Sandra a $3,000.00 advance on the policy that same day. Texaco, Inc. was informed of the appellees' adverse claim to the policy proceeds by a telephone call on December 19, 1972, by a telegram dated December 22, 1972, and by a subsequent letter from Barbara and an attorney, which was forwarded to Travelers on January 5, 1973. Sandra submitted a demand letter to Travelers claiming the entire proceeds of the policy on January 16, 1973, and commenced the instant action on January 18, 1973. ¹ Travelers, pursuant to an extension, filed its answer on February 12, 1973. In the interim, on February 9, 1973, Travelers had received a demand from Barbara for one-half the policy proceeds. Thereafter, Travelers attempted to file a third party action for interpleader, paying $24,000.00, the amount claimed by appellees, into the registry of the court. Although this interpleader claim was procedurally deficient and was not allowed filed, plaintiff Sandra had already prepared a motion objecting to interpleader on the ground that the entire $45,000.00 in dispute had not been tendered to the court. A properly prepared motion for leave to file the interpleader claim was filed on April 5, 1973, and granted by the court on May 29, 1973. The $45,000.00 in proceeds was deposited with the court on June 12, 1973, and, pursuant to court order, transferred to an interest bearing savings account on February

8, 1974. Before turning to the substantive and procedural issues presented by this appeal, it is appropriate to consider the question of the trial court's jurisdiction over the interpleader claim.

INTERPLEADER JURISDICTION

In contesting the district court's jurisdiction to entertain Travelers' interpleader claim, appellant argues that the claim is deficient because the entire amount in dispute was not deposited into the registry of the court. Appellant contends that merely depositing the face amount of the policy proceeds is not enough where the claimant also seeks recovery of attorney's fees and statutory damages. We do not agree. Although the deposit requirement is a jurisdictional prerequisite to suit under the interpleader statute, 28 U.S.C. § 1335, payment of the face amount of the policy proceeds into the court has long been held to be sufficient. E. g., Ross v. International Life Insurance Co., 24 F.2d 345 (6th Cir. 1928). Thus, "(t)he preferred practice is to require only that the stakeholder deposit all of the disputed property he has in his possession, even though it might be less than is claimed by one or more of the defendants." C. Wright & A. Miller, Federal Practice and Procedure § 1716 at 459 (1972). This "preferred" practice is the rule in this Circuit. Austin v. Texas-Ohio Gas Co., 218 F.2d 739, 744-45 (5th Cir. 1955). The language of 28 U.S.C. § 1335(a) refers to " money or property" in the "custody or possession" of the party seeking interpleader. The plain language of the statute clearly refers to tangible property interests or interests evidenced by a "note, bond, certificate, policy of insurance" or other similar intangible document of definite, ascertainable value. An inchoate, uncertain claim for attorney's fees or chose in action asserted against the general assets of a party rather than specific, identifiable "property" is not a proper subject for interpleader relief. ² Adopting appellant's reasoning would not only compel reversal of this case, it would unduly broaden federal interpleader jurisdiction to include virtually any contingent or inchoate claim which might ultimately be the subject of litigation. See Wallach v. Cannon, supra.

Finally, although the interpleader claim in the instant suit was predicated on 28 U.S.C. § 1335, it appears that interpleader is also permissible under Rule 22, Fed.R.Civ.P. Rule 22 interpleader does not require a "deposit"; and it is clear that the requisite diversity of citizenship and jurisdictional amount is present in the instant suit. Moreover, although it may have been impossible to perfect service over appellees, residents of California, in the Texas court, it appears that they voluntarily appeared in the action, thereby waiving any potential defects founded on service or venue problems. See C. Wright & A. Miller, supra §§ 1711 & 1712. As a result, further consideration of appellant's jurisdictional argument is not warranted. ³

THE MERITS

The merits of the instant appeal present the following substantive issues for resolution:

(1) Under California law, does an agreement incorporated in a California divorce decree to name a child or children as "irrevocable" beneficiaries of an insurance policy vest an equitable (or legal) interest in the children which cannot be divested by a subsequent change in beneficiary by the named insured?

(2) Is the property settlement in issue here, in providing for payment of "up to one-half" of the policy proceeds, too vague and indefinite to be enforced, or is this potential deficiency a matter which may be cured by parol evidence?

Before turning to these specific questions, it is necessary to resolve the question of whether the law of Texas or the law of California should govern in this case. In their briefs, the parties differ on this point; however, at oral argument, appellant conceded that California law should govern the interpretation and effect of the California divorce decree and property settlement agreement. Nevertheless, appellant contends that the question for the court concerns the...