Michelman v. Lincoln Nat'l Life Ins. Co.

• Decision Date: 12 July 2012
• Docket Number: No. 11–35393.,11–35393.
• Citation: 82 Fed.R.Serv.3d 1326,12 Cal. Daily Op. Serv. 7856,2012 Daily Journal D.A.R. 9581,685 F.3d 887
• Parties: Gail MICHELMAN, an individual, Plaintiff–Appellant, v. LINCOLN NATIONAL LIFE INSURANCE COMPANY, a foreign insurance company; John and Jane Does, 1–10 and the marital communities comprised thereof, Defendants–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

685 F.3d 887

82 Fed.R.Serv.3d 1326

12 Cal. Daily Op. Serv. 7856

2012 Daily Journal D.A.R. 9581

Gail MICHELMAN, an individual, Plaintiff–Appellant,

v.LINCOLN NATIONAL LIFE INSURANCE COMPANY, a foreign insurance company; John and Jane Does, 1–10 and the marital communities comprised thereof, Defendants–Appellees.

No. 11–35393.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 4, 2012.

Filed July 12, 2012.

Dan'L Bridges, McGaughey Bridges Dunlap, PLLC, Bellevue, WA, for the plaintiff-appellant.

Walter E. Barton, Johanna M. Coolbaugh, Medora A. Marisseau (argued), Karr Tuttle Campbell, Seattle, WA, for the defendants-appellees.

Appeal from the United States District Court for the Western District of Washington, Robert S. Lasnik, District Judge, Presiding. D.C. No. 2:10–cv–00271–RSL.

Before: BARRY G. SILVERMAN and MARY H. MURGUIA, Circuit Judges, and DOLLY M. GEE,^* District Judge.

OPINION

GEE, District Judge:

We are asked to decide whether an adverse claim to a stake may be so lacking in substance that a neutral stakeholder cannot interplead in good faith. Interpleader is proper when a stakeholder has at least a good faith belief that there are conflicting colorable claims. We conclude that Appellee met this requirement.

I. BACKGROUND

Gail and Irwin Michelman submitted a life insurance application to Lincoln National Life Insurance Company in 1999 to obtain coverage for their minor daughter, Elizabeth. At the time, Gail and Irwin were married. The application listed Gail and Irwin as the primary beneficiaries and their other daughter, Jessica, as a contingent beneficiary. The application designated Gail as the policy owner, with policy ownership passing to Elizabeth upon her 21st birthday. Lincoln subsequently issued the policy memorializing this.

Whether Irwin also had an ownership interest in Elizabeth's life insurance policy is less certain. The insurance contract unhelpfully defined the policy “Owner”—in the singular—as “the Owner identified in the application or a successor.” Although Irwin's name was written on the line of the application designated for the “Contingent owner,” the Michelmans may have intended for Irwin to be a primary rather than a contingent owner. The application form did not provide a space for more than one primary owner. Nonetheless, in the space to be completed “[i]f two or more Primary owners are named,” the Michelmans checked the box indicating that they were to be joint owners with a right of survivorship between them.

The Michelmans themselves dispute what their intent was. Irwin testified at his deposition that he and Gail intended for both of them to be primary owners of the policy, but that his name was listed on the line for “Contingent owner” because there was no space on the form to insert the name of the second primary owner. At Gail's deposition, she expressed her belief that Irwin was only a contingent owner. For its part, Lincoln was inconsistent on the ownership issue. Its records reflected that Gail was the policy's primary owner and Irwin was the contingent owner, but its claims examiner stated in a declaration that the insurance application names Gail and Irwin as joint owners.

Gail and Irwin divorced in 2001. The divorce decree did not include Elizabeth's life insurance policy among the assets that it catalogued. In 2002, when Elizabeth had not yet reached the age of 21, Gail submitted a change-of-beneficiary form to Lincoln purporting to remove Irwin as a beneficiary and leave herself as the sole primary beneficiary and Jessica as the contingent beneficiary. Lincoln acknowledged this change a few days later in a letter to Gail.¹

Elizabeth died on August 10, 2009 at the age of 22. Although the autopsy revealed no clear cause of death, the medical examiner found that Elizabeth's multiple sclerosis and the high level of oxycodone in her blood were contributing factors. Elizabeth's parents raised concerns about what they considered to be suspicious circumstances surrounding their daughter's death, ² but the sheriff's department found no evidence that another person was involved. Gail, who was out of state at the time of Elizabeth's death, was never suspected of foul play.

On August 17, 2009, Irwin called Lincoln and stated that Lincoln should look for fraud in the beneficiary information for Elizabeth's life insurance policy. Irwin told Lincoln that he and his wife were originally equal beneficiaries under the policy and that their divorce decree prohibited any changes.

On September 21, 2009, Irwin's attorney wrote a letter to Lincoln requesting that it not pay any benefits on Elizabeth's policy before certain issues were resolved:

Please be advised that Elizabeth Ann Michelman has died under suspicious circumstances and that her death is currently being investigated by the police as a possible homicide.

When questioned upon Elizabeth's death Gail S. Michelman claimed that Elizabeth's life insurance policy with Lincoln Financial Group had lapsed several years ago when in fact it was in full force. Elizabeth's life insurance policy is a community property asset of the Michelman's marriage that was not awarded to either party in their divorce. It has also come to Irwin Michelman['s] attention that Gail Michelman[,] in violation of an agreement that she had with Mr. Michelman[,] changed the beneficiary on Elizabeth's life policy without his knowledge or permission. It also appears that Lincoln Financial Group failed to contact Elizabeth Michelman about naming a new beneficiary upon reaching adulthood.

On September 30, 2009, Irwin submitted a completed claim form to Lincoln requesting the policy proceeds.

Lincoln wrote to Gail and Irwin on October 12, 2009. Lincoln informed them that its records showed Gail to be the beneficiary but acknowledged that Irwin had made a conflicting claim. Admitting that the policy proceeds were due and payable, Lincoln explained that by paying one party it faced the risk of being sued by the other. The solution, Lincoln concluded, was to file an interpleader action unless Gail and Irwin could agree how to distribute the proceeds. Although Gail and Irwin subsequently exchanged letters regarding settlement proposals, some of which they shared with Lincoln, they failed to reach an accord.

Gail submitted a claim form on October 22, 2009. In the accompanying letter, she stated that Irwin had no valid claim and that an action in interpleader would be “frivolous.” Gail asserted that Lincoln bore the responsibility of resolving any dispute between her and Irwin. She asked Lincoln what proof Irwin had offered in support of his claim.

Over the next three months, Gail and Irwin exchanged a series of letters and telephone calls. Gail repeatedly pressed her position that she was the beneficiary, Irwin had no legitimate claim to the insurance proceeds, and Lincoln was obligated to pay her rather than force her to litigate against her ex-husband. Lincoln maintained that the policy proceeds were due and payable, Gail was the current beneficiary according to its records, but it could not pay Gail while Irwin disputed the validity of the 2002 change removing him as a beneficiary. Lincoln reiterated its plan to file an interpleader action unless Gail and Irwin resolved their conflicting claims within 30 days. Other than requesting that Irwin provide proof of his claim, Lincoln never conducted any further investigation into the truth of Irwin's allegations.

On January 15, 2010, Gail filed suit in state court to recover the insurance proceeds, asserting claims against Lincoln for bad faith, violation of Washington's Consumer Protection Act (“CPA”), Wash. Rev.Code § 19.86, and breach of contract. Lincoln removed the action to federal court on the basis of diversity of citizenship. Seeking to interplead the insurance funds, Lincoln filed a counterclaim against Gail and a third party complaint against Irwin.

Before discovery had commenced, Lincoln moved for summary judgment on all of Gail's claims. In its August 10, 2010 order, the district court denied Gail's request for a continuance and granted Lincoln's summary judgment motion in part. The court found that interpleader was appropriate and dismissed Gail's claim for breach of contract but denied summary judgment as to Gail's bad faith and CPA claims, finding that they were independent of Lincoln's ultimate coverage decision.

After discovery concluded, Gail moved the district court to vacate its August 10 summary judgment order and, when that motion was denied, moved the court to reconsider its denial of the motion to vacate. The district court denied Gail's motion for reconsideration.

Gail and Lincoln each moved for summary judgment on Gail's remaining claims and Irwin's cross- and counterclaims. The district court granted summary judgment in favor of Gail and Lincoln on Irwin's claims and determined that Gail was entitled to all of the proceeds from Elizabeth's life insurance policy. Irwin has not appealed those decisions. On March 2, 2011, the district court granted summary judgment in favor of Lincoln on Gail's extracontractual claims, finding that Lincoln acted in compliance with state insurance regulations. Gail now appeals that order, the August 10, 2010 summary judgment order, and the orders denying her motion to vacate and motion for reconsideration.

II. JURISDICTION AND STANDARDS OF REVIEW

The district court had jurisdiction under 28 U.S.C. §§ 1332(a) and 1446. We have jurisdiction under 28 U.S.C. § 1291.

Review of the district court's summary judgment rulings is de novo. Skydive Ariz., Inc. v. Quattrocchi, 673 F.3d 1105, 1110 (9th Cir.2012) (citing Fortune Dynamic, Inc. v. Victoria's Secret Stores Brand Mgmt., 618 F.3d 1025, 1031 (9th Cir.2010)). “[W]e must determine, viewing the evidence in the light most favorable to the non-moving party, whether there are any genuine issues of material fact and whether the district court correctly applied the substantive law.” Cruz...