Midland Nat'l Life Ins. Co. v. Rivas
| Decision Date | 09 December 2016 |
| Docket Number | CIVIL ACTION NO. 16-04712 |
| Parties | MIDLAND NATIONAL LIFE INSURANCE COMPANY, Plaintiff, v. CLARA OXLEY RIVAS, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
MEMORANDUM
Plaintiff Midland National Life Insurance Company insured the life of Arthur F. Faber, who died on January 18, 2013. In this lawsuit, Midland contends that Faber's life insurance Certificate1 was null and void as the result of false responses in his application and/or that his coverage under the policy never became effective due to unfulfilled conditions precedent. To the extent the policy is effective, Midland is concerned that three individuals, Defendants Clara Oxley Rivas, Charles Faber and Calvin Clidy, may all attempt to claim the $100,000.00 death benefit. Midland seeks a judgment declaring that the Certificate is rescinded and the beneficiar(ies) are therefore not entitled to the death benefit, but rather only to a refund of the premiums paid and accrued interest, which totaled $3,902.08 as of August 30, 3016.
Midland also seeks a judgment in interpleader against Rivas, Faber and Clidy and has accordingly filed a motion pursuant to 28 U.S.C. § 1335(a)(1) and F.R.C.P. 67(a) seeking leaveto deposit with the Court the premiums and interest, to be distributed to whomever the Court subsequently determines is the proper claimant. Midland also requests a court order pursuant to the interpleader declaring that Midland has no further liability to Defendants for claims arising out of the policy, excusing Midland from the litigation and awarding reimbursement for its court costs in connection with the interpleader action. For the reasons that follow, the Court denies the motion to deposit funds without prejudice and grants Midland 30 days to file an amended complaint and a motion to deposit funds consistent with the requirements discussed below.
Arthur Faber applied for a life insurance policy with Midland in 2011. (Pl.'s Compl., ¶ 10.) There were two parts to the application. On Part I, Faber answered "No" to questions seeking, inter alia, whether he (a) had been diagnosed with or treated for any mental or physical disorder or medically treated condition that was not listed, (b) had received treatment for alcoholism in the past or been advised to do so, (c) had sought medical treatment or undergone certain diagnostic tests (such as X-rays) in the previous twelve months or had future plans to do so, (d) had received certain advice or instructions from a medical professional in the previous twelve months, and (e) was currently taking any medications. (Id. ¶¶ 11-18.) Faber signed Part I of the application on August 26, 2011, certifying that his answers were complete and true to the best of his knowledge and that he agreed to immediately advise Midland of any changes to his responses, including any changes in his health or habits, that arose or were discovered before the Certificate became effective. (Id. ¶ 19.) The application contained a clause stating that any insurance issued as a result of the application would either (1) not take effect until the full first premium was paid and the contract was delivered to and accepted by the owner "during the lifetime of any person proposed for insurance and while such person is in the state of healthdescribed in all parts of this application" or (2) take effect only as specified in the Temporary Insurance Agreement, if issued. (Id.)
On Part II of the application, which Faber completed on October 8, 2011, he answered the same questions listed above, among others. (Id. ¶¶ 20-26.) Midland alleges that Faber failed to notify it of several changes to his health that arose between the time he completed Parts I and II of his application and the time Midland issued him the Certificate on December 9, 2011. (Id. ¶ 28.) For one, while Faber answered "no" to the question asking whether he was taking any medications in Part I of his application, (id. ¶¶ 17-18), he answered "yes" to the same question in Part II and wrote that he was taking a specific prescription medication for a condition he had been diagnosed with two weeks earlier, (id. ¶¶ 25-26). Midland further alleges that Faber visited the emergency department of Jefferson University Hospital on November 19-20, 2011, where he received treatment for a condition other than one he had previously identified, submitted to diagnostic testing and had X-rays taken and was prescribed medication other than that which he had listed before. (Id. ¶ 27.) Midland alleges that Faber did not notify it of any of these changes.
After Faber's death, Clara Oxley Rivas, who was identified as the primary beneficiary on Faber's application for the policy, submitted a claim for the $100,000 death benefit. (Id. ¶¶ 5, 31.) Because Faber died within two years after the Certificate was issued, Midland conducted a standard review of his health history and the responses in his application. (Id. ¶ 32.) During its review, Midland allegedly discovered that two of Faber's responses, stating that he had not received treatment for alcoholism or been advised to do so, were false at the time given. (Id. ¶ 33.) Midland also allegedly discovered that several of Faber's responses were false at the time the Certificate was delivered to Faber, namely those related to conditions for which he had received treatment, diagnostic testing he had undergone, advice he had received in the previoustwelve months and medication he was taking. (Id. ¶ 33.) Midland claims that Faber made the false statements and representations knowingly, in bad faith and with intent to deceive Midland. (Id. ¶ 36.) Midland further alleges that the fraudulent statements affected Midland's acceptance of the risk and hazard it assumed under the policy and it would have declined Faber's application for life insurance had he truthfully disclosed the facts required by the application. (Id. ¶ 37.)
"The equitable remedy of interpleader allows a person holding property to join in a single suit two or more persons asserting claims to that property." Metro. Life Ins. Co. v. Price, 501 F.3d 271, 275 (3d Cir. 2007) (quoting NY Life Distrib., Inc. v. Adherence Grp., Inc., 72 F.3d 371, 372 n.1 (3d Cir. 1995)). The purpose of interpleader is to relieve an obligor from the vexation of multiple claims in connection with a liability admittedly owed. Phoenix Ins. Co. v. Small, 307 F.R.D. 426, 434-35 (E.D. Pa. 2015) (citing Francis I. du Pont & Co. v. Sheen, 324 F.2d 3, 4 (3d Cir. 1963)). In such an action, a stakeholder may file suit, deposit a sum certain with the court, and then withdraw from the proceedings, leaving the competing claimants to litigate amongst themselves. Phoenix, 307 F.R.D. at 434 (citing Allstate Settlement Corp. v. United States, No. 07-5123, 2008 WL 2221897, at *3 (E.D. Pa. May 28, 2008)). Section 1335 requires the existence of five elements before interpleader relief is appropriate: (1) the interpleader action must be brought by a stakeholder who has "custody or possession" of the funds to be distributed; (2) the action must concern the minimal jurisdictional amount of $500; (3) there must be two or more adverse claimants asserting a right to the fund; (4) the adverse claimants must be of diverse citizenship as defined in 28 U.S.C. § 1332; and (5) the full amount disputed must be deposited in the court registry or a bond given made payable to the clerk of courts in the appropriate amount. Aetna, Inc. v. Jones, No. 06-2245, 2007 WL 266423, at *3 (E.D. Pa. Jan. 24, 2007) (citing NewYork Life Distrib., Inc. v. Adherence Grp., Inc., 72 F.3d 371, 374 (3d Cir. 1995); Bankers Trust Co. of W. N.Y. v. Crawford, 559 F. Supp. 1359, 1361 (W.D.N.Y. 1983)). Here, the first two elements are satisfied since Midland has possession of the funds to be distributed and the amount in question exceeds $500.
The third "prerequisite to bringing an action in interpleader is that there be two or more claimants to the fund who are 'adverse' to each other." Allstate Settlement Corp., 2008 WL 2221897, at *3 (citations omitted). Claimants are adverse if they are claiming or may claim the same fund, and interpleader jurisdiction is not dependent on the merits of the respective underlying claims. Bierman v. Marcus, 246 F.2d 200, 202 (3d Cir. 1957); see also Aetna, 2007 WL 266423, at *3. Thus, a plaintiff can maintain the action even though he believes that one of the claims is valid and the other, or others, without merit. Bierman, 246 F.2d at 202 (collecting cases). "On the other hand, that which is advanced as an adverse claim may be so wanting in substance that interpleader under the statute may not be justified." Id. While the plaintiff stakeholder is "not obliged at his peril to determine which claimant has the better claim, he must have some real and reasonable fear of exposure to double liability or the vexation of conflicting claims to justify interpleader" and "[h]is bona fide purpose must be to rid himself of this vexation and the expense of resisting conflicting claims." Id. Put differently, the requirement that claimants be adverse is not met where (a) one of the claims clearly is devoid of substance; (b) one of the claimants is under the control of the stakeholder or has dropped his claim, such that the fear of multiple liability is baseless; or (c) the claims are not asserted against the same fund, or the stakeholder may be liable to both claimants. Allstate Settlement Corp., 2008 WL 2221897, at *3 (quoting 7 Wright, Miller & Kane § 1705, at 508-09).
Due to uncertainty regarding the validity and legal effect of a "Beneficiary Change Request" form that was purportedly completed shortly before Mr. Faber's death, Midland alleges that all three of the Defendants have potential claims to the funds owed by Midland in connection with the policy. (Pl.'s Compl. ¶ 53.) In his 2011 application, Faber designated Rivas as the primary beneficiary. (Id. ¶ 49.) On January 17, 2013, however, Clidy, a...
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