Prudential Ins. Co. of America v. Hovis

• Decision Date: 27 January 2009
• Docket Number: No. 07-4406.,07-4406.
• Citation: 553 F.3d 258
• Parties: The PRUDENTIAL INSURANCE COMPANY OF AMERICA v. Robert L. HOVIS; David R. Potter; Denise R. Gerski, Robert Hovis, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

553 F.3d 258

The PRUDENTIAL INSURANCE COMPANY OF AMERICA v. Robert L. HOVIS; David R. Potter; Denise R. Gerski, Robert Hovis, Appellant.

No. 07-4406.

United States Court of Appeals, Third Circuit.

Argued December 2, 2008.

Opinion Filed: January 27, 2009.

Thomas A. Berret, Esquire Frederick J. Francis, Esquire Beth A. Slagle, Esquire (Argued), Meyer, Unkovic & Scott, Pittsburgh, PA, for Appellant.

Jonathan Dryer, Esquire (Argued), Helen C. Lee, Esquire Wilson, Elser, Moskowitz, Edelman & Dicker, Philadelphia, PA for Appellee.

Before: AMBRO and GREENBERG, Circuit Judges, and O'NEILL,^* District Judge.

OPINION OF THE COURT

AMBRO, Circuit Judge.

Faced with competing claims to the proceeds of a $100,000 life insurance policy, Prudential Insurance Company of America filed an interpleader complaint against the claimants, seeking to deposit the disputed sum with the District Court and withdraw from the proceedings. One of the claimants, Robert C. Hovis, then counterclaimed, alleging that Prudential had acted negligently and in bad faith in its handling of the policy changes that led to the dispute. The District Court ruled that the interpleader action was properly brought, and that, because it was properly brought, Prudential could not be held liable for its prior handling of the requested policy changes.

This case requires us to decide how far the protection of the interpleader device extends. Does bringing a valid interpleader action shield a stakeholder from further liability to the claimants not only with respect to the amount owed, but also with respect to counterclaims brought by the claimants? We hold that it can where the stakeholder bears no blame for the existence of the ownership controversy and the counterclaims are directly related to the stakeholder's failure to resolve the underlying dispute in favor of one of the claimants. Accordingly, we affirm the order of the District Court.

I. Facts and Procedural History

In February 2003, Hovis, a Prudential representative, sold a life insurance policy in the sum of $100,000 to Bonnie L. Shall, a retired widow.¹ The policy designated Shall's son, David R. Potter, as the primary beneficiary and her daughter, Denise Gerski, as the contingent beneficiary. Shortly thereafter, Shall and Hovis became romantically involved, and in mid-2004 began to live together. In 2005, Shall was diagnosed with a reoccurrence of cancer and given a very grim prognosis. On January 23, 2006, Shall submitted through Hovis a request to Prudential to change ownership of the policy from herself to Hovis and to change its primary beneficiary from Potter to Hovis.² The request described Hovis's relationship to Shall as that of "fiancé." It was signed by both Shall and Hovis in the presence of a former Prudential agent. On February 23, 2006, Shall died.

When Hovis submitted the policy changes to Prudential, he specifically requested that they be processed on an expedited basis, due to Shall's terminal condition. Prudential, however, did not process the changes immediately because of an internal policy prohibiting its sales professionals from having an ownership or beneficiary interest in their clients' policies unless they are members of the "immediate family" of the policyholder. In order to receive an exception to that policy, Hovis was required to obtain approval from his managing director and Prudential's compliance division, something that he had not done at the time the changes were initially submitted.

In February 2006, Prudential began an investigation to determine whether to grant an exception in Hovis's case on the ground that he had an insurable interest in the policy. Hovis informed his managing director, Steve Marziotto, that Shall was his fiancé and that they had lived together and shared expenses for two years. At Marziotto's request, Hovis provided two items attempting to verify his relationship with Shall: a bank letter indicating that Hovis had a joint account with Shall and a copy of a marriage license. No effort was made by Marziotto to communicate with Shall, and she died while he was in the midst of his investigation. On March 2, 2006, Marziotto recommended that the beneficiary change be allowed, but that the ownership change be denied. Five days later, Hovis submitted a claim for the life insurance proceeds.

In March 2006, Prudential's Corporate Investigations Division ("CID") began a separate investigation into the policy changes. The CID had a handwriting analysis done of the "Request to Change Ownership/Beneficiary," which analysis concluded that, due to Shall's physical condition when she allegedly signed the request, there was no way to verify the authenticity of her signature. The CID report also concluded that Hovis had only been joined with Shall on the latter's bank account in early 2006, just shortly before she died, and that the marriage license was dated January 6, 2006 and was valid for only sixty days. The CID then forwarded the matter to Prudential's Law Division to make an ultimate determination on the putative policy change. In April 2006, Prudential advised Hovis that it had yet to make a decision.

In May 2006, while Prudential was wrapping up its internal investigation, Potter, Shall's son, spoke with Prudential about the insurance policy. Only then did Potter learn that a policy change had been submitted naming Hovis as owner and beneficiary. According to Potter, Hovis had previously deflected all his attempts to check on the status of the insurance proceeds even though Hovis had helped him file a claim on his mother's other life insurance policy. On learning that the beneficiary change was still being investigated, and that, in the interim, he was listed as the beneficiary of his mother's policy, Potter informed Prudential that he intended to file a claim. In early June 2006, Potter sent a letter to Prudential asking to have the status of the policy resolved. He also expressed his belief that his mother would not have approved the changes and that Hovis must have submitted them fraudulently.

Prudential then decided to pursue an interpleader action, rather than resolve who was entitled to the funds. It informed both Hovis and Potter by letter of this decision, and, on July 17, 2006, Prudential brought an interpleader complaint in the Eastern District of Pennsylvania pursuant to Federal Rule of Civil Procedure 22, naming Hovis, Potter and Gerski as defendants. In its complaint, Prudential requested permission "to deposit its admitted liability with the Clerk of th[e] Court," and asked the Court to order that "the defendants ... be permanently enjoined from instituting or prosecuting against Prudential in a proceeding ... affecting the insurance proceeds due under the policy and on account of the death of Bonnie Shall." Venue was transferred to the Middle District of Pennsylvania at Hovis's request.

Hovis filed an answer contending that Prudential was not entitled to interpleader relief because "Prudential has no legally cognizable reason for failing to pay the policy proceeds to Hovis." In addition, Hovis sought a declaratory judgment against all parties, naming him as the proper beneficiary, and brought counterclaims against Prudential for breach of contract, negligence, breach of fiduciary duty, bad faith and unfair trade practices, all relating to Prudential's alleged failure to process Shall's request to change the ownership and beneficiary of her policy in a timely manner. Potter and Gerski filed an answer contesting Prudential's right to pass its failure to resolve ownership of the insurance proceeds onto the claimants themselves, and seeking declaratory judgment against all parties that they were the rightful owners of the proceeds.

Prudential moved for summary judgment on both its claim for interpleader relief and Hovis's counterclaims, arguing that "[a]s the federal rules provide for interpleader in a situation like this, defendant Hovis is estopped from counterclaiming for breach of contract, negligence, breach of fiduciary duty, bad faith and violations of [Pennsylvania's Unfair Trade Practices and Consumer Protection Law, 73 Pa. Stat. Ann. § 201-1 et seq.]." Shortly thereafter, Hovis reached a settlement with Potter and Gerski for distribution of the insurance proceeds. Nonetheless, in his brief in opposition to Prudential's motion for summary judgment, Hovis argued that while the issue of who was entitled to the interpleaded funds had become moot, that did not entitle Prudential to judgment in its favor on his counterclaims.³

On October 23, 2007, the District Court dismissed Prudential's interpleader complaint, along with the various declaratory judgment actions, as moot, and directed Prudential to pay the proceeds of the life insurance, plus interest, to Hovis, Potter and Gerski in accordance with their settlement agreement. Prudential Ins. Co. of Am. v. Hovis, No. 4:06-CV-2020, 2007 WL 3125084, at *2 (M.D.Pa. Oct.23, 2007). The Court also granted summary judgment to Prudential on Hovis's counterclaims on the ground that the appropriateness of Prudential's interpleader action shielded it from any liability relating to its failure to resolve the dispute over the interpleaded funds. Id. at *3-4. Hovis timely appealed.

II. Jurisdiction and Standard of Review

The District Court had jurisdiction under 28 U.S.C. § 1332(a)(1), as the parties are diverse and the amount in controversy exceeds $75,000. We have jurisdiction under 28 U.S.C. § 1291. "Our review of the [D]istrict [C]ourt's grant of summary judgment is plenary." Jakimas v. Hoffmann-La Roche, Inc., 485 F.3d 770, 777 (3d Cir.2007). As such, "[w]e apply the same standard employed by the [D]istrict [C]ourt, and view the facts in the light most favorable to the non-moving party." Id. We will affirm the District Court's grant of summary judgment only if no genuine issues of material fact exist and Prudential is entitled to judgment as a matter of law. Celotex Corp. v....