Business & Insurance Litigation Newsletter for Indiana

Interpleader Actions

"The purpose of interpleader is to prevent the vexation of a multiplicity of actions." Indianapolis Colts v. Mayor and City Council of Baltimore, 741 F. 2d 954, 957 (7th Cir. 1984), cert. denied. An interpleader action typically involves a neutral stakeholder, usually an insurance company or a bank, seeking apportionment of a common fund between two or more parties claiming an interest in it. Euler v. Seymour Nat. Bank, 519 N.E.2d 1242 (Ind. Ct. App. 1988). Generally, any sort of conflicting claims may be subject to interpleader. Kirby v. Ashland Oil, Inc., 463 N.E.2d 1127 (Ind. Ct. App. 1984). For example, an insurance company may use interpleader where the adverse claims are unliquidated tort claims against its insured. Commercial Union Ins. Co. of New York v. Adams, 231 F. Supp. 860 (S.D. Ind. 1964); State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 533 (1967). The multiple claims against the stakeholder need not be meritorious; the threat of litigation is sufficient. United Farm Bureau Family Life Ins. Co. v. Fultz, 375 N.E.2d 601 (Ind. Ct. App. 1978). However, the stakeholder must legitimately fear multiple liability directed against a single fund. Interpleader may also serve to protect a party from punitive damages. See Hamilton County Bank v. Hinkle Creek Friends Church, 478 N.E.2d 689, 691 (Ind. Ct. App. 1985).

There is a great split of authority regarding an insurer's duty to defend with regard to an interpleader action. On one side of the aisle are those jurisdictions holding that an insurer's duty to defend does not terminate upon the deposit of the funds in an interpleader action. On the other side are those jurisdictions holding that the deposit of the policy limits in an interpleader action terminates any duty on the part of the insurer to provide a defense to the insured. The specific language contained in the policies concerning the insurer's duty to defend plays a crucial role in the determination.

While there does not appear to be recent Indiana case law directly on point, Commercial Union Ins. Co. of New York v. Adams, 231 F. Supp. 860 (S.D. Ind. 1964), provides guidance and is still good law. The facts of that case are directly on point and provide procedural guidance for the handling of the instant matter. The court held in the Commercial Union case that the insurer's duty to defend terminated upon the payment of the policy limits into the court's registry in an interpleader action. Commercial Union, 231 F. Supp. at 867. However, this was only true if the insurer's liability in a hope of regaining any amount paid into the court's fund, they would still be under a duty to defend their insureds. Id.