The Party:A Practitioner's Approach to Intervention and Interpleader

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How to Crash (or Leave) the Party: A Practitioner’s Approach to Intervention and Interpleader

Cody S. Moon

Wen-Shin Cheng

Nicolaides Fink Thorpe Michaelides Sullivan LLP

10 S. Wacker, Suite 2100 Chicago, IL 60606 312.585.1400 [email protected] [email protected] Cody S. Moon, a partner of Nicolaides Fink Thorpe Michaelides Sullivan LLP in Chicago, is a seasoned litigator who focuses his practice on the representation of insurance companies. Throughout his career, he has conducted more than 20 trials, effectively litigated issues of first impression, and argued before state and federal courts across the country. Cody frequently advises his clients regarding complex coverage issues, bad faith claims handling, and how to avoid pitfalls in unfriendly jurisdictions. His litigation and insurance coverage experience encompasses a number of subject areas involving domestic and international policies, including: bad faith, primary-excess disputes, additional insureds and indemnification, product defect, food contamination, commercial trucking and auto, environmental, appeals, and general commercial litigation. In addition to his litigation practice, Cody frequently presents seminars for insurance industry professionals and clients. Wen-Shin Cheng, a partner of Nicolaides Fink Thorpe Michaelides Sullivan LLP in Chicago, represents insurance companies in litigation and on appeal in disputes involving policy interpretation, primary/excess disputes, and claims handling obligations for a wide variety of claims, including construction defect, pollution liability, product defect, personal and advertising injury, auto, and municipal liability. Wen is active in the DRI’s Insurance Law Committee and a frequent author and lecturer on issues affecting the insurance industry. How to Crash (or Leave) the Party: A Practitioner’s Approach to Intervention and Interpleader

Table of Contents I. Intervention...... 5 A. Two Types...... 5 1. Intervention as of Right...... 5 2. Permissive Intervention...... 5 B. Timeliness Requirement...... 6 II. Interpleader...... 6 A. The Interpleader Action...... 6 1. Phase One: Determining a Statutory Right to Interpleader...... 6 2. Phase Two: Adjudicating the Rights to the Fund...... 9 B. Considerations for Filing an Interpleader...... 9 C. The Scope of Interpleader...... 10 1. Federal Interpleader Is a Limited Remedy Available in Courts of Limited Jurisdiction...... 10 2. Interpleader May Not Terminate an Insurer’s Duty to Defend...... 10 D. Conclusion...... 11

How to Crash (or Leave) the Party: A Practitioner’s Approach... ■ Moon and Cheng ■ 3

How to Crash (or Leave) the Party: A Practitioner’s Approach to Intervention and Interpleader

I. Intervention Numerous scenarios exist in which an insurer may want (or need) to participate in litigation against its insureds to protect the insurance company’s rights. For example, an insured may not be cooperating with the insurer in the defense of the litigation. Or the insurer may not even be able to locate the insured for purposes of answering a complaint, responding to discovery, or providing a deposition. Or a jury may only return a general verdict without specifying the specific liability against the insured or allocating damages between covered and uncovered claims. Or the litigation against the insured may involve issues of fact that will directly bear on the coverage determination, yet no party is adequately representing the insurer’s interests. Because of these and other scenarios, federal and state courts give insurers the ability to intervene permissively or as of right. And practitioners need to be diligent in monitoring litigation, knowing when their insurer client’s rights may be adversely affected, and timely moving to intervene.

A. Two Types Rule 24 of the Federal Rules of Civil Procedure provides two avenues for intervening in pending litigation. First, Rule 24(a) requires a court permit anyone to intervene when (1) a federal statute gives an uncon- ditional right to intervene or (2) when claiming an interest to the property or transaction that is the subject of the action and disposition of the action may impair or impede the movant’s ability to protect its interest, unless the existing parties adequately represent that interest. Second, Rule 24(b) gives a court discretion to permit anyone to intervene who (1) has a conditional right to intervene given by a federal statute or (2) has a claim or defense that shares a common questions of law or fact with the action. Most state courts have simi- lar procedures and requirements. See, e.g., Mo. R. Civ. P. 52.12(a)(2); Nervig v. Workman, 285 S.W.3d 335, 341 (Mo. App. S.D. 2009); Ohio Civ. R. 24(A)(2); Fla. R. Civ. P. 1.230; Cal. Code Civ. Pr. §387.

1. Intervention as of Right As to intervention of right, a party is entitled to intervention if (1) the motion to intervene is timely; (2) the potential intervenor asserts a direct, substantial and legally protectable interest that is related to the property or transaction that forms the basis of the controversy in the case into which it seeks to intervene; (3) the disposition of that case may impair or impede the potential intervenor’s ability to protect its interest; and (4) the existing parties do not adequately represent the potential intervenor’s interest. In re Lease Oil Antitrust Litig., 570 F.3d 244, 247, 250 (5th Cir. 2009) (quotation omitted). The inquiry under subsection (a)(2) is a flex- ible one, which focuses on the particular facts and circumstances surrounding each application and should be “measured by a practical rather than technical yardstick.” Ross v. Marshall, 426 F.3d 745, 753 (5th Cir. 20005); Aurora Loan Services, Inc. v. Craddieth, 442 F.3d. 1018 (7th Cir. 2006).

2. Permissive Intervention Permissive intervention is left to the discretion of the court. In exercising its discretion, the court must consider whether intervention will unduly delay or prejudice the adjudication of the rights of the original parties. Fed. R. Civ. P. 24(b)(3). While the grant of a motion to intervene as of right is reviewed under the abuse of discretion standard, judicial discretion to reject a motion for permissive intervention is substantially greater. Stuart v. Huff, 706 F.3d 345, 350 (4th Cir. 2013); United States v. Albert Inv. Co., Inc., 585 F.3d. 1386, 1390 (10th Cir. 2009).

How to Crash (or Leave) the Party: A Practitioner’s Approach... ■ Moon and Cheng ■ 5 B. Timeliness Requirement Notably, both permissive intervention and intervention of right may be permitted only “upon timely application.” Fed. R. Civ. P. 24(a). When determining whether a motion to intervene is timely, a court must consider the following factors: (1) how long the potential intervenor knew or reasonably should have known of his stake in the case into which he seeks to intervene; (2) the prejudice, if any, the existing parties may suffer because the potential intervenor failed to intervene when he knew or reasonably should have known of his stake in that case; (3) the prejudice, if any, the potential intervenor may suffer if the court does not let him intervene; and (4) any unusual circumstances that weigh in favor of or against a finding of timeliness. “The requirement of timeliness is not a tool of retribution to punish the tardy would-be intervenor, but rather a guard against prejudicing the original parties by the failure to apply sooner. Heaton v. Monogram Credit Card Bank, 297 F.3d 416, 422 (5th Cir. 2002) (quotation omitted).

II. Interpleader Generally, an action in interpleader allows a neutral stakeholder to request apportionment of a fund between two or more parties claiming an interest in the fund, while discharging any further liability to those parties. As such, interpleader is an important procedural tool for an insurer seeking to resolve potential obligations to multiple claimants for claims that will likely exceed its policy limits. Unlike intervention whereby an insurer seeks to intervene in an underlying action to establish facts relevant to determining its coverage obligations, typically, an insurer seeking to interplead its funds admits coverage and is tendering its policy limits to the court as a disinterested stakeholder in how those limits will be ultimately apportioned amongst competing claimants. Interpleader is based on equitable principles allowing an insurer to resolve its potential obligations to multiple claimants in a single proceeding, and for the claimants to obtain an orderly distribution of a limited fund. In an interpleader, an insurer may seek an order requiring claimants to interplead their claims against the policy; enjoining the claimants from prosecuting actions against the insurer; allowing the insurer to tender its limits to the court in exchange for an order discharging the insurer from any further liability to claimants; dismissing the insurer from the action once its right to interplead is established; and awarding the insurer its attorney fees and costs for bringing the interpleader. This section of the article discusses the statutory bases for seeking interpleader and other considerations for an insurer seeking to avail itself of interpleader as a means of resolving its obligations under an insurance policy to multiple claimants.

A. The Interpleader Action

1. Phase One: Determining a Statutory Right to Interpleader Initially, a court must determine whether a party filing an interpleader has met its burden of demon- strating a statutory right to interplead its fund. A question of whether jurisdiction is appropriate may be raised by responsive pleading to the interpleader action in the form of a counterclaim or cross-claim, or by a motion for summary judgment challenging the basis for interpleader. Star Ins. Co. v. Cedar Valley Express, LLC, 273 F. Supp. 2d 38, 41 (D.D.C. 2002), citing 7C Wright, Miller & Kane, Federal Practice & Procedure 2d §1714 (2001).

a. Statutory and Rule Interpleader A plaintiff establishes a right to interpleader in federal court pursuant to the Federal Interpleader Act, 28 U.S.C. §§1335, et seq., or under Rule 22 of the Federal Rules of Civil Procedure.

6 ■ Insurance Coverage and Claims ■ April 2017 The Federal Interpleader Act, 28 U.S.C. §1335, known as statutory interpleader, provides, in relevant part, that: (a) The district courts shall have original jurisdiction of any civil action of interpleader or in the nature of interpleader filed by any person, firm, or corporation, association, or society having in his or its custody or possession money or property of the value of $500 or more, or having issued a note, bond, certificate, policy of insurance, or other instrument of value or amount of $500 or more … if (1) Two or more adverse claimants, of diverse citizenship as defined in subsection (a) or (d) of section 1332 of this title, are claiming or may claim to be entitled to such money or property, or to any one or more of the benefits arising by virtue of any note, bond, certificate, policy or other instrument . . . and if (2) the plaintiff has deposited such money or property or has paid the amount of or the loan or other value of such instrument or the amount due under such obligation into the registry of the court, there to abide the judgment of the court . . . (b) Such an action may be entertained although the titles or claims of the conflicting claimants do not have a common origin, or are not identical, but are adverse to and independent of one another. 28 U.S.C. §1335. As set forth above, statutory interpleader requires both diversity and adversity amongst the claimants. Only “minimal diversity” is required. Diversity is satisfied so long as two or more adverse claimants are citizens of diverse states, regardless of whether the plaintiff-stakeholder and defendants are diverse, or whether other claimants may be co-citizens of the same state. 28 U.S.C. §1335(a)(1). See American Fam. Mut. Ins. Co. v. Roche, 830 F. Supp. 1241, 1245 (E.D. Wis. 1993). Statutory interpleader also requires that two or more claimants have competing or adverse claims to a fund that will likely be insufficient to satisfy all the claims. 28 U.S.C. §1335(a)(2); Roche, 830 F. Supp. at 1245, citing 7C Wright, Miller and Kane, Federal Proce- dure and Practice 2d §1710, at 513. Because a purpose of interpleader is for a court to adjudicate the rights of multiple claimants to a limited fund, adversity between two or more claimants does not require that the claims be first reduced to judgment before an interpleader may be filed. Star Ins. Co. v. Cedar Valley Express, LLC, 273 F. Supp. 2d 38, 41 (D.D.C. 2002); First Fin. Ins. Co. v. Johnson, Jr., 386 N.E.2d 142, 144 (Ill. Ct. App. 1979) (interpleader under Illinois law is proper even though tort claims against insured are unliquidated). The adversity requirement is satisfied so long as the stakeholder or insurer has a bona fide concern that it faces double liability, or conflicting claims justifying bringing multiple claimants into a single action for the claimants to litigate amongst themselves their respective right to the fund. Id. In addition to statutory interpleader, a stakeholder or insurer also may bring an interpleader action in federal court pursuant to Rule 22 of the Federal Rules of Civil Procedure. Rule 22, known as rule interpleader, allows an insurer to join as defendants persons with claims that may expose the insurer to double or multiple liability. Rule 22 interpleader is proper even though the claims lack a common origin, or the insurer denies liability in whole or in part to any or all of the claimants. Rule interpleader also may be pled by a defendant as a crossclaim or counterclaim. Fed. R. Civ. Proc. 22(a)(2). The primary distinction between statutory and rule interpleader is the basis upon which federal court subject matter jurisdiction exists. Rule 22 is a procedural mechanism and thus requires that federal court subject matter jurisdiction exist. Commercial Union Ins. Co. v. U.S., et al., 999 F.2d 581, 584 (D.C. Cir. 1993). Therefore, unlike statutory interpleader that requires minimal diversity between two adverse claimants and a fund with a value of $500 or more, rule interpleader that is based on 28 U.S.C. §1332 diversity juris-

How to Crash (or Leave) the Party: A Practitioner’s Approach... ■ Moon and Cheng ■ 7 diction requires complete diversity between the plaintiff and defendants and that the amount in controversy exceed $75,000, exclusive of interest and costs. Commercial Union, 999 F.2d at 584, citing Wright, Miller & Kane, Federal Procedure and Practice §1710, at 537-39. There are other important procedural differences between statutory and rule interpleader. First, statutory interpleader allows a plaintiff to employ nationwide service of process. 28 U.S.C. §2361 (“in any civil action of interpleader . . . under section 1335 . . . a district court may issue its process for all claimants . . . (to be) served by the United States marshals for the respective districts where the claimants reside or may be found”); Roche, 830 F. Supp. at 1249. In contrast, rule interpleader is governed by the rules of service of process prescribed by Rule 4 of the Federal Rules of Civil Procedure, which generally does not authorize service of process outside the territorial limits of the state in which the federal court hearing the action is located. Second, statutory interpleader restricts venue to any district in which one or more of the claimants resides. In contrast, rule interpleader allows venue in the district where the plaintiff resides, where all the claimants reside, or where the claim arose. 7C Wright, Miller & Kane, Federal Procedure and Practice at 497-99. Finally, statutory interpleader requires a stakeholder to deposit the fund with the court, whereas rule interpleader does not. A & E Television Networks, LLC v. Pivot Point Entertainment, LLC, 771 F. Supp. 2d 296, 300 (S.D.N.Y. 2011). Even if the jurisdictional requirements are met, a district court’s jurisdiction is discretionary. Cedar Valley Express, 273 F. Supp. 2d at 41 (noting court can dismiss an interpleader if an adequate remedy at law exists because jurisdiction over a statutory interpleader action is not mandatory). If plaintiff establishes a right to interpleader, the court may enter an order discharging the stakeholder, permitting the stakeholder to withdraw from the action, and enjoining the claimants from pursuing their claims against the stakeholder outside of the interpleader.

b. State Laws Most states also have their own interpleader statutes permitting an interpleader action to be brought under state law in state courts when federal jurisdiction does not exist. However, interpleader under state laws may be more limited than statutory or rule interpleader. For example, in most states, a court’s jurisdiction over the claimants is limited to those having “minimum contacts” with the forum state, in contrast to statutory interpleader allowing for nationwide service of process. In addition, a state court’s power to enjoin proceedings in other states also may be limited by its exercise of personal jurisdiction. Furthermore, as a matter of comity, state courts may be reluctant to enjoin proceedings pending outside its state. Cal. Prac. Guide Fed. Civ. Proc. Ch. 10-B. Interpleader. In addition to limitations to a state court’s jurisdiction, there may be other significant procedural differences between interpleader in federal and state courts. For example, under California law, an insurer must file a verified pleading disclaiming any interest in the policy proceeds. Cal. Code Civ. Proc. §386(b); Pacific Loan Mgmt. Corp. v. Super. Ct., 196 Cal. App. 3d 1485, 1489 (Cal. Ct. App. 1987) (stakeholder’s avowed disin- terest gives him the right to interplead such that court can resolve controversy without stakeholder as a party to the suit). Statutory interpleader, on the other hand, includes actions “in the nature of an interpleader,” which no longer requires an insurer to admit coverage and liability to seek interpleader relief. Roche at 1248 (bill in the nature of interpleader refers to plaintiff’s potential liability from the threat of multiple litigation from diverse claimants, regardless of the stakeholder’s position relative to his overall liability). See also Mt. Hawley Ins. Co. v. Federal Sav. & Loan Ins. Corp., 695 F. Supp. 469, 473 (C.D. Cal. 1987) (insurer was an interested stakeholder claiming exclusions to coverage applied and misrepresentation in the insurance application precluded coverage). In addition, under state law, a stakeholder generally does not have to tender its fund

8 ■ Insurance Coverage and Claims ■ April 2017 unconditionally to the court, but properly files an interpleader by offering to deliver possession of the fund if ordered to do so by the court. 48 C.J.S. Interpleader §30. Only when the court enters an order of interpleader must the insurer tender its fund to the court for an order to be entered discharging the insurer any further liability. See, e.g., Christopher, Florida Civil Prac. Interpleader, Ch. 23-1 (11th ed. 2014). However, as noted herein, statutory interpleader requires plaintiff to deposit its fund into the registry of the court. 28 U.S.C. §1335(a)(2).

2. Phase Two: Adjudicating the Rights to the Fund Once a right to interpleader is established, a disinterested insurer who has deposited its fund with the court may be dismissed from the interpleader leaving the defendant-claimants to prove their claims to the fund by summary judgment motion or trial. First Fin. Ins. Co. v. Johnson, 386 N.E.2d at 145; Clayton v. Mony Life Ins. Co. of Am., 284 S.W.3d 398, 402 (Tex. Ct. App. 2009).

B. Considerations for Filing an Interpleader Interpleader is a beneficial tool for an insurer faced with multiple claims that will likely exceed its policy limits because the court decides the priority and amounts to pay, rather than the insurer. Therefore, interpleader may prevent an entity from successfully claiming that an insurer was unwilling to pay its policy limits in settlement. Monumental Life Ins. Co. v. Lyons-Neder, 140 F. Supp. 2d 1265, 1270 (N.D. Ala. 2001) (because a stakeholder interpleads its limits, plaintiff cannot establish the “refusal to pay” element necessary to show bad faith failure to settle). In addition, an insurer is relieved from the potential liability of having to pay the single fund more than once to satisfy multiple claims or judgments, and also from the litigation costs in having to determine its liability in multiple actions. Clayton, 284 S.W.3d at 401. In addition, an insurer who timely files a proper interpleader is entitled to recovery of its attorney fees and costs in bringing the interpleader from the interpled funds. See, e.g., Insurance Co. of N. Am. v. Sky- way Aviation, Inc., 828 S.W.2d 888, 894 (Mo. Ct. App. 1992) (under equitable principles, court may award attorney fees and costs out of the fund to the stakeholder for filing a proper interpleader); Praetorian Ins. Co. v. DMHZ Corp., No. 101469/2010, 2011 WL 2011669 (N.Y. Sup. Ct. May 16, 2011) (interpleader is to be encour- aged to protect a party from multiple adverse claims and thus, insurer is entitled to costs, disbursements and reasonable attorney fees for bringing the interpleader). Moreover, if the interpleading party deposits its fund into the court at the commencement of the action and is otherwise not responsible for any delay in payment of the fund, it should not be required to pay prejudgment interest on the fund amount that accrues until such time as payment is made. Auto Parts Mfg. Mississippi Inc. v. King Constr. of Houston, LLC, 73 F. Supp. 3d 680, 685, aff ’d, 782 F. 3d 186 (5th Cir. 2015). In Insurance Co. of N. Am. v. Skyway Aviation, Inc., 828 S.W.2d 888 (Mo. Ct. App. 1992), the court examined whether the insurer was responsible for prejudgment interest with reference to such factors as (1) whether the stakeholder denied liability; (2) whether a bona fide dispute existed among the claimants; (3) whether investigation or negotiation was necessary; (4) whether negotiations were conducted in good faith and with reasonable diligence; (5) whether the stakeholder was disinterested as among the claimants; (6) whether the interpleader action was vexatious; (6) whether the insurance policy provided for interest; and (7) whether a claim for interest had been made prior to deposit. Skyway Aviation, 828 S.W.2d at 892. Based on the circumstances in that case, the court found the delay in paying the fund was not unreasonable and thus, prejudgment interest was not awarded. Id.; see also Auto Parts Mfg., 73 F. Supp. 3d at 686 (stakeholder entitled to discharge without payment of prejudgment interest where stakeholder filed interpleader, deposited funds at issue in a contract dispute, and moved to be discharged as disinterested stakeholder).

How to Crash (or Leave) the Party: A Practitioner’s Approach... ■ Moon and Cheng ■ 9 C. The Scope of Interpleader

1. Federal Interpleader Is a Limited Remedy Available in Courts of Limited Jurisdiction Traditionally, interpleader was a means by which a disinterested stakeholder could tender its policy limits to the court and withdraw from the proceedings, allowing the court to adjudicate the claimants’ respective rights to the fund. Statutory interpleader also applies to “bills in the nature of interpleader,” allowing an insurer to seek an interpleader in other circumstances, including when an insurer does not admit coverage or is an interested stakeholder. However, it remains the primary purpose of federal interpleader to decide disputes regarding alloca- tion of a limited insurance fund. Toward that end, some courts have strictly interpreted the “minimal diversity” requirement in 28 U.S.C. §1335 as requiring diversity between two or more claimants, excluding the citizenship of an interested stakeholder or insurer seeking a declaratory judgment. For example, in American Fam. Mut. Ins. Co. v. Roche, 830 F. Supp. 1241 (E.D. Wis. 1993), the insurer, American Family, filed an interpleader to enjoin the claimants and insured from filing an action for the proceeds of an auto liability policy and requiring the claimants to interplead their claims in the interpleader. In addition to the interpleader, American Family sought a declaratory judgment that it did not owe a duty to defend the underlying action because it had issued a notice letter to its insured terminating the policy before the underlying accident occurred. The district court in Roche granted the claimants’ motion to dismiss for lack of diversity jurisdiction finding that the insurer-stakeholder’s adversity to its insured relative to determining whether it owed coverage did not render the insurer a “claimant” for purposes of establishing diversity jurisdiction. Id. at 1248-49. Accordingly, some courts narrowly construe federal subject matter jurisdiction and will not consider the citizenship of a stakeholder, whether interested or disinterested, as relevant to determining diversity for purposes of statutory interpleader. In Hartford Cas. Ins. Co. v. Lexington Ins. Co., No. 14-CV-8060 (KMK), 2016 WL 1267801 (S.D.N.Y. March 30, 2016), the court limited statutory interpleader to determining the claimants’ rights to the fund. In that case, the court granted the insurer’s motion to dismiss all crossclaims raising issues relative to determining the extent of an insured’s liability to the claimants. The court found that claims seeking to establish a tortfeasor’s liability were independent tort claims falling outside of the jurisdiction of a statutory interpleader action. Hartford Cas. Ins. Co., 2016 WL 1267801 at *4. The court also granted the insurer’s motion to dismiss a third-party complaint seeking to determine whether the insurer had a duty to defend and indemnify on grounds that the third party complaint did not make a claim to the funds and thus exceeded the subject matter of the interpleader action. Id. at *5.

2. Interpleader May Not Terminate an Insurer’s Duty to Defend Importantly, even though an insurer pays its policy limits to the court, an interpleader may not terminate an insurer’s duty to defend when issues remain as to an insured’s legal liability for the underlying claim, or the insurer’s payment does not result in settlement of the claim against an insured or release of an insured’s liability. In American Standard Ins. Co. v. Basbagill, et al., 775 N.E.2d 255 (Ill. App. Ct. 2002), the court found an insurer’s duty to defend did not terminate after the insurer offered its policy limits in settlement and ten- dered its limits to the court via interpleader. Basbagill, 775 N.E.2d at 257. In Basbagill, the court found that the insurer’s duty to defend terminated only when its limit of liability was paid and that tendering its policy limit to the court, without admitting liability, was not the equivalent of paying its limits in satisfaction of an obligation to the recipient. Id. at 260. In Mt. Hawley Ins. Co. v. Federal Sav. & Loan Ins. Corp., 695 F. Supp. 469,

10 ■ Insurance Coverage and Claims ■ April 2017 474 (C.D. Cal. 1987), the court reasoned that allowing an insurer to terminate its duty to defend by filing an interpleader would encourage an insurer to improperly use interpleader to prematurely terminate an insurer’s duty to defend whenever the damages exceed the policy limits. See also Emcasco Ins. Co. v. Davis, 753 F. Supp. 1458, 1460-61 (W.D. Ark. 1990) (policy language provides for defense and settlement of claims and does not permit insurer to abandon defense of insured by filing interpleader and paying limits to court before determination is made as to whether the insured is legally responsible for the claims). Relatedly, in State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523 (1967), the Supreme Court held that statutory interpleader does not permit a court to enjoin underlying actions filed against an insured or require such claims to proceed within the interpleader. In Tashire, an insurer filed an interpleader against numerous passengers injured in a bus accident. While the district court had jurisdiction over claimants for purposes of interpleader and could enjoin claimants from asserting claims to the proceeds of the insurance policy except within the interpleader action, the Supreme Court concluded that statutory interpleader did not permit a court to enjoin claimants from establishing their claims against the insured in a forum of their own choos- ing and requiring the claims be litigated in a single proceeding in a forum chosen by the insurer. Tashire, 386 at 535. Accordingly, even if an insurer tenders its limits to the court in its interpleader action, claimants with unliquidated claims may still pursue those claims against an insured to establish an insured’s liability. In contrast, in Carolina Cas. Ins. Co. v. Estate of Studer, 555 F. Supp. 2d 972 (S.D. Ind. 2008), the court found that an insurer who unconditionally deposited its policy limits with the registry of the court for payment to the claimants and acknowledged that its liability would fully consume its limits had no further con- tractual duty to defend, its obligations having been fully exhausted through the judgment of interpleader. Estate of Studer, 555 F. Supp. 2d at 979. Similarly, in Canal Indem. Co. v. Dauma, No. CIV.A. 2:07CV351KSMT, 2009 WL 3644914, at *7 (S. D. Miss. 2009) (applying Texas law), the court found that an insurer’s duty to defend terminated upon payment of its maximum auto liability limits into the registry of the court after the funds were paid out to the claimants pursuant to an agreement among the claimants. In sum, the courts have not uniformly addressed under what circumstances an insurer’s payment of its limits in an interpleader action will terminate an insurer’s duty to defend an underlying action against its insured. While unilaterally tendering limits to a court is generally insufficient to terminate an insurer’s duty to defend, once the claimants’ rights to the fund are adjudicated and the policy limits are paid to the claimants, an insurer may seek an order from the interpleader court as to whether its duty to defend is terminated, its limits having been fully exhausted by payment of judgment in the interpleader action.

D. Conclusion An insurer may establish a right to interpleader under statutory or rule interpleader, or under state interpleader statutes. If an insurer is faced with the prospect of having to pay multiple claims, interpleader can be a valuable tool for an insurer to fully and finally resolve its liability by having a court determine how the limits should be distributed. If an insurer is considering an interpleader, it should do so promptly so that it can seek recovery of its attorney fees and costs in filing an interpleader and limit liability to the policy limits, excluding payment of prejudgment interest accruing before its limits are actually paid.

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