SCHLAFLY v. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
2:17-cv-02522
| D.N.J. | May 21, 2018Background
- Decedent Phyllis Schlafly named Eagle Forum as beneficiary of life insurance policies issued by John Hancock and Lincoln; after her death, multiple claimants (including Andrew Schlafly) disputed who controlled Eagle Forum and thus who could claim proceeds.
- Andrew Schlafly sued the insurers in state court; Lincoln removed to federal court and both insurers filed interpleader actions, deposited proceeds with the court, and sought discharge from liability.
- The insurers conceded that Eagle Forum was the beneficiary but said they could not determine which persons or officers were authorized to receive payment given competing claimants and parallel litigation in multiple jurisdictions.
- The district court granted the insurers’ motions to deposit funds and discharge; the remaining dispute concerned whether the insurers were entitled to attorneys’ fees and costs from the deposited funds and, if so, the reasonable amount.
- Eagle Forum argued insurers should not recover fees because determining beneficiaries is part of an insurer’s routine business and, per some out-of-district cases, insurers that create or merely respond to routine disputes should not shift costs to the fund.
- The court found the insurers were disinterested stakeholders who legitimately feared multiple liability, rejected the claim that insurers caused the dispute, and recommended awarding Lincoln $41,229.71 and John Hancock $109,176.80 from the respective deposited proceeds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Entitlement to fees in interpleader | Schlafly/Eagle Forum: insurers routinely decide beneficiaries; should not recover fees for ordinary business decisions | Insurers: they are disinterested stakeholders who conceded liability, deposited funds, and sought discharge due to bona fide competing claims | Fees allowed: insurers met interpleader criteria and did not create the dispute; entitled to fees and costs |
| Whether insurers caused the dispute | Eagle Forum: insurers’ refusal to pay created litigation; thus no fee award | Insurers: competing lawsuits and multiple claimants created dispute; insurers reasonably feared multiple liability | Court rejected plaintiff’s causation argument; insurers not responsible for creating claims |
| Reasonableness/amount of fees | Eagle Forum did not object to specific entries but argued against fees generally | Insurers provided detailed billing; Lincoln reduced fees attributable to other policies; counsel responded to numerous claimants and filings across jurisdictions | Court found requested amounts reasonable, not excessive or depleting (Lincoln ~2% of its fund; Hancock ~8%) |
| Equitable limit to protect fund | Eagle Forum: fees should not deplete fund or be unnecessary | Insurers: fees are modest relative to funds and necessary given complexity | Court applied equitable discretion and precedent; awards would not seriously deplete funds and are appropriate |
Key Cases Cited
- Metropolitan Life Ins. Co. v. Price, 501 F.3d 271 (3d Cir. 2007) (describing interpleader and stakeholder discharge principles)
- Prudential Ins. Co. of Am. v. Hovis, 553 F.3d 258 (3d Cir. 2009) (interpleader allows deposit and withdrawal from proceedings when stakeholder fears multiple liability)
- Metropolitan Life Ins. Co. v. Kubichek, [citation="83 F. App'x 425"] (3d Cir. 2003) (stakeholder meeting interpleader criteria may recover reasonable fees)
- Stonebridge Life Ins. Co. v. Kissinger, 89 F. Supp. 3d 622 (D.N.J. 2015) (insurer may be denied fees if it helped create the dispute; contrasted with insurers who legitimately fear multiple liability)
- Battles v. United States Parole Comm'n, 834 F.2d 419 (5th Cir. 1987) (general rule that district court need not consider frivolous or general objections to a magistrate judge's report)