775 F.3d 867
7th Cir.2014Background
- Troy and Jennifer Jonas bought reciprocal life policies; after their 2011 divorce ownership of Jennifer’s policy was reassigned to Troy, but the policy stated a change of owner does not change beneficiary designation.
- Jennifer (Tex. domiciliary) died in 2012; Troy submitted a claim for $1 million as named beneficiary; State Farm did not pay, citing Tex. Fam. Code §9.301 (spousal beneficiary designations lapse on divorce) and possible competing claims by children or Jennifer’s estate.
- Texas law (Tex. Ins. Code) requires payment within 60 days and imposes damages (18% interest + fees) for delay, but permits an insurer to avoid those damages if it timely files an interpleader and deposits proceeds in court registry within 90 days after receiving a claim.
- State Farm filed a federal interpleader action under 28 U.S.C. §1335 before the 60-day deadline but did not deposit the funds with the complaint; the district court treated State Farm’s concern about competing claims as a bona fide adverse claim and allowed interpleader, ordering deposit; funds later paid out to Troy.
- On appeal the Seventh Circuit held State Farm had not satisfied §1335(a)(2) (no contemporaneous deposit), so federal interpleader jurisdiction under §1335 was absent; because there was no justiciable controversy when the suit began (Tex. Ins. Code §1103.103 insulated the insurer from multiple liability absent competing claim), the federal suit lacked Article III jurisdiction.
- The court vacated the district judgment and remanded with instructions to dismiss for lack of subject-matter jurisdiction; Troy must seek fees/18% interest in state court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurer satisfied federal interpleader jurisdiction under 28 U.S.C. §1335 | Troy: State Farm could not invoke §1335 because it failed to prove a real adverse claim and thus should have paid him | State Farm: §1335 jurisdiction existed because minimal diversity existed and it filed interpleader within 90 days due to potential competing claims | Held: No §1335 jurisdiction—State Farm satisfied diversity but not §1335(a)(2) because it did not deposit the funds with the complaint |
| Whether Texas statutory safe-harbor from damages (§542.058(c)) applied | Troy: §542.058(c) did not apply because State Farm had no bona fide adverse claim and thus delay triggered 18% damages and fees | State Farm: Its reasonable concern about competing claimants (children/estate) qualified as adverse bona fide claim, so filing interpleader avoided §542.060 damages | Held: §542.058(c) cannot shield State Farm here because federal §1335 requirements were not met; the safe-harbor depends on proper interpleader + deposit |
| Whether an interpleader under general diversity (Rule 22 / §1332) could supply jurisdiction and avoid state damages | Troy: Even if federal diversity allowed interpleader, lack of deposit means §542.058(c) remains unsatisfied | State Farm: Rule 22 interpleader is available without deposit and thus could afford protection | Held: Complete diversity exists but this suit lacked a justiciable controversy at filing, so federal jurisdiction under Article III is absent despite possibility of Rule 22 interpleader |
| Whether post-filing events (passage of 60 days, accruing higher interest, fee disputes) cure initial lack of jurisdiction | Troy: Later accrual of §542.060 liability after 60 days created a live controversy | State Farm: Post-filing developments can affect relief sought | Held: Post-filing events cannot retroactively create Article III jurisdiction; case must present a controversy when filed |
Key Cases Cited
- State Farm Life Ins. Co. v. Martinez, 216 S.W.3d 799 (Tex. 2007) (insurance-code safe-harbor and insurer liability discussion)
- Diamond v. Charles, 476 U.S. 54 (1986) (post-filing fee awards cannot supply Article III jurisdiction)
- Steel Co. v. Citizens for a Better Environment, 523 U.S. 83 (1998) (merits jurisdiction cannot be avoided; case-or-controversy requirement is fundamental)
- Susan B. Anthony List v. Driehaus, 134 S. Ct. 2334 (2014) (credible threat of enforcement creates justiciable controversy)
- Gelfgren v. Republic Nat'l Life Ins. Co., 680 F.2d 79 (9th Cir. 1982) (Rule 22 interpleader does not require cash deposit)
- Murphy v. Travelers Ins. Co., 534 F.2d 1155 (5th Cir. 1976) (interpleader under Rule 22 permitted without contemporaneous deposit)
- Clements v. Minnesota Life Ins. Co., 176 S.W.3d 258 (Tex. App. 2004) (treating insurer’s concern about potential claimants as bona fide adverse claim)