Interpleader Alone Does Not Trigger Insurer's Liability
Interpleader and oil spills and indemnity, oh my! The Fifth Circuit Court of Appeals ruled on Wednesday that filing an interpleader action does not trigger an excess insurer's responsibility in a claim.
The details in this case read more like an algebraic equation than a fact pattern, ("the M/V TINTOMARA struck the DM-932"), so we'll spare you the nitty-gritty specifics in favor of our digestible version: there was an accident on the Mississippi River that resulted in an oil spill. And oil spills are bad.
After the accident, several lawsuits were filed and American Commercial Line (ACL), one of the defendants, turned to Indemnity Insurance Company of North America, (Primary Insurer) and the appellants in this case, (Excess Insurers), to foot the bill for the damage.
In 2008, the Primary Insurer filed an interpleader complaint seeking to deposit $985,000 (the policy limit less the deductible) with the court and requesting that the court determine the rights of the various claimants, and declare that several coverage defenses applied to the policy.
In 2009, the district court granted ACL's motion to dismiss two of the coverage defenses, ruling that they were inapplicable; however, the court declined to dismiss the entirety of the Primary Insurer's requests for declaratory relief, concluding that the policy might exclude coverage of certain expenses under the punitive damages clause and the pollution exclusion clause.
Over a year later, the Excess Insurers filed an interpleader complaint seeking release from further liability under the excess policy upon deposit of the policy limit of $9 million into the court's registry. ACL opposed the Excess Insurers' motion, arguing that the Excess Insurers should have to pay prejudgment interest on the interpleaded funds because the Excess Insurers unreasonably delayed in depositing the funds, resulting in unjust enrichment.
ACL claimed that if the "Excess Insurers deposited the $9 million policy limit in a timely manner, the interest would have been accrued for well over twelve months to the benefit of the claimants, rather than to the benefit of the Excess Insurers." The district court agreed with ACL and ordered the Excess Insurers to pay $495,369.86 in prejudgment interest.
The Excess Insurers countered that their liability was not triggered in January 2009, because the primary policy was not exhausted at that time, or at any time before they filed their interpleader action.
The Fifth Circuit Court of Appeals agreed with the Excess Insurers, finding that the Excess Insurers could not have profited from unreasonable delay or unjust enrichment because their obligation under the excess policy had not been triggered.
The Court also rejected ACL's self-serving argument that the Excess Insurers moved the issue from the theoretical policy realm into the you-owe-half-a-million-in-prejudgment-interest realm by filing an interpleader. The Fifth Circuit Court of Appeals notes that the law does not work that way, and the district court was wrong to believe that it did.
- FindLaw's Fifth Circuit blog (FindLaw)
- Summary Judgment for Excess Insurer in Coverage Dispute Partially Reversed, and Criminal, Employment and Insurance Matters (FindLaw's Fifth Circuit blog)