March 2014 Bad Faith Cases: Bad Faith Claims Against Insurer For Bringing Interpleader Action Dismissed (New Jersey Federal)

In Amethyst International, Inc. v. Duchess, a Hurricane Sandy flood damage claim, an insurer that was joined as a defendant in a hotly disputed suit among claimant/parties, brought an interpleader action by way of counterclaim and cross claim, wanting to pay the proceed into court, rather than pay any one of the various parties making claims to policy proceeds.  One of the parties brought various claims against the insurer for filing the interpleader, rather than paying it, including a bad faith claim.

The court found that each of the claims against the insurer concern the insurer’s failure to resolve its investigation in the plaintiff’s favor and pay out the insurance proceeds to that party. Thus, none of the claims were truly independent of the question of who was entitled to the insurance proceeds, and it was this issue the carrier’s interpleader claim was aimed at resolving.   The court found that “ (1) that each of the three claims is primarily a claim to the interpleaded funds, and (2) even were that not the case, while each claim ostensibly alleges bad faith, ‘none is truly independent’ of Plaintiff’s objection to [the carrier]’s decision to resolve the ownership dispute over the Proceeds by means of interpleader.”

Contrary to the claims against the carrier “where a stakeholder is allowed to bring an interpleader action, rather than choosing between adverse claimants, its failure to choose between the adverse claimants (rather than bringing an interpleader action) cannot itself be a breach of a legal duty.”

The court concluded:  “Therefore, ‘because there was a legitimate dispute over entitlement to . . . insurance proceeds, and because [Defendant] was not to blame for the existence of that dispute, [Defendant] was eligible to bring an interpleader action to resolve that controversy. Bringing that action, in turn, protected it not only from further liability to the claimants for the amount owed under the . . . insurance policy, but also from liability arising out of its decision to settle the ownership controversy by way of interpleader.” …  Counts Five, Six, and Seven all arise out of [the insurer]’s decision to recognize the dispute between [the disputing parties] over the ownership of the Proceeds and to proceed with an action in interpleader, rather than choosing to pay either of the claimants and face the suit of the other. All three counts as alleged against [the insurer] are foreclosed by [the insurer]’s successful interpleader of the Proceeds and are dismissed with prejudice.”

Date of Decision:  February 20, 2014

Amethyst Int’l, Inc. v. Duchess, Civil Action No. 13-04287 (FLW)(LHG), 2014 U.S. Dist. LEXIS 21089 (D.N.J. Feb. 20, 2014) (Wolfson, J.)