United States District Court, E.D. Kentucky, Central Division, Lexington
MEMORANDUM OPINION AND ORDER
A. INGRAM, UNITED STATES MAGISTRATE JUDGE
Terry died in September 2015. Days before his death he
changed the beneficiary of his life insurance policy from his
wife to his sister. Terry's wife had paid all the policy
premiums, but had filed for divorce. His sister housed him
during the final month of his life. Both claimed the
December 2015, New York Life Insurance Company (“NY
Life”) filed this action in interpleader, asking the
Court to determine the proper beneficiary. See D.E.
13 (Second Amended Complaint). The parties consented to
jurisdiction by a Magistrate Judge (D.E. 21), and the case
was later assigned to the undersigned.
August 22, 2016, Plaintiff NY Life filed a motion to be
dismissed from the case with prejudice once the proceeds were
deposited with the Court. D.E. 44. The motion also sought to
enjoin the other parties from commencing any action against
NY Life and for an award of attorneys' fees and expenses.
September 20, 2016, Defendant/Cross-Claimant Eva Carole Terry
Wuest (“Sister”) moved for summary judgment. D.E.
47. On October 14, 2016, Defendant/Cross-Claimant Jane-Ann
Hunsaker Terry (“Wife”) also moved for summary
judgment. D.E. 58. All three motions are fully briefed.
Rule of Civil Procedure 56 requires a court to grant a motion
for summary judgment when “the movant shows that there
is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.” The Court
must assume the truth of the non-moving party's evidence,
and draw all inferences in a light most favorable to the
non-moving party. Mullins v. Cyranek, 805 F.3d 760,
765 (6th Cir. 2015); see also Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 255 (1986). If there is sufficient
evidence for a trier of fact to find for the non-moving
party, a genuine dispute of material fact exists and summary
judgment may not issue. Mullins, 805 F.3d at 765.
“The ultimate question is ‘whether the evidence
presents a sufficient disagreement to require submission to a
jury or whether it is so one-sided that one party must
prevail as a matter of law.'” Back v. Nestle
USA, Inc., 694 F.3d 571, 575 (6th Cir. 2012) (quoting
Anderson, 477 U.S. at 251-52).
normally conduct interpleader actions in two stages. The
first stage involves determining whether interpleader is
appropriate and relieving the plaintiff from liability. The
second stage adjudicates the claims of the defendant
claimants. United States v. High Tech. Prod., Inc.,
497 F.3d 637, 641 (6th Cir. 2007). But “bifurcation is
not mandatory” and “the entire action may be
disposed of at one time.” N.Y. Life Ins. Co. v.
Connecticut Dev. Auth., 700 F.2d 91, 95 (2d Cir. 1983);
see Confederation Life Ins. & Annuity Co. v.
Gallion, No. 5:12-CV-177-DCR, 2013 WL 6061809, at *1
(E.D. Ky. Nov. 18, 2013) (performing both stages in a single
and Wife married in 1988. D.E. 54 at 8. They had two sons who
are now in their twenties. D.E. 58-2 at 1. In 2006 Terry left
his job due to back pain from degenerative disc disease. D.E.
54 at 17. From that point, the family's sole income
derived from Wife's family business and investments. D.E.
58-2 at 1-2. When he left his job, Terry lost his
employee-provided life insurance. Id. at 1. That
same year, Terry and Wife decided to obtain a $200, 000 whole
life insurance policy from NY Life. In her deposition, Wife
described how she and Terry agreed that payments for policy
premiums would come from their joint checking account and she
would be the named beneficiary:
Wife: We discussed getting life insurance, because he no
longer was working at Dick's Sporting Goods. So we had a
policy drawn up, discussed that I would be the beneficiary.
This was done to be set up for our children, who were young
at that age, elementary and junior high age. This was
something for them. And I would be named beneficiary for
. . . .
Q: . . . What was your agreement with Tim Terry?
A: That the life insurance policy would be drawn and I would
be the beneficiary. But the policy-in the time-if anything
happened to him, this money would be for his children and his
Q: Okay. Anything else in the agreement?
A: And that I would pay for the policy myself out of my
D.E. 54 at 18-19.
2010, Terry suffered a motorcycle accident. According to
Wife, he became addicted to painkillers. He also drank and
was sometimes abusive. D.E. 58-2 at 3-4. In summer 2015, Wife
filed for divorce, hiring attorneys Valerie Kershaw and Mindy
Seagraves to represent her. Id. at 4. Terry hired
Michael Paul Rowland to represent him in the divorce
proceedings. D.E. 53 at 9.
moved out on August 1, 2015. D.E. 54 at 12; D.E. 58-2 at 4.
Wife allowed him to take $15, 000 from the joint account to
cover his living expenses. Terry also sold some personal
items to a jewelry store, without Wife's permission. D.E.
58-2 at 4. Terry opened his own separate bank account.
parties agreed to an order in the divorce case that Terry
could not enter the family's property or their
horse-boarding farm without prior written permission, and
that Terry would remain 500 feet away from Wife. D.E. 53 at
109-10. No “Status Quo” order was entered in the
divorce case. D.E. 62 at 15. Such an order would almost
certainly have required that Terry not change his life
insurance beneficiary. D.E. 55 at 4. Instead, Rowland
counseled Terry not to “cash it in or cancel anything
right now.” D.E. 53 at 25. Rowland could not
specifically recall counselling Terry against changing the
beneficiary. Id. at 26.
August 28, 2015, Terry contacted NY Life insurance agent
Andrew Caudill. D.E. 52 at 7. Terry wanted to change the
automatically drafted premium payments so that they came from
his new bank account, rather than Wife's. Id. at
September 1, Terry and Caudill met in person. During the
meeting, Caudill informed Terry of his various rights,
including his right to change the beneficiary. Id.
at 9, 44, 49. According to Caudill, it was during that
meeting that Terry decided to change the beneficiary from
Wife to Sister. Id. at 21. Caudill testified that
Terry felt scorned, hurt, and bitter about the impending
divorce and how he had even “lost” his children.
Id. at 15. But Terry was “lucid” during
the meeting and did not appear impaired. Id. at 16.
He “very much appeared” to Caudill to be
“on top of his game” during phone conversations
and the face-to-face meeting. Id. Regarding Sister,
Terry told Caudill, “I don't know what I would do
without her. She's always been there for me and took me
in.” Id. at 20. Terry did not appear to be
under pressure from anyone else to make the beneficiary
change. Id. at 25-26. Caudill believed that
Terry's sense that Wife betrayed him was what motivated
him to make the change. Id. at 26.
September 5, 2015, Sister arrived home shortly after 11:00
p.m. and found Terry lying lifeless in his bedroom. D.E. 51
at 37. The coroner pronounced him dead after midnight,
rendering September 6 his official date of death. D.E. 58-2
at 5. The Certificate of Death listed the manner of death as
suicide, the cause of death multiple drug intoxication. D.E.
1-3 (death certificate). Sister believes the overdose was
accidental. D.E. 51 at 40.
Wife nor Sister knew about the beneficiary change until after
Terry passed away. D.E. 51 at 29; D.E. 52 at 29; D.E. 58-2 at
5. Sister denies that she suggested the beneficiary change to
Terry. D.E. 51 at 29.
Life's Motion to Dismiss
moves for an order:
(i) permitting the Company to interplead a death benefit of
$200, 000, plus applicable claim interest, if any, which
became payable to a beneficiary or beneficiaries as a result
of the death of Timothy W. Terry; (ii) dismissing the Company
from this action with prejudice following the deposit of the
death benefits with the Clerk of the Court; (iii) permanently
enjoining any of the parties to this action from commencing
any other actions or proceedings seeking payment of the death
benefits or otherwise in connection with the insurance
coverage at issue; and (iv) awarding the Company its
attorneys' fees and costs.
D.E. 44 at 1.
and Sister are comfortable with NY Life being dismissed once
it deposits the insurance proceeds with the Court. D.E. 45 at
2; D.E. 46 at 2. In an interpleader action, absent “bad
faith on the part of the stakeholder or the possibility that
the stakeholder is independently liable, discharge should be
readily granted.” Sun Life Assur. Co. of Canada v.
Thomas, 735 F.Supp. 730, 733 (W.D. Mich. 1990) (citing
N.Y. Life Ins. Co. v. Connecticut Dev. Auth., 700
F.2d 91, 96 (2d Cir. 1983)). Thus, once the amount to be
deposited is calculated and actually deposited, discharge
will be appropriate.
parties agree that the principal amount of the death benefit
is $205, 119.39. D.E. 49 at 2; D.E. 60 at 1.
asserts that the applicable interest rate is 3.5%, but Wife
and Sister take issue with this figure. The question of the
interest rate first emerged in Wife's response brief,
which assumed a rate of 8%. D.E. 46 at 7. NY Life replied
that, “Pursuant to the Policy, the Company sets the
interest rate that will be applied to the Policy, if any. As
of September 12, 2016, the interest rate for the Policy was
3.5%, which rate could fluctuate depending on when the Policy
Death Benefit is deposited with the Court's
Registry.” D.E. 48 at 1 n.1.
argues that the interest rate should be calculated according
to Ky. Rev. Stat. Ann. § 360.010 (LexisNexis 2008),
which states that “[t]he legal rate of interest is
eight percent (8%) per annum.” D.E. 46 at 4. That
statute also provides that parties may contractually agree to
a different rate and “any party or parties who may
assume or guarantee any such contract or obligation, shall be
bound for such rate of interest as is expressed in any such
contract.” Ky. Rev. Stat. Ann. § 360.010. NY Life
argues that § 360.010 applies only to negotiated bank
loans. D.E. 49 at 3; D.E. 59 at 2. This is not correct.
“Absent a contractually agreed upon rate, the
appropriate rate of interest is governed by [KRS §
360.010].” Reliable Mech., Inc. v. Naylor Indus.
Servs., Inc., 125 S.W.3d 856, 857 (Ky. Ct. App. 2003).
Although one subsection of the statute applies to negotiated
bank loans, Kentucky generally applies the 8% rate in other
question then is whether the policy sets an interest rate
that displaces the default 8% rate established by statute.
See Stratton v. Portfolio Recovery Assocs., LLC, 770
F.3d 443, 447 (6th Cir. 2014), as amended (Dec. 11,
2014) (quoting Reliable Mech., 125 S.W.3d at 857);
Concrete Materials Corp. v. C.J. Mahan Const. Co.,
110 F.3d 63 (6th Cir. 1997) (applying a contractual interest
rate of 2% rather than the rate set by § 360.010);
Forcht Bank, NA v. Gribbins, No. 2014-CA-592-MR,
2015 WL 4039612, at *4 (Ky. Ct. App. July 2, 2015)
(“[W]hen no agreement exists as to the appropriate rate
of interest, KRS 360.010 provides that the legal rate of
interest is eight percent.”); D.E. 60 at 2-3.
argues that the policy establishes that the prejudgment
interest rate would be set by the company, and that the
company's current rate is 3.5%. D.E. 59 at 2. Imposing 8%
interest, the company argues, would be unduly punitive and
would create an unfair windfall for the beneficiary.
Id. at 2-3.
case, the contract controls the interest rate. The policy
makes no explicit reference to a 3.5% interest rate.
See D.E. 50-1 (policy documents). However, section
1.1 states that NY Life
will pay the life insurance proceeds to the beneficiary
promptly when we have proof that the Insured died on or after
the Effective Date of this policy, subject to all of this
policy's provisions. We will pay the life insurance
proceeds in accordance with the policy proceeds option
chosen. These proceeds bear interest compounded each year
from the Insured's death to the date of payment. We set
the interest rate each year. This rate will not be less than
the rate required by law.
D.E. 50-1 at 12 (emphasis added). Section 6.1 also concerns
the payment of policy proceeds. It states that “[a]ny
life insurance proceeds paid in one sum will bear interest
compounded each year from the Insured's death to the date
of payment. This rate will not be less than required by
law.” D.E. 50-1 at 18. These appear to be the operative
provisions, and the parties do not point to any other
provision as controlling.
argues that these provisions incorporate § 360.010, and
that 8% is therefore the rate “required by law”
that NY Life must meet or exceed. D.E. 60 at 3. Wife further
argues that any ambiguity on this point should be construed
against NY Life, as drafter of the policy. Id. at 4.
the policy is not ambiguous. Section 1.1 states that policy
proceeds will be paid along with compound interest, the
rate of which will be set by the company each year. D.E.
50-1 at 12. The Court finds that, for purposes of KRS §
360.010, there was a binding written agreement between the
parties allowing NY Life to set a non-statutory rate of
interest, even though the contract recognized that the rate
would fluctuate. It is only in the “absen[ce]” of
“a contractually agreed upon rate” that KRS
§ 360.010 mandates the application of 8% interest.
Reliable Mech., 125 S.W.3d at 857.
contrary to Wife's argument, NY Life's current rate
of 3.5% is not “less than the rate required by law,
” as forbidden by sections 1.1 and 6.1 of the policy.
The parties do not point to any Kentucky law requiring life
insurance policies or any other contracts to include a
minimum interest rate. Accordingly, the policy language
agreed to by the parties controls: “We set the interest
rate each year.” D.E. 50-1 at 12. NY Life should
deposit the policy proceeds with the Court, along with annual
compound interest at the rate which is set by the company as
of the date of this order. However, because NY Life's
assertion that the most recent rate is 3.5% is not supported
by any evidence in the record, further proceedings for the
Court to find the applicable rate are necessary and are
opposes NY Life's request for a permanent injunction
barring Defendants from pursuing any additional litigation
against NY Life regarding the policy. D.E. 46 at 2-3.
However, such an injunction is entirely appropriate in this
is a procedural device which entitles a person holding money
or property, concededly belonging at least in part to
another, to join in a single suit two or more persons
asserting mutually exclusive claims to the fund.”
White v. Fed. Deposit Ins. Corp., 19 F.3d 249, 251
(5th Cir. 1994). Interpleader actions are remedial in nature,
so the governing rules and statutes are to be liberally
construed. State Farm Fire & Cas. Co. v.
Tashire, 386 U.S. 523, 533 (1967). There are two
approaches to interpleader in federal courts, commonly
referred to as “rule interpleader” and
“statutory interpleader.” Rule interpleader is
brought pursuant to Federal Rule of Civil Procedure 22, while
statutory interpleader is brought pursuant to the Federal
Interpleader Act, codified at 28 U.S.C. §§ 1335,
1397, 2361. The primary distinction between the two types of
interpleader is that “unlike the interpleader statute
which grants district courts original jurisdiction, the
interpleader rule is merely a procedural device and does not
grant this Court subject matter jurisdiction.” Sun
Life Assur. Co. of Canada v. Thomas, 735 F.Supp. 730,
732 (W.D. Mich. 1990) (citing Bell & Beckwith v.
United States, 766 F.2d 910, 914 (6th Cir. 1985)).
Accordingly, “[i]n an action brought pursuant to the
interpleader rule, either federal question jurisdiction or
diversity jurisdiction must be established.”
diversity jurisdiction is pleaded and unchallenged.
See D.E. 13 at 2. The parties agree that this
interpleader action is brought under Rule 22. See
D.E. 44 at 4; D.E. 46 at 2-3. Statutory interpleader would
not be available here because the Defendants are not
diverse-they are both citizens of Kentucky. See 28
U.S.C. § 1335(a)(1).
the Court decides that interpleader is available, “it
may issue an order discharging the stakeholder, if the
stakeholder is disinterested, enjoining the parties from
prosecuting any other proceeding related to the same subject
matter, and directing the claimants to interplead.”
United States v. High Tech. Prod., Inc., 497 F.3d
637, 641 (6th Cir. 2007) (quoting 7 Fed. Prac. & Proc.
Civ. § 1714 (3d ed.)). “The primary test for
determining the propriety of interpleading the adverse
claimants and discharging the stakeholder is whether the
stakeholder legitimately fears ...