Argued December 5, 2014.
Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 1:12-cv-1500-WTL-MJD -- William T. Lawrence, Judge.
For State Farm Life Insurance Company, Plaintiff - Appellee: Dennis F. Cantrell, Attorney, Cantrell, Strenski & Mehringer, Llp, Indianapolis, IN.
For Troy Jonas, V. J., a minor, T. A. J., a minor, S. J., a minor, Defendants - Appellants: David F. McNamar, Attorney, Mcnamar & Associates, P.C., Indianapolis, IN.
Before FLAUM, EASTERBROOK, and KANNE, Circuit Judges.
Easterbrook, Circuit Judge.
Troy Jonas and his wife Jennifer purchased reciprocal policies of life insurance: she owned the policy on her life, with him as beneficiary; he owned the policy on his life, with her as beneficiary. When they divorced in 2011, the court reassigned the policies' ownership: after the divorce, Troy owned the policy on Jennifer's life. Each policy provided that " [a] change of Owner or Successor Owner does not change the Beneficiary Designation." Troy therefore
thought it unnecessary to redesignate himself as the beneficiary of the policy insuring Jennifer's life.
Jennifer died on August 30, 2012. Troy promptly submitted a claim for the proceeds ($1 million). State Farm Life Insurance did not pay. It expressed concern that the proceeds might belong to the couple's children (who had been named as secondary beneficiaries) or to Jennifer's estate as a result of Tex. Family Code § 9.301, which provides that if a divorce occurs after one spouse has designated the other spouse as a beneficiary of an insurance policy, the designation lapses (with some exceptions) and, unless a new designation is made, the proceeds belong to any alternative beneficiary or the decedent's estate. (Jennifer was domiciled in Texas when she died, and the policy had been issued there; the parties agree that Texas law applies to this litigation.) Troy replied that this provision does not apply when the divorce decree reassigns the policy's ownership to the named beneficiary.
Texas law requires an insurer to pay within 60 days of receiving a claim, Tex. Ins. Code § 542.058(a), and provides for " damages" if payment is delayed. Damages under Tex. Ins. Code § 542.060 are interest at 18% a year plus reasonable attorneys' fees that the claimant incurs in collecting. But an insurer that receives " notice of an adverse, bona fide claim" within 60 days of the initial claim may defer payment and
properly file an interpleader action and tender the benefits into the registry of the court not later than the 90th day after the date the insurer receives [the initial claim]. A life insurer that delays payment of the claim or the filing of an interpleader and tender of policy proceeds for more than 90 days shall pay damages and other items as provided by Section 542.060 until the claim is paid or an interpleader is properly filed.
Tex. Ins. Code § 542.058(c). One final provision of Texas law plays a role in this federal litigation. Tex. Ins. Code § 1103.103 provides that if an insurer does not receive a competing claim before it pays the policy's designated beneficiary, it is absolved of any liability to a later claimant, whether or not the belated claimant had a superior entitlement to the proceeds. See also State Farm Life Insurance Co. v. Martinez, 216 S.W.3d 799, 806 n.31 (Tex. 2007).
State Farm did not receive any claim other than Troy's. Still, it did not pay. Instead it filed this action in federal court, nominally as an interpleader under 28 U.S.C. § 1335, on October 16, 2012--before the 60 days had run, and well inside the 90 days allowed by § 542.058(c). But there were two problems, one with Texas law and one with federal law. The problem under Texas law is that State Farm had not ...