Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS:Ed and Linda Martinez divorced in 1994. In their divorce agreement, Ed agreed to pay Linda contractual alimony of $5,000 per month for 10 years ($600,000), with his estate to continue paying if he died earlier. Ed also agreed to name Linda as irrevocable beneficiary on three life insurance policies, providing that he could drop those policies or change beneficiaries so long as the unpaid alimony amount was covered. The policy at issue here is a $500,000 policy issued by State Farm. Beginning in 1994, this policy listed as beneficiary “Linda Martinez, 41, ex-wife, in accordance with divorce decree dated 09-15-94.” On Aug. 1, 2002, shortly before he died, Ed signed a State Farm “Change of Beneficiary” form naming Toni, his current wife, as beneficiary. State Farm refused to process the request, returning it on Aug. 16, 2002, with a request for proof that the change complied with the divorce agreement. Ed died on Aug. 25, 2002, and failed to act on State Farm’s response before he died. Within three weeks, State Farm received three conflicting claims to the policy proceeds: 1. from Ed’s daughter Lisa on Sept. 2; 2. from his ex-wife Linda on September 5; and 3. from his surviving spouse Toni on Sept. 10. Toni sued State Farm on Nov. 20. Two days later State Farm filed this interpleader, depositing $506,061 (the policy proceeds plus interest and a partial premium refund) in the court’s registry. Lisa and Toni filed cross-motions for summary judgment seeking the proceeds. During the summary judgment hearing in February 2003, Linda and Toni agreed to allow Toni to obtain the policy proceeds provided she agree to a constructive trust to secure Linda’s alimony. Thereafter, the trial court granted Toni’s summary judgment and denied Lisa’s. The final judgment ordered State Farm to pay all the policy proceeds to Toni with $70,000 to be held in trust and paid $5,000 per month to Toni if Ed’s estate continued to pay the balance of Linda’s alimony. But the case was not over. Toni claimed State Farm violated the Texas prompt-payment-of-claims statute by failing to pay her within 60 days, thus entitling her to penalty interest of 18 percent and attorneys’ fees. Lisa and State Farm appealed. The court of appeals affirmed summary judgment against Lisa, finding Ed had changed the beneficiary to Toni. The court also affirmed the judgment against State Farm but reduced the penalty interest calculation to $67,500. The court rejected State Farm’s argument that penalty interest should apply only to the 12-day delay, holding it should continue until the final judgment to promote the purpose of the statute. HOLDING:Reversed and remanded. The Texas Supreme Court first held that Toni was a named beneficiary entitled to prompt payment under the statute, now codified at Texas Insurance Code ��542.051-.061. State Farm, the court stated, argued that the prompt-payment statute does not apply when rival claims require an insurer to file an interpleader. But the court disagreed. Recognizing an interpleader exception to the prompt payment statute, the court stated, would frustrate its purpose in some cases, while removing the exception would allow the purposes of both the statute and interpleader to be fulfilled. Accordingly, the court held that State Farm’s interpleader did not render the statute inapplicable. But the court next limited the reach of the prompt payment statute in interpleader situations. The 10th Court of Appeals, the court stated, assessed the prompt payment statute’s penalties until final judgment was signed almost nine months after State Farm’s interpleader. While assessing penalties before interpleader is consistent with both the statutory and common-law rules, assessing them thereafter is not. Next, the court limited the award of prejudgment interest in interpleader cases. Allowing Toni to recover interest on proceeds in the registry and interest from State Farm at the same time, the court stated, would constitute a double recovery. Accordingly, the court held that the trial court erred in assessing prejudgment interest against State Farm after the interpleader. Accordingly, the court denied Toni prejudgment interest, penalty interest or attorneys’ fees incurred after State Farm filed its interpleader. The court reversed the court of appeals’ judgment and remanded to the trial court to redetermine an award of interest and attorneys’ fees to Toni. OPINION:Brister, J., delivered the opinion of the court.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 3 articles* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.