One of the circumstances recognized is when the insurer delays unreasonably in making a deposit in court by way of interpleader. The rationale here is obvious. Once the insurer knows that the insured has died, it knows that its obligation to pay the face amount of the policy has matured. If there be conflicting claims that prevent payment, a prudent insurer will keep the funds invested as part of its cash in short-term investments so that it can be paid when needed and meanwhile not be idle. A period of one week from the receipt of a claim from the named beneficiary should not carry interest. Settlement checks are issued for payment in that time in nearly all cases; this is traditional in life insurance. Beyond that, the insurer should be under a duty to invest the amount of the proceeds, and to transmit the earnings to the beneficiary, in order to discourage any motive for delay in order to reap a windfall.
In this view, the policy obligation would be equivalent to a demand note which carries no interest until demand for payment is made, with a 1 week grace period before interest begins to run.
The rule is a fair one, applying equally where there is but one claimant, as well as where there are multiple claimants. The lawful claimant is an innocent party who ought not to be penalized for delay because others also make claims. The insurer is also an innocent party because it is not responsible for the existence of conflicting claims. Where one of two innocent parties must stand the risk of loss, the law will place the risk on that one who can protect against loss to either. The insurer is in that position. The lawful claimant is not.
Under this view, the question of prejudgment interest is irrelevant. The obligation is a debt, and it accrues interest from one week after claim from the named beneficiary, just as an unpaid note would carry interest until paid.
The facts here underscore the soundness of the rule. The proceeds could have been interpleaded long before they were. The explanation that the insurer was trying to clear a N.Y. tax lien is not persuasive for two reasons: the potential lien did not preclude the investing of the funds on a short term basis, and in any event the N.Y. official who could claim the tax lien could have been joined as a defendant in interpleader. The federal interpleader law permits joinder of defendants in any district. See F.R.Civ.P. 22; 28 U.S.C. §§ 1335, 1397, 2361.
In this case, the proof of claim from the named beneficiary was received October 8, 1974. One week later was October 15, 1974. Interest will be allowed from October 15, 1974 to July 1, 1975 when the policy proceeds were deposited.
As for interest rate, the court will take judicial notice that short-term interest rates in that period were near historic highs. U.S. Treasury bills (90 day) sold in August, 1974 were at a discount to yield above 10%. There was a subsequent decline. Over all, the court views an average rate of 8% for short-term investments as fair and reasonable. Applying this rate, without compounding, for the period indicated, gives an amount of.$ 2,838.36 for interest. This amount is payable into court.
If this amount reflects a rate sufficiently greater than the average rate earned by the stakeholder on its short-term investments over the period to be more than de minimis, an application for reargument on that point, supported by clear proofs of the average rate earned, will be entertained under Local Rule 12 H.
A paradox arising out of the structure of the courts as established by Congress should be noted. If a stakeholder fails to invest proceeds promptly, it will be obliged to pay what the proceeds would have earned if invested, when it pays into court. If it pays into court promptly, the payment halts the running of interest and once deposited in the registry of the court, it earns no interest at all.
Since funds in the registry of the court are in the hands of the United States, there seems to be no reason why the Congress could not provide some system under which the Treasurer of the United States could borrow those funds at interest, subject to being drawn upon for the satisfaction of judgments, with interest on a day-to-day basis.
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