#interpleader

Paul Deloughery recently in the news! Paul Deloughery recently decided to focus on disputes over life insurance. This news was recently picked up by a number of news channels, such as Fox 8 in New Orleans, thesportship.com, NBC News in Louisvills, Kentuccky, and ABC News in Lawton, Oklahoma. In the news articles, Paul Deloughery revealed three essential elements that is helping his clients win…

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In its recent decision in ACE Capital v. Eplanning, Inc., 2013 U.S. Dist. LEXIS 32613 (E.D. Cal. March 8, 2013), the United States District Court for the Eastern District of California had occasion to consider California rules concerning settlement of competing claims to limited insurance proceeds, particularly in a situation where some of the claims are not covered.

Underwriters insured Eplanning under a $5 million claims made and reported professional liability policy.  A number of claims were made and reported during the policy period, the total of which far exceeded the policy’s limit of liability.  While Underwriters initially undertook the defense of Eplanning and settled some of the underlying claims, it eventually interpleaded the remainder of the policy proceeds - just in excess of $300,000 - into the court to be allocated among the various remaining claimants.  At issue in the interpleader was whether Underwriters’ conduct was in bad faith, pursuant to Schwartz v. State Farm, 88 Cal.App.4th 1329 (2001), for not having commenced its interpleader earlier.  This bad faith claim, however, was asserted by underlying plaintiffs who had brought four individual suits not covered under the policy since their claims were first made after the policy’s expiration.   These plaintiffs, as the assignees of the insured, argued that an insurer can still act in bad faith, even where no policy benefits are ultimately due, “where there are numerous covered claims asserted against the policy” and where there is a potential for coverage.  Thus, plaintiffs argued that Underwriters committed bad faith in its settlement of other claims, and that this bad faith cause of action was assignable notwithstanding the fact that plaintiffs’ underlying suits were not otherwise covered under the policy.

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One of the more perplexing issues faced by insurers is how to handle multiple claims, or a claim involving multiple insureds, when there are insufficient policy limits available to pay all loss.  In states where insurers are not free to settle claims on a first-come, first-serve basis, interpleading the policy limits into court may be an option.  In its recent decision in Everest Indemnity Ins. Co. v. Aventine-Tramonti Homeowners Association, 2012 U.S. Dist. LEXIS 33860 (D.Nev. Mar. 13, 2012), the United States District Court for the District of Nevada, in a matter of first impression under Nevada law, addressed the protections afforded by interpleader.

The insurer, Everest, issued a primary owner-controlled insurance program (OCIP) in connection with the construction of a housing development.  The policy had a $1 million limit of liability that was eroded by defense costs or, as the court described it, a “burning limits” policy.  Two of Everest’s insured were sued in connection with a construction defects suit, and Everest undertook their defense.  Everest paid nearly $150,000 in defense costs before offering the remaining limit to the claimant.  This offer was rejected, and the claimant indicated that it would continue to pursue a multi-million dollar judgment and that the complaint would be amended to add several other defendants qualifying as insureds under the policy.  Recognizing that there would be numerous insureds competing for the same remaining $850,000 limit, Everest terminated its defense and filed an interpleader action, whereupon it sued approximately sixty (60) of the insureds under its policy for an interpleader and declaratory relief.  The underlying matter eventually settled and the court released the interpled funds to the underlying plaintiff and defendants. 

At issue in Everest was the breach of contract and bad faith claims raised by one of the insureds under the policy, Rising Sun, which while not a defendant at the time Everest terminated its defense of the underlying suit, was later added as a defendant.   At that time, Rising Sun tendered its defense to Everest.  Everest denied a defense to Rising Sun and instead directed it to request from the court periodic disbursements from the interpled funds to pay for its defense.  Rising Sun argued that Everest had a duty to defend each of its insureds until the policy limit was exhausted and that paying the funds into the court as part of an interpleader action did not constitute exhaustion. 

Beltran, et al (plaintiffs) vs. PHHC          G.R. No. L-25138             August 28, 1969

Facts:

Plaintiffs are occupying housing units under a project of PHHC, under lease and they pay rentals. They were assured that after 5 yrs of continuous occupancy they would be entitled to purchase such lots. However, PHHC announced that the management of the project would be transferred to GSIS. The manager of PHHC refused to recognize all transactions. But later on both the GSIS and the PHHC agreed that payment of the monthly amortizations by the residents would be made directly to the PHHC. Alleging that they do not know now where to pay the monthly amortizations, plaintiffs filed an interpleader suit against GSIS and PHHC to settle the ownership of the project.

Issue: WON the filing of an interpleader suit is proper.

Held: No, the record shows clearly that there were no conflicting claims by defendant corporations as against plaintiff-tenants, which they may properly be compelled in an interpleader suit to interplead and litigate among themselves. .

An indispensable requirement of interpleader is that "conflicting claims upon the same subject matter are or may be made" against the plaintiff-in-interpleader "who claims no interest whatever in the subject matter or an interest which in whole or in part is not disputed by the claimants."

While the two defendant corporations may have conflicting claims between themselves with regard to the management, administration and ownership of the Project, such conflicting claims are not against the plaintiffs nor do they involve or affect the plaintiffs.

These conflicting claims are between the two corporations and not against plaintiffs. Both defendant corporations were in conformity and had no dispute, as pointed out by the trial court that the monthly payments and amortizations should be made directly to the PHHC alone.

                  Wack Wack vs. Won                      G.R. No. L-23851 March 26, 1976

Facts:

Won claims ownership of a membership fee certificate at Wack Wack Golf & Country Club. By virtue of a civil case, he was issued such certificate. But a certain Tan also claims ownership over such certificate pursuant to an assignment made by the alleged true owner of the same certificate. Thus, Wack Wack filed a complaint to interplead Won and Tan to litigate their conflicting claims. Trial court dismissed the complaint on the ground of res judicata by reason of the previous civil case that issued Won the right to the certificate.

Issue: WON Wack Wack is barred to file an interpleader suit.

Held: Yes.

As to the subject matter (Membership fee certificate), there is no question that such is proper for an interpleader suit. However, the instant interpleader suit cannot prosper because Wack Wack had already been made independently liable in the previous civil case wherein Won had established his rights to the certificate and, therefore, its present application for interpleader would in effect be a collateral attack upon the final judgment in the civil case. Being so, this interpleader suit, if granted, would compel Won to establish his rights anew, and thereby increase instead of diminish litigations, which is one of the purposes of an interpleader suit. And because Wack Wack allowed itself to be sued to final judgment in the said case, its action of interpleader was filed inexcusably late, for which reason it is barred by laches or unreasonable delay.

                        Board of Optometry vs. Hon. Colet                   G.R. No. 122241 July 30, 1996

Facts:

The Revised Optometry Law of 1995 was approved into law. The private respondents here filed with the RTC for a declaratory relief, among others, to protect their Constitutional rights because allegedly, said law would affect their operation and inflict serious and irreparable injury to their legal rights. They were not able to prove, however, their juridical personality. Thus, they also assert that such action is in their capacity as taxpayers and citizens suit, and therefore pray to bar the enforcement of the law because it endangers public health (in the nature of a taxpayer’s suit).

Issue:  WON the private respondents have a legal interest in the controversy; and WON the issue invoked is ripe for judicial determination.

Held: No and no.

As a special civil action for declaratory relief, its requisites are: (1) the existence of a justiciable controversy; (2) the controversy is between persons whose interests are adverse; (3) that the party seeking the relief has a legal interest in the controversy; and (4) that the issue invoked is ripe for judicial determination. On this score, we find no difficulty holding that at least the first and fourth requisites are wanting.

For having failed to show that they are juridical entities, private respondents must then be deemed to be devoid of legal personality to bring the action. Thus, they cannot be deemed real parties in interest. They cannot also claim such legal personality under a taxpayer’s suit because, among others, they failed to allege the existence and prove the requisites of a class suit.

And since an actual case or controversy means an existing case or controversy that is appropriate or ripe for determination, not conjectural or anticipatory, it cannot be disputed that there is yet no actual case or controversy involving all or any of the private respondents on one hand, and all or any of the petitioners on the other, with respect to rights or obligations under the law subject matter of this case.

              Dela Llana vs. Comelec                G.R. No. L-47245 December 9, 1977

  Facts:

Dela Llana filed a petition for prohibition or declaratory relief against respondents from holding a referendum with the issue, “Do you vote that President Ferdinand E. Marcos continue in office as incumbent President and be Prime Minister after the organization of the Interim Batasang Pambansa as provided for in Amendment No. 3 of the 1976 Amendments to the Constitution?,” alleging that  such is unnecessary because the people, on several occasions, had already expressed their assent to the incumbent President's continuance in office and their approval of his programs of government.

Issue: WON a declaratory relief is proper in this case.

Held: No.

The subject matter of this case is a political and non-justiciable question, involving as it does the wisdom, no more and no less, of the decision to call for a referendum. The power to determine when a referendum should be called and what matter is important for referral to the people, resides in the political branch of the Government, the exercise of which involves consideration of a multitude of factors political, social, economic, etc. - normally outside the periphery of competence of the courts.

                            Ollada vs. Central Bank                G.R. No. L-11357             May 31, 1962

Facts:

Ollada, a CPA authorized to practice accounting at Central Bank filed in the CFI a petition for declaratoy relief after his petition for a writ of prelim injunction had been dismissed in the CFI assailing the enforcement of the Bank with two requirements for CPAs, re: that the applicant CPA should sign a statement under oath and that, upon accreditation, a CPA would be governed by the rules and regulations of the Central Bank and not by those of the Philippine Institute of Accountants. He alleges that because of these requirements he had suffered serious injury, and that such enforcement has resulted in the unlawful restraint in the practice of CPAs in the Office of the Central Bank. The CFI dismissed the petition.

Issue: WON a declaratory relief is proper.

Held: No.

The complaint for declaratory relief will not prosper if filed after a contract, statute or right has been breached or violated. In the present case such is precisely the situation arising from the facts alleged in the petition for declaratory relief. As vigorously claimed by petitioner himself, respondent had already invaded or violated his right and caused him injury — all these giving him a complete cause of action enforceable in an appropriate ordinary civil action or proceeding.

An action for declaratory relief should be filed before there has been a breach of a contract, statutes or right, and that it is sufficient to bar such action, that there had been a breach — which would constitute actionable violation. The rule is that an action for Declaratory Relief is proper only if adequate relief is not available through the means of other existing forms of action or proceeding.

                    UP vs. Ayson                       G.R. No. 88386 August 17, 1989

Facts:

The UP Board of Regents issued an order abolishing the University of the Philippines College Baguio High School (UPCBHS) on the ground that such school is not serving as a laboratory or demonstration school, among others, invoking in their favor academic freedom. The UPCBHS filed a petition for injunction with preliminary preventive mandatory injunction with a prayer for the issuance a TRO in the CFI, invoking the right to quality education and free public secondary education. The CFI granted this and issued an order restraining the Board from implementing their decision to phase out the UPCBHS. Thus, this petition for certiorari. (In the meantime while the case is pending, the SC issued a TRO enjoining the implementation of the assailed order of the CFI.)

Issue: WON, in the light of the circumstances of the case, a petition for certiorari/prohibition (to restrain the Board from implementing the decision of phasing out UPCBHS), is proper.

Held: No.

It is beyond cavil that the UP, as an institution of higher learning, enjoys academic freedom—the institutional kind.

It decides for itself its aims and objectives and how best to attain them. It is free from outside coercion or interference save possibly when the overriding public welfare calls for some restraint.

Acts of an administrative agency within their areas of competence must be casually overturned by the courts.

**Mandamus is not proper to compel a school to enroll a student for academic deficiencies

because this involves the exercise by the school of discretion under academic freedom.

                  Fortuno vs. Hon. Palma                G.R. No. 70203 December 18, 1987

Facts:

Fortuno and Abante were candidates for the position of director of CASURECO. Alleging that Fortuno failed to comply with the residence requirement, Abante filed a petition to disqualify him. The District Election Committee (DEC) found that Fortuno was qualified. DEC then proclaimed Fortuno as director after the election. Thus, a quo warranto petition was filed by Abante in the RTC, which was granted. Fortuno was enjoined from continuing as director. Fortuno now alleges that judicial intervention is not proper.

Issue: Whether RTC has jurisdiction over quo warranto proceedings involving the qualification for membership of the Board of Directors of an electric cooperative.

Held: Yes.

A quo warranto proceeding maybe instituted to determine the right to the use or exercise of a franchise or office and to oust the holder from its enjoyment, if his claim is not well- founded, or if he has forfeited his right to enjoy the privilege. Where the dispute is on the eligibility to perform the duties by the person sought to be ousted or disqualified a quo warranto is the proper action.

  *******************

  The Supreme Court has concurrent jurisdiction over quo warranto proceedings with the Regional Trial Court in the province in which the defendant or one of the defendants reside, or when defendant is a corporation, in the province in which it is domiciled or has a place of business; but when the Solicitor General of the Philippines commences the action, it may be brought in a Court of First Instance in the City of Manila or the Supreme Court.