Brief Fact Summary. A bus accident that occurred in California resulted in one person being killed and 33 being injured. The insurance company that covered the truck driver involved with the collision filed an interpleader action by paying $20,000 (the policy limits) into federal court located in Oregon and asked the court to require prospective claimants to file claims in said court and no other court and to release the insurance company of all liability. The District Court issued an injunction barring pending claims against the driver of the truck as well as the bus owner and the bus driver, to which claimants appealed.
Synopsis of Rule of Law. The Interpleader Act should only be used in mass tort situations when the target of the potential claims is a common fund that is of such a small amount as to make the Plaintiffs have little interest in the potential aggregate amount of claims. Moreover, the court should only control the underlying litigation in very rare circumstances.
Do interpleader actions based on diversity of citizenship require complete diversity in order to comply with Article III of the U.S. Constitution?
Is interpleader appropriate for distribution of one insurance policy covering one potential defendant in a mass tort action when there are other potential defendants and sources of assets to compensate the potential plaintiffs?
Held. Both issues: No. The judgment is reversed and remanded.
Rule 22 of the Federal Rules of Civil Procedure and the federal Interpleader Act requires only “minimal diversity,” meaning that only two adverse parties need to be citizens of different states. This has been implicitly accepted by Congress and is the minimal requirement of Article III.
An interpleader action may be filed even though some states do not permit direct actions against insurers in order to ensure that one claimant does not execute its judgment against the insurer first and soak up the whole fund.
This was not a situation where invocation of the interpleader statute was appropriate. It was extremely inappropriate in light of the TRO restraining actions against other tortfeasors not parties to the insurance policy in question.
Interpleader for mass torts should only be used when the “target” of prospective claimants is the fund in question. In this situation, potential claimants have other defendants and assets to go after with their claims.
When the potential amount of claims far exceeds the fund’s limit, interpleader should not be used to “dispose” of claims the fund cannot compensate.
Controlling the underlying litigation of a mass tort via an interpleader action should be a very rare occurrence.
Dissent. Justice Douglas: Because both California and Oregon do not permit direct actions against the insurer and the policy at issue does not permit such action, the potential claimants cannot be considered “claimants” under the Federal Interpleader Act.
Discussion. The majority’s opinion expresses a policy against consolidating mass tort proceedings in one court under the guise of interpleader. The Court focused on the size of the insurance policy, the size of potential claimants’ claims and the availability of other sources of funds.