Brief Fact Summary. State Farm Fire & Casualty Company (Plaintiff) brought an action of interpleader to determine insurer’s liability for the actions of Clark (Defendant), in an action filed in the State of California.
Synopsis of Rule of Law. In actions where a plaintiff may be exposed to multiple liability, the interpleader statute provides that persons who may have claims against the insurance companies be joined as defendants and required to interplead without first obtaining a judgment against their insured.
Issue. Whether in the absence of a state law or contractual provision for direct action suits against the insurance company, the company is required to wait until persons asserting claims against its insured have reduced claims to judgment before seeking to invoke the benefits of federal interpleader? Whether federal jurisdiction was proper? Note: This issue was raised on the court’s own motion.
Held. No and Yes. The court held that the injunction to join all Defendants in the insurance company’s litigation was improper, and it remanded the case to modify the injunction to be consistent with this decision. Further, the decision of United States Court of Appeals for the Ninth Circuit on the jurisdictional question is reversed. The 1948 revisions removed the requirement that the insurance company wait until at least two claimants reduced their claims to judgments. Interpleader statutes were designed to remedy the difficulties: the race to obtain judgments and the potential unfairness to claimants. Therefore, Plaintiff properly invoked the interpleader jurisdiction. Even though Plaintiff properly invoked interpleader jurisdiction, it does not entitle Plaintiff to an order enjoining prosecution of suits against it outside the confines of the interpleader proceeding. An insurance company should not be allowed to determine that dozens of tort plaintiffs must be compelled to raise their claims in a single forum of the insurance company’s choosing. Interpleader was never intended to be used as a means to solve all problems of multi-party litigation. Therefore, the interpleader statute did not authorize the injunction entered in the present case. The court found that federal jurisdiction was proper because the interpleader statue only requires minimal diversity, in other words diversity of citizenship between two or more claimants without regard to the fact that other rival claimants may be co-citizens.
Discussion. In actions where a plaintiff may be exposed to multiple liability, the interpleader statute provides that persons who may have claims against the plaintiff be joined as defendants and required to interplead without first obtaining a judgment.