United States District Court, D. Rhode Island
NEW YORK LIFE INSURANCE COMPANY, Plaintiff and Counterclaim Defendant,
MASSIEL ORTIZ, Defendant, Counterclaim Plaintiff, and Cross-claim Defendant, and JULIA KLAH, Defendant and Cross-claim Plaintiff.
MEMORANDUM AND ORDER
WILLIAM E. SMITH, Chief Judge.
This is an interpleader action brought by Plaintiff and Counterclaim Defendant New York Life Insurance Company ("New York Life"), seeking to deposit the proceeds of a life insurance policy into the registry of this Court. Defendants are Massiel Ortiz, the insured's former girlfriend and the primary beneficiary under the policy, and Julia Klah, the insured's mother and the secondary beneficiary under the policy. New York Life filed a motion for interpleader relief (ECF No. 14) and a motion for summary judgment on Ortiz's counterclaims against it for breach of contract, breach of the obligation of good faith and fair dealing, negligence, misrepresentation/omission, badfaith claims settlement practices, unfair or defective consumer practices, and attorneys' fees for breach of contract (ECF No. 16.) Magistrate Judge Patricia A. Sullivan issued a Report & Recommendation ("R&R"), in which she recommended that the motion for summary judgment be granted and that the motion for interpleader relief be granted in part and denied in part. (R&R 25-26, ECF No. 36.) New York Life and Ortiz have both filed objections to aspects of the R&R. (ECF Nos. 39, 41.)
This Court hereby ADOPTS the aspects of the R&R to which no timely objection has been lodged. Additionally, with respect to the aspects of the R&R to which the parties have timely objected, which this Court reviews de novo, see 28 U.S.C. § 636(b)(1), this Court ADOPTS IN PART and REJECTS IN PART the R&R. For the reasons discussed below, this Court ADOPTS the R&R's recommendation that New York Life is entitled to summary judgment on Ortiz's counterclaims for breach of contract, breach of the obligation of good faith and fair dealing, negligence, bad-faith claims settlement practices, and attorneys' fees for breach of contract, but REJECTS the R&R's recommendation that New York Life is entitled to summary judgment on Ortiz's misrepresentation counterclaim. Accordingly, New York Life's motion for summary judgment is GRANTED IN PART and DENIED IN PART. Finally, this Court reserves ruling on the R&R's recommendation that R.I. Gen. Laws § 27-4-26 governs the rate of interest that New York Life must pay on the policy proceeds until expiration of the period for supplemental briefing set forth herein. New York Life's motion for interpleader relief is GRANTED IN PART and DENIED IN PART.
I. New York Life's Motion for Summary Judgment
The R&R provides a robust discussion of the factual and procedural history of this case. This Court will set forth only those facts necessary to put Magistrate Judge Sullivan's treatment of Ortiz's counterclaims (and Ortiz's objections to the R&R's consideration of the counterclaims) into proper context. Less than four months after New York Life issued Shad G. Kaydea, Jr. a life insurance policy, his body was found burning in a cemetery in Cranston, Rhode Island on March 20, 2013. (Pl.'s Statement of Undisputed Facts ("SUF") ¶¶ 1-2, 5, ECF No. 18.) Police determined that Kaydea was murdered, and an investigation ensued. (Id. at ¶ 5.) As part of that investigation, authorities contacted New York Life about the policy. (Id. at ¶ 6.) Sometime during mid-May 2013, police informed New York Life that "the family members and beneficiary [i.e. Ortiz] [were] listed as people of interest" in the investigation. (Id. at ¶ 12.) Police also requested to be informed if and when New York Life paid the policy proceeds to a beneficiary. (Id.) In January -, police informed New York Life that the homicide investigation was still active and that no one could be ruled out as a suspect. (Id. at ¶ 23.)
Meanwhile, on April 29, 2013, Ortiz - the primary beneficiary under the policy - submitted a claim for the insurance proceeds. (Id. at ¶ 8.) Because Kaydea died within two years of the issuance of the policy, New York Life had the right to contest the policy. (Ins. Policy § 7.3, ECF No. 2-2.) On May 2, 2013, New York Life initiated a contestability investigation, and it alerted Ortiz of this investigation in a letter bearing the same date. (Pl.'s SUF ¶¶ 9-10, ECF No. 18; Def.'s Statement of Disputed Facts ¶ 9, ECF No. 25.) This letter informed Ortiz that this investigation would involve obtaining copies of Kaydea's medical records. (Pl.'s SUF ¶ 10, ECF No. 18.) Thereafter, New York Life "repeatedly informed" Ortiz that it needed Kaydea's medical records to complete the investigation. (Ortiz Aff. ¶ 13, ECF No. 21.) Despite her efforts to obtain Kaydea's medical records - which caused Ortiz to incur considerable attorneys' fees and expenses and included an unsuccessful attempt to be appointed administrator of Kaydea's estate - Ortiz was unable to do so. (Id. at ¶ 16.)
On January 8, 2014, Ortiz's counsel sent New York Life a letter in which he argued that, because Kaydea's death was the result of a homicide, Kaydea's medical records were irrelevant to New York Life's contestability investigation. (Excerpts of New York Life's Claim File, Part III, at 94, ECF No. 17-3.) Ortiz's counsel also requested that Ortiz be informed whether New York Life had any other reasons, beyond the absence of the medical records, why it had not yet paid the policy proceeds to Ortiz. (Id. at 93.) Shortly after receiving this letter and confirming with police that no one could be ruled out as a suspect in the homicide investigation, New York Life concluded its contestability investigation and determined that the policy proceeds were payable. (Pl.'s SUF ¶¶ 23-24, ECF No. 18.)
New York Life filed this interpleader action in early February 2014, claiming that it has a reasonable fear of being subjected to multiple litigation or liability because Ortiz may be an ineligible beneficiary under Rhode Island's Slayer Statute, R.I. Gen. Laws § 33-1.1-11(a), in the event that she is implicated in Kaydea's murder. (Compl. ¶¶ 28-30, ECF No. 1.) In that circumstance, Ortiz, even though the primary beneficiary under the policy, would not be entitled to the policy proceeds; instead, Klah, the secondary beneficiary, would be the proper payee. See R.I. Gen. Laws § 33-1.1-11(a). Prior to filing its complaint, New York Life never informed Ortiz that it believed that the Slayer Statute might be applicable to this case; the sole reason given to Ortiz for the refusal to pay her the policy proceeds was her inability to secure Kaydea's medical records. (Def.'s Statement of Additional Undisputed Facts ¶¶ 30-31, ECF No. 26.) Ortiz counterclaimed against New York Life, alleging breach of contract (Count One), breach of the obligation of good faith and fair dealing (Count Two), negligence (Count Three), "misrepresentation/omission" (Count Four), bad-faith claims settlement practices (Count Five), unfair or deceptive consumer practices (Count Six), and requesting attorneys' fees for breach of contract (Count Seven). (Answer & Countercl., ECF No. 2.)
A. Counts One, Two, Five, and Seven
Magistrate Judge Sullivan concluded that Counts One, Two, Five, and Seven were all premised upon New York Life's failure to pay Ortiz the proceeds immediately upon receipt of her claim. (R&R 16, ECF No. 36.) Relying on Prudential Ins. Co. v. Hovis, 553 F.3d 258 (3d Cir. 2009), Magistrate Judge Sullivan reasoned that the claims asserted in these counts were inconsistent with interpleader relief and, therefore, barred as a matter of law. (R&R 16, ECF No. 36.) In her objection, Ortiz argues that Magistrate Judge Sullivan erred because the claims asserted in these counts "give rise to potential damages in excess of the death benefit." (Def.'s Objection 9, ECF No. 41-1.)
This Court agrees with Magistrate Judge Sullivan that Hovis mandates the entry of summary judgment in New York Life's favor on Counts One, Two, Five, and Seven because they are inconsistent with interpleader relief. Under Hovis, 553 F.3d at 259, 265, a valid interpleader action shields the stakeholder - New York Life, in this case - from further liability to claimants to the stake - here, the policy proceeds - who have asserted counterclaims against the stakeholder where (1) the stakeholder bears no blame for the existence of the ownership controversy and (2) the counterclaims are directly related to the stakeholder's failure to resolve the underlying dispute in favor of one of the claimants. To permit such counterclaims in these circumstances "would run counter to the very idea behind the interpleader remedy - namely, that a stakeholder [should] not [be] obliged at his peril to determine which claimant has the better claim.'" Id. at 265 (quoting Bierman v. Marcus, 246 F.2d 200, 202 (3d Cir. 1957)). As the Third Circuit explained in Hovis, a stakeholder's "failure to choose between the adverse claimants (rather than bringing an interpleader action) cannot itself be a breach of a legal duty." Id. at 265.
Magistrate Judge Sullivan correctly applied Hovis to the claims asserted in Counts One, Two, and Seven, and to all but one aspect of the claim asserted in Count Five. There are no facts indicating that New York Life bears any blame for the existence of the issue of whether Ortiz or Klah is the appropriate beneficiary, and the background allegations of the counterclaims and the allegations contained in these counts concern New York Life's failure to pay Ortiz the policy proceeds. (See Answer & Countercl. ¶¶ 14, 24, 26, 35, 38-39 49-50, ECF No. 2.) At bottom, each of these claims "directly relate[s]" to the interpleader action because they "concern [New York Life's] failure to resolve its investigation in [Ortiz's] favor and pay out the life insurance proceeds to [her]." Hovis, 553 F.3d at 259, 264; see also Graziosi v. Metlife Investors USA Ins. Co., No. 3:11-CV-80 (CAR), 2013 WL 592394, at *1-5 (M.D. Ga. Feb. 14, 2013) (relying on Hovis to enter summary judgment in favor of insurer on claims of breach of contract and bad-faith refusal to pay insurance proceeds brought by the plaintiff, who was the primary beneficiary and was alleged by the family and contingent beneficiary of the insured to be involved in the insured's death, which would have implicated Georgia's Slayer Statute).
Ortiz's objection to this aspect of the R&R - that Hovis is inapplicable because the claims give rise to damages in excess of the death benefit - misapprehends Hovis. Where, as here, the claims directly relate to the stakeholder's failure to resolve the dispute about the entitlement to the stake in favor of one of the claimants, Hovis bars the counterclaims, even if the counterclaims could potentially expose the stakeholder to liability in excess of the stake. See Hovis, 553 F.3d at 264-65 (rejecting argument that, because counterclaims would have subjected the insurer to liability apart from its duty to account for insurance proceeds, counterclaims were independent of interpleader action); Amethyst Int'l, Inc. v. Duchess, Civil Action No. 13-04287(FLW)(LHG), 2014 WL 683670, at *8 (D.N.J. Feb. 20, 2014) (entering summary judgment under Hovis on claims against insurer, even though claims sought "recovery in damages that... could arguably be drawn from [insurer's] own funds, not from the corpus of the disputed ...