APRIL 2009 BAD FAITH CASES BAD FAITH NOT PERMITTED IN INTERPLEADER ACTION WHERE BAD FAITH BASED ON INSURER’S FAILURE TO PAY PARTY MAKING CLAIM INSTEAD OF INTERPLEADING FUNDS (Third Circuit)
In The Prudential Insurance Company of American v. Hovis, an insurance company interpleaded a $100,000 policy sum into court, where multiple claimants were disputing who had a right to that money. One of the claimants brought counterclaims against the carrier in not paying him the money. This included a bad faith counterclaim, among others.
The United States Court of Appeal for the Third Circuit, in a precedential opinion, held that in these circumstances, where the counterclaims were related to the disputed sum paid into court, such counterclaims were not permitted. As the Court said: “Put another way, where a stakeholder is allowed to bring an interpleader action, rather than choosing between adverse claimants, its failure to choose between the adverse claimants (rather than bringing an interpleader action) cannot itself be a breach of a legal duty.”