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September 2013

The Award of Attorney Fees and Costs Is Appropriate in an Interpleader Action

A Beneficiary’s Status as a Prime Suspect in a Homicide Investigation Creates A Sufficient “Dispute” to Permit the Filing of a Complaint in Interpleader and Award of Attorney Fees and Costs

In Farmers New World Life Insurance Company v. Frank Allen Rees, the Court of Appeal of California, Second Appellate District, Division One held that where an interpleader action is filed, an award of attorney fees and costs to the interpleading party is permitted where the life insurance benefits are in dispute due to the beneficiary’s status as a suspect in the death of the insured.  This is true regardless of whether a single or multiple claims exist for the policy proceeds.

Rosamaria Rees purchased a life insurance policy with benefits of $150,000 from Farmers New World Life Insurance Company (Farmers).  Her husband, Frank Rees, was the sole beneficiary of the benefits.  Years later, Mrs. Rees was on her way to pick up Mr. Rees from a Gamblers Anonymous meeting when she was shot and killed in the street outside of their home.  Mrs. Rees died instestate without any children, but was survived by her mother. 

Farmers was notified of the death and over the course of the next eight months, intermittently contacted the LAPD to discuss the status of the investigation.  During these conversations, Farmers was informed that no one had been ruled out as a suspect and was eventually told that Mr. Rees was the “prime” suspect in the death of his wife. 

Farmers subsequently filed a complaint in interpleader identifying as defendants Mr. Rees and the deceased’s mother who would be entitled to the benefits if Mr. Rees was found responsible for Mrs. Rees’ death.  Farmers deposited the life insurance proceeds, plus interest with the trial court alleging that it was unable to determine the appropriate payee of the death benefits due to the ongoing police investigation.  Farmers also sought to recover attorney fees and costs associated with the interpleader action.

Mr. Rees filed an answer to the complaint, asserting no affirmative defenses.  Mrs. Rees’ mother did not respond to the complaint and her default was taken.  Farmers subsequently moved for fees and costs in the total amount of $7,997.49, and requested a dismissal.  Mr. Rees opposed Farmers’ request for attorney fees and costs alleging the interpleader action and corresponding fees were unnecessary because Farmers was never faced with a potential second viable claim that could give rise to liability for the payment of benefits.  The trial court disagreed and awarded Farmers the requested fees and costs, and the remainder of the policy proceeds were released to Mr. Rees. 

Mr. Rees appealed the order awarding Farmers the attorney fees and costs.  On appeal, Mr. Rees argued that the interpleader action was not appropriate because there was never a dispute over the funds as required under Code of Civil Procedure section 386.6 since no one else filed a claim for the policy proceeds.  The appellate court explained that due to the ongoing police investigation, the funds were in dispute for the purposes of an attorney fees and costs award regardless of whether a default was taken against Mrs. Rees’ mother, and the ultimate award of the remaining policy proceeds to Mr. Rees. 

The Court also rejected Mr. Rees’ argument that Insurance Code section 10172 would have provided Farmers with immunity from double liability if it had paid the policy benefits to him while the LAPD continued to investigate the death of Mrs. Rees.  The Court explained that Mr. Rees forfeited his right to contest the propriety of the interpleader action when he answered the complaint without asserting any affirmative defenses.

However, even if the right to contest still existed, the Court held that it would be contrary to the statutory scheme to encourage an insurer to pay the policy benefits to a beneficiary suspected of murder in order to simply discharge its liability.  In these circumstances, the interpleader action was appropriate even though no one else filed a claim and the benefits were ultimately awarded to Mr. Rees.  Therefore, the appellate court held that the trial court did not abuse its discretion in granting the request for attorney fees and costs. 

Please click here for the opinion.

This opinion is not final.  It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court.  These events would render the opinion unavailable for use as legal authority in California state courts.

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Sarah N. Turner