Benchmark Insurance Company v. SUNZ Insurance Company

Background

Benchmark Insurance Company filed an interpleader action under 28 U.S.C. §§ 1335 and 2361. Interpleader is a procedure that allows a party holding money claimed by multiple parties to deposit the money with the court so the claimants can litigate their competing rights to it.

Benchmark alleged that, beginning in 2015, it appointed SUNZ Insurance Solutions to underwrite and issue large-deductible workers’ compensation policies. The policies required insureds to provide cash or equivalent collateral for obligations arising within the deductible. Benchmark and SUNZ Insurance Company later entered into a reinsurance contract concerning premiums and losses on policies issued on Benchmark’s behalf.

SUNZ told Benchmark that Benchmark was holding too much deductible collateral and demanded that some collateral be released. Benchmark analyzed 41 participants in the insurance program and determined that $20,533,594 was excess collateral. It also identified another $17,292,117 that was available for release but said it was unclear who should receive that amount. Benchmark sought to deposit the $20,533,594 with the court so the defendants could litigate how that amount should be allocated.

Dispute over the deposit

Benchmark asked for permission to deposit $20,533,594, be discharged from liability concerning those funds, and have the defendants barred from pursuing other proceedings concerning them. SUNZ argued that Benchmark should instead deposit the entire trust fund, which was approximately $63 million, because Benchmark’s actions had placed the entire amount in dispute. Alternatively, SUNZ argued that Benchmark should deposit the additional $17,292,117.

The court explained that an interpleader plaintiff must deposit the money at issue with the court’s registry. A stakeholder generally cannot force a claimant to litigate in the interpleader action unless the stakeholder deposits the amount claimed by that party. The court also noted that SUNZ had stated at the hearing that it would participate regardless of the amount Benchmark was ordered to deposit.

Ruling

The court granted Benchmark’s Motion for Leave to Deposit Interpleader Funds and Discharge. It permitted Benchmark to deposit $20,533,594, representing the excess collateral associated with 32 insureds in the Benchmark-SUNZ insurance program. The court concluded that the additional amounts sought by SUNZ appeared to concern other collateral, potentially involving insureds who were not parties to the action and might have no interest in the approximately $20.5 million at issue. The fact that the amounts were held in the same trust fund did not require Benchmark to litigate claims involving all of the collateral.

The court did not immediately enter the discharge and injunction. Instead, it ordered Benchmark to notify the court after depositing the funds, so the court could issue appropriate orders discharging Benchmark from liability concerning the deposited sum and enjoining defendants from pursuing other proceedings to recover any part of those funds.

The court also ordered that a settlement conference be set by separate order. It identified SUNZ’s concerns about information regarding the other trust-fund amounts and its counterclaim alleging that Benchmark breached the trust agreement. The order stated that failure to comply with the order or prior consistent orders could result in appropriate remedies or sanctions, including costs, fines, attorney fees, evidentiary limitations, striking pleadings, dismissal with prejudice, or default judgment.