Most ERISA plan administrators have experienced the conundrum of receiving too many claims for the same benefit. This can arise under a number of situations. One example is an ambiguous beneficiary designation for a life insurance death benefit. Another example is when a deceased participant retained a former spouse as a designated beneficiary and the plan document is ambiguous regarding its recognition of a former spouse's waiver of benefit rights in a divorce decree.
What is a plan administrator to do? There is one pot of money and multiple hands are reaching for it. The plan administrator could be decisive and look at the facts, apply them to the law and pick the winner. If the facts and the law are crystal clear, perhaps this is the best way to go. The law, however, is often murky and revealed only in shades of gray. Faced with a more opaque situation, the administrator might instead want to utilize a Federal procedure called interpleader.
Interpleader is useful when a plan administrator is faced with multiple claims for the same benefit. To avoid the possibility of having to make multiple payments, the benefit can be paid to the Federal court and the administrator, as the plaintiff, can bring the claiming parties together to compete among themselves for the benefit. The plan administrator can then step back, keep a low profile and let the Court decide.
Ordinarily, the Federal Court will require a diversity of citizenship to entertain an interpleader action. If all of the parties, the plan administrator included, are from the same state, then what is the plan administrator to do? A recent Federal District Court case from the Western District of North Carolina reminds us that ERISA provides its own jurisdictional basis to support a Federal interpleader action even in the absence of a diversity of citizenship (see Union Security Insurance Company vs. Thompson, filed July 2, 2009).
Interpleader is a useful, practical and efficient procedure to address multiple claimants for a single benefit.