The Money: Discharge, Fees, and Interest

An insurer or bank that interpleads in good faith and deposits the full amount owed is usually discharged: the court releases it from further liability to the claimants for that fund and dismisses it, while the court decides which claimant gets the money.¹ Courts have discretion to pay the stakeholder’s reasonable attorney’s fees from the fund, though some circuits deny fees to insurers, and money deposited in federal court is held in interest-bearing accounts or instruments.

For what happens before a case is filed, see before an interpleader. For how long each stage usually takes, see how long a case takes.

Discharge: how the stakeholder gets out

The main reason a stakeholder files an interpleader is to be released. In a federal statutory interpleader, Congress gave the court express power to “discharge the plaintiff from further liability, make the injunction permanent, and make all appropriate orders to enforce its judgment.”¹ Courts grant similar relief in Rule 22 cases and under state interpleader rules.

A discharge usually requires that:

• The interpleader was proper. There must be actual or potential competing claims to the same fund.
• The stakeholder acted in good faith. The Ninth Circuit requires “a good faith belief that there are or may be colorable competing claims to the stake,” and has said this is “not an onerous requirement.” Good faith “requires a real and reasonable fear of exposure to double liability or the vexation of conflicting claims.”²
• The full amount owed has been deposited (or secured by a bond), so that the claimants’ rights are fully protected by the fund.

District courts often grant this as a matter of course. Allowing an insurer to deposit a death benefit in 2021, a federal court in Los Angeles quoted an earlier California federal decision: “If an interpleader action is properly brought and the funds have been deposited with the court, a court should readily discharge a stakeholder absent bad faith or delay by the stakeholder.” It dismissed the insurer with prejudice upon deposit.³

Discharge can come well before the claimants’ dispute is resolved. In an SGLI case in which one claimant was later defaulted, the court discharged the insurer with prejudice, permanently enjoined claims against it, dismissed it, and allowed it a modest fee from the fund “in partial reimbursement” of its costs “as a neutral stakeholder,” about two months before it ruled on the default.⁴ In a Texas ERISA case, the court discharged the insurer with prejudice two days after granting its deposit motion, with a modest agreed fee, and the claimants settled about six weeks later.⁵

Deposit first, with notice

Courts treat the deposit as the price of a discharge. In a Missouri federal case, the claimants agreed to the deposit but asked that the insurer stay in the case until it answered their document requests. The court found no authority “to suggest that outstanding discovery is an appropriate basis to delay the dismissal of an interpleader plaintiff,” but added that “[i]n any event, Primerica cannot be dismissed until the disputed funds have been deposited with the Court,” and gave it fourteen days to deposit.⁶

Rule 67 allows a deposit only “on notice to every other party and by leave of court.” An Indiana federal court refused to act on an insurer’s ex parte deposit motion: it “will not grant [the insurer] leave to deposit funds absent a showing of notice to all Defendants,” and ordered a status report on notice to every party.⁷ A New Mexico federal court treated a deposit motion in a Rule 22 case as a Rule 67 motion and accepted the deposit because the ultimate disposition of the funds was “genuinely in dispute.”⁸

Speculation about the stakeholder’s own fault

A claimant’s suspicion that the stakeholder was careless does not by itself block a discharge. In an Oregon annuity case, the decedent’s estate argued that the insurer might be liable in negligence, alleging that the agent who sold the annuity had been named its primary beneficiary and that a wet-ink signature was not collected; the court did not decide those allegations. Neither claimant had filed a counterclaim against the insurer, and the court found no authority “which holds that speculation about possible negligent conduct renders a stakeholder no longer ‘disinterested’ so as to preclude discharge” (at 4). It recommended discharge, and the district judge adopted the recommendation and dismissed the insurer.⁹ The claimants later settled; the final judgment paid $194,960.47 plus 50% of the interest each to the named beneficiary and to the estate, and $15,000 to the insurer.¹⁰

Unopposed motions are usually granted. In the New Mexico case, one claimant consented and the other did not respond, which the local rules treat as consent, so the court discharged and dismissed the insurer without reaching the merits.¹¹

What the discharge covers

A discharge protects the stakeholder from further claims to the fund itself. Whether it also bars claims that the stakeholder did something wrong is a separate question. The Third Circuit has held that where a stakeholder “is blameless with respect to the existence of the ownership controversy,” a proper interpleader protects it from claims “directly relating to its failure to resolve that controversy.” The same court noted the modern approach that a stakeholder facing a truly independent counterclaim stays in the case to defend it, and that interpleader is not “an all-purpose get-out-of-jail-free card.”¹²

The Ninth Circuit drew the same line from the other side. Where claimants alleged that the insurer’s own employee mishandled the beneficiary change forms that created the dispute, it held that interpleader does not “shield a negligent stakeholder from tort liability for its creation of a conflict over entitlement to the interpleaded funds,” and that a claimant may seek “all damages directly and proximately caused” by that negligence.¹³ See the decision summary.

A discharge does not always come with an injunction. In a Rule 22 case in Connecticut, the court discharged the insurer but refused the injunction against other suits that it requested, because “injunctive relief is neither necessary nor appropriate here.” If another suit were filed, the discharge decree “would be sufficient to resolve the matter.” The same order denied the insurer’s fees in a dispute between the insured’s former wife and his widow, which the court called “a paradigmatic example of when interpleader is appropriate.”¹⁴ See the decision summary.

Attorney’s fees for the stakeholder

For a fuller treatment, including how courts have ruled on claimants’ objections, see attorney’s fees in interpleader.

There is no federal statute that generally entitles an interpleading stakeholder to fees. The practice comes from courts’ equitable discretion, and the circuits do not apply it identically.

The general rule: modest fees from the fund

The Ninth Circuit has said that judgment in interpleader “ordinarily entitles the stakeholder to an award of attorneys’ fees from the interpleaded funds for work performed filing the action in interpleader,” that “these fees are normally not high,” and that a district court “has great discretion in apportioning the stakeholder’s fees among the winning and losing claimants.”¹⁵ That last point means a court can charge the fees against the share of a claimant whose claim lacked merit, rather than against everyone.

The Eleventh Circuit has similarly said that costs and attorney’s fees “are generally awarded, in the discretion of the court, to the plaintiff who initiates the interpleader as a mere disinterested stake holder,” and that “[t]he usual practice is to tax the costs and fees against the interpleader fund.”¹⁶

The limit: interpleader as a cost of doing business

Some courts deny fees to stakeholders, especially insurers, whose disputes arise in the normal course of their business. The Eleventh Circuit, in a decision that binds only the federal courts in Alabama, Florida and Georgia, has stated that in certain circumstances “courts have determined that attorneys’ fees are not warranted,” including “when a stakeholder’s interpleader claim arises out of the normal course of business,” reasoning that an insurer “can plan for interpleader as a regular cost of business.”¹⁷ District courts within that circuit apply this rule to life insurance interpleaders. See the decision summary.

Elsewhere, approaches vary; see the circuit-by-circuit comparison. Where fees are available, courts commonly limit them to the work of bringing the interpleader rather than litigating the merits among the claimants. One federal court, awarding fees to an annuity issuer, put it this way: “A stakeholder’s recovery is properly limited to work related to the interpleader process, such as preparing the petition for interpleader, depositing the contested funds with the court, and obtaining discharge from liability and dismissal from the lawsuit.”¹⁸

The Eleventh Circuit has also recognized that a court may tax fees directly against a losing claimant “when her conduct justifies doing so,” but in Boyd it reversed such an award because the district court’s finding of bad faith was “wholly unsubstantiated by the record.”¹⁶

Bad faith

The reverse is also possible. The Ninth Circuit has held that courts “may impose the costs of suit on a stakeholder who interpleads in bad faith.”¹⁹

Interest while the money is in court

Interest owed before deposit

Whether the stakeholder must add interest when it deposits the fund depends on the contract and state law. Some state insurance laws require interest on death benefits, measured from different starting points. For example:

• New York requires interest on life insurance death proceeds from the date of death. If no lawsuit has been filed, it is computed daily to the date of payment at the rate the insurer pays on proceeds left with it under its interest settlement option; if a suit ends in a judgment or settlement, interest also runs from the date of death. The statute does not require interest “for any period during which an insurer is required to pay interest under any state or federal law pertaining to interpleader.”²⁰
• Florida requires lump-sum death proceeds to “include interest” from the date the insurer “receives written due proof of death,” at a rate tied to a published corporate bond index.²¹
• Texas provides that interest on life insurance proceeds accrues from the date the insurer receives due proof of loss until it accepts the claim and offers to pay.²²

Claimants should compare the deposit with what the policy and governing law require.

Interest after deposit

In federal court, deposits are made “in the name and to the credit of” the court with the Treasurer of the United States or a designated depositary.²³ Under the Federal Rules, deposited money “must be deposited in an interest-bearing account or invested in a court-approved, interest-bearing instrument.”²⁴ Since 2008, federal law has authorized the Director of the Administrative Office of the U.S. Courts to ask the Treasury to invest registry funds in public debt securities.²⁵ In practice, many courts hold registry funds through the Court Registry Investment System (CRIS).

Registry fees

Interest is reduced by a court registry fee. As published on the date of this guide, the Judicial Conference fee schedule provides:²⁶

Taxes on fund earnings

Federal tax regulations treat an escrow, trust, or fund established to hold money “subject to conflicting claims of ownership,” subject to the continuing jurisdiction of a court, and payable only with court approval as a disputed ownership fund. Such a fund is generally taxed as a separate entity on its earnings: as a qualified settlement fund if all the assets transferred to it are passive investment assets such as cash, and otherwise as a C corporation.²⁷ As a result, taxes on interest the fund earns may be paid from the fund before distribution. Claimants with significant funds at stake should ask a tax professional how this affects them.

Paying out the fund

Money deposited in a federal court may not be withdrawn “except by order of court.” If the right to the money has been decided (or is undisputed) and it sits unclaimed for at least five years, the court must send it to the U.S. Treasury; a person entitled to it can later petition the court, with notice to the U.S. attorney and full proof of the right, for an order directing payment.²⁸

At the end of the case, the order directing payment typically identifies each payee and amount, including how accrued interest (net of the registry fee and any taxes) is to be split. Claimants should review a proposed order carefully before it is entered.

Settling an interpleader: what the court will and won’t sign

Most interpleaders end in a settlement among the claimants, but the order the court signs can be narrower than the deal. In interpleader the court’s power comes from the fund in its registry. ReliaStar Life Ins. Co. v. Wiemer, a Texas federal case over a $3,000,000 life insurance policy, shows where that line falls.

• Discharge first. The insurer filed on October 26, 2017, under both Rule 22 and § 1335. The court recommended, and then granted, interpleader relief: discharge, dismissal with prejudice and an injunction once the benefit was deposited.²⁹ The insurer deposited $3,054,060.35.³⁰
• A family settlement and a guardian. In July 2018 the parties told the court they had reached a compromise that affected the minor children of one claimant, and on their joint motion the court appointed a guardian ad litem for the children. The guardian reported that the settlement was in the children’s best interest, and the court recommended approving it as to the children provided their funds were managed by a corporate trustee.³¹
• The court would not sign the whole agreement. Competing motions to enforce the settlement and to disburse the fund “seemed to indicate that not all parties were in full agreement.” After an October 23, 2018 hearing, the court “determined that it lacked jurisdiction to approve the Settlement Agreement . . . as drafted,” because the agreement “also purports to settle disputes among the parties that are not within the scope of the present lawsuit, notably a dispute regarding the terms of the Will.” During a recess the parties agreed on how to divide the fund, and the guardian approved on the record.³⁰
• What it did sign. The court described the two stages of an interpleader from Rhoades v. Casey, 196 F.3d 592, 600–01 (5th Cir. 1999), found that “the parties’ agreement serves the interests of justice,” and ordered the fund paid out. In a footnote it added that it “does not—and need not—approve said settlement agreement for purposes of this ruling and expresses no opinion as to any matters contained therein.”³⁰ It directed the $3,054,060.35 paid as follows:³⁰

Payee (by role)	Amount
Guardian ad litem’s fees	$5,000.00
Another claimant	$500,000.00
The minors’ mother, individually and as next friend of the two minor children (the children’s net share to be held in trust)	$2,549,060.35, plus 100% of accrued interest less the registry fee

The court established a trust under § 142.005 of the Texas Property Code for the two minor children, ordered that their net share “shall be held in trust,” and appointed a corporate trustee and an investment adviser.³⁰ Section 142.005 lets a Texas court of record, “on a finding that the creation of a trust would be in the best interests of the beneficiary,” direct a minor’s funds into a trust with a financial institution as trustee, on terms the statute prescribes, including termination for a minor who is not disabled at age 25 at the latest.³² A final judgment the same day dismissed all claims with prejudice.³³

• And what it would not enforce. Months later, one claimant asked the court to make another pay her a cash sum the settlement agreement promised. The court refused: “the Court’s jurisdiction extends only to the disposition of the Interpleaded Funds, and not to the enforcement of any other terms in the Settlement Agreement, except with respect to the disposition of the Interpleaded Funds. In fact, the Court has specifically stated that it lacks jurisdiction to enforce the Settlement Agreement.”³⁴

The case took nearly 13 months from filing to judgment, and most of the time after the parties’ agreement in principle went to the guardian’s review and the dispute over the settlement’s terms. The practical points:

• Keep the proposed order to the fund: who gets how much, how interest is split, and any trust for a minor.
• Put promises outside the fund, such as cash payments between claimants or terms about a will or an estate, in a separate agreement, and expect to enforce it, if needed, in another court.
• When a minor’s share is involved, plan for a guardian ad litem, the guardian’s report and the court’s findings before any money is released. See a settlement approved for minor children for a New Jersey example.

Footnotes

1. 28 U.S.C. § 2361. Cornell LII. ↩ ↩²

2. Michelman v. Lincoln National Life Ins. Co., 685 F.3d 887, 894 (9th Cir. 2012). Opinion (PDF). ↩

3. Order Granting Motion for Deposit of Funds, Primerica Life Ins. Co. v. Hood, No. 2:21-cv-02189-FLA (AGRx) (C.D. Cal. June 15, 2021), ECF No. 31, at 3 (quoting Metropolitan Life Ins. Co. v. Billini, No. CIV. S-06-02918-WBS-KJM, 2007 WL 4209405, at *2 (E.D. Cal. Nov. 27, 2007)). ↩

4. Prudential Ins. Co. of America v. Iturbide, No. 8:18-cv-01325-JLS-ADS (C.D. Cal. Feb. 27, 2019), ECF No. 29, court order (PDF); default judgment, ECF No. 33 (Apr. 24, 2019), court order (PDF). ↩

5. Metropolitan Life Ins. Co. v. Evans, No. 4:24-cv-03276 (S.D. Tex.), minute entry, ECF No. 27 (Dec. 18, 2024); order, ECF No. 28 (Dec. 20, 2024), court order (PDF); final judgment, ECF No. 38 (Jan. 30, 2025), court judgment (PDF). ↩

6. Primerica Life Ins. Co. v. Townes, No. 4:24-cv-01099-RHH (E.D. Mo.), order, ECF No. 51 (June 25, 2025), at 2. ↩

7. Transamerica Life Ins. Co. v. Lyphout, No. 3:25-cv-00444-CCB-SJF (N.D. Ind.), order, ECF No. 19 (July 23, 2025), at 2; Fed. R. Civ. P. 67(a). ↩

8. Fidelity & Guaranty Life Ins. Co. v. Shipman, No. 1:23-cv-00731-DHU-LF (D.N.M.), memorandum order granting leave to deposit funds, ECF No. 22 (Jan. 18, 2024), at 2–3. ↩

9. Nationwide Life & Annuity Ins. Co. v. Dunshie, No. 6:22-cv-00995-MK (D. Or.), findings and recommendation, ECF No. 41 (Apr. 21, 2023), court order (PDF), at 3–4; order adopting findings and recommendation, ECF No. 56 (May 24, 2023), court order (PDF); judgment, ECF No. 57 (May 24, 2023), court judgment (PDF). ↩

10. Nationwide Life & Annuity Ins. Co. v. Dunshie, No. 6:22-cv-00995-MK (D. Or.), final judgment and order of interpleader disbursement, ECF No. 76 (July 24, 2023), court judgment (PDF). ↩

11. Fidelity & Guaranty Life Ins. Co. v. Shipman, No. 1:23-cv-00731-DHU-LF (D.N.M.), memorandum opinion and order, ECF No. 37 (Apr. 12, 2024), court order (PDF). ↩

12. Prudential Ins. Co. of America v. Hovis, 553 F.3d 258, 264–65 (3d Cir. 2009). Opinion (PDF). ↩

13. Lee v. West Coast Life Ins. Co., 688 F.3d 1004, 1006 (9th Cir. 2012). Opinion (PDF). ↩

14. American General Life Ins. Co. v. Grohs, No. 3:20-cv-00798 (CSH) (D. Conn. Sept. 28, 2021), ECF No. 30 (order on recommended ruling), at 5–7, court order (PDF). ↩

15. Michelman, 685 F.3d at 898 (citing Schirmer Stevedoring Co. v. Seaboard Stevedoring Corp., 306 F.2d 188, 194 (9th Cir. 1962)). ↩

16. Prudential Ins. Co. of America v. Boyd, 781 F.2d 1494, 1497–98 (11th Cir. 1986). Caselaw Access Project. ↩ ↩²

17. In re Mandalay Shores Coop. Housing Ass’n, 21 F.3d 380, 383 (11th Cir. 1994). Caselaw Access Project. ↩

18. Talcott Resolution Life Ins. Co. v. Carlyle, No. 1:19-cv-01796-DKC, ECF No. 72 (D. Md. June 29, 2022) (memorandum opinion). CourtListener (PDF). ↩

19. Michelman, 685 F.3d at 894 (citing Gelfgren v. Republic National Life Ins. Co., 680 F.2d 79, 81 (9th Cir. 1982)). ↩

20. N.Y. Ins. Law § 3214(a)–(d). NY Senate; Justia. ↩

21. Fla. Stat. § 627.4615. Florida Legislature. ↩

22. Tex. Ins. Code § 1103.104. Texas Constitution and Statutes. ↩

23. 28 U.S.C. § 2041. Cornell LII. ↩

24. Fed. R. Civ. P. 67(b). Cornell LII. ↩

25. 28 U.S.C. § 2045 (added by Pub. L. 110–406 (2008)). Cornell LII. ↩

26. Judicial Conference of the United States, District Court Miscellaneous Fee Schedule (registry fund item). uscourts.gov. ↩

27. 26 C.F.R. § 1.468B-9(b)(1), (c)(1). Cornell LII. ↩

28. 28 U.S.C. § 2042. Cornell LII. ↩

29. ReliaStar Life Ins. Co. v. Wiemer, No. 4:17-cv-00771 (E.D. Tex.), report and recommendation, ECF No. 29 (Feb. 9, 2018), court order (PDF); see ReliaStar Life Ins. Co. v. Wiemer, No. 4:17-cv-00771 (E.D. Tex.), memorandum opinion and order, ECF No. 61 (Nov. 16, 2018), at 1–2, court order (PDF). ↩

30. ReliaStar Life Ins. Co. v. Wiemer, No. 4:17-cv-00771 (E.D. Tex.), memorandum opinion and order, ECF No. 61 (Nov. 16, 2018), at 2–6 & n.1, court order (PDF). ↩ ↩² ↩³ ↩⁴ ↩⁵

31. ReliaStar Life Ins. Co. v. Wiemer, No. 4:17-cv-00771 (E.D. Tex.), order accepting the guardian ad litem’s report, ECF No. 44 (Aug. 24, 2018). ↩

32. Tex. Prop. Code § 142.005(a), (b). Texas Constitution and Statutes. ↩

33. ReliaStar Life Ins. Co. v. Wiemer, No. 4:17-cv-00771 (E.D. Tex.), final judgment, ECF No. 62 (Nov. 16, 2018), court judgment (PDF). ↩

34. ReliaStar Life Ins. Co. v. Wiemer, No. 4:17-cv-00771 (E.D. Tex.), order, ECF No. 67 (Apr. 3, 2019), at 2, court order (PDF). ↩