Other Disputed Funds: Settlements, Deposits, and Insurance Limits

What can be interpleaded, in general

The federal interpleader statute reaches anyone holding “money or property of the value of $500 or more,” or who issued a “note, bond, certificate, policy of insurance, or other instrument” of that value, or is under “any obligation written or unwritten” of that amount, when two or more adverse claimants of diverse citizenship claim it.¹ The Supreme Court has said this requires only “minimal diversity,” meaning diversity between two or more claimants.² Rule 22 and state rules provide other routes. See statutory versus Rule 22 interpleader and state-court interpleader.

Common examples

• Liability insurance limits. After an accident with several injured people, the total claims may exceed the policy limit. The insurer may deposit the limit and ask the court to divide it.
• Settlement proceeds with liens. A personal injury settlement may be claimed in part by Medicare, Medicaid, a health plan, a hospital or a former lawyer, as well as the injured person. See personal injury settlements.
• Art, jewelry and other objects. The interpleader statute covers property as well as money, so a museum, auction house or repair shop holding a disputed object can interplead it. See art, jewelry and other personal property.
• Deposits and money held for others. Security deposits, funds held by a lawyer or agent, and similar money can draw competing claims.
• Property insurance. After a fire or other loss, the named insured, an owner, an occupant or a lender may each claim the same benefits. See the example below.
• Unpaid amounts owed by a business. A company that owes a debt but receives competing demands, for example from an assignee and the original creditor, may interplead.

Whether interpleader is appropriate in any of these depends on the facts and the governing law.

Annuity death benefits are handled the same way as life insurance. For a 2026 Michigan example decided by default, see annuities.

Example: property insurance after a fire

Interpleader is not only for death benefits. In a 2025 federal case in Colorado, a property insurer interpleaded the benefits under a homeowner’s dwelling policy after a fire. The following are the insurer’s allegations in its complaint, not findings by the court.³

• The policy and the house. The insurer issued the policy in 2015, listing one person as the named insured, and renewed it each year. Another person had lived in the house since about 2014.
• Who owned it. The named insured later filed for Chapter 7 bankruptcy. The bankruptcy trustee took the position that earlier transfers of the property were ineffective or voidable, and the trustee and the occupant settled. That settlement led to a trustee’s deed in 2019, which the complaint describes, with some reservation, as making the occupant the record owner.
• Who paid. The policy and the mortgage stayed in the named insured’s name. According to the complaint, the occupant kept paying the mortgage, which included the premiums, and the insurer did not know about the arrangement.
• The fire and the claims. In April 2024 a fire of unknown cause nearly destroyed the house. Both the named insured and the occupant claimed the policy benefits. The insurer investigated under a reservation of rights and, after the lender started foreclosure, paid off the mortgage, also under a reservation of rights.

Why the insurer interpleaded rather than choosing. The complaint said the insurer did not know which claimant, if either, was entitled to the remaining benefits, or to what share. It pointed to open questions under the policy: whether the named insured was using the house as a dwelling, whether the occupant had an insurable interest, whether either had covered personal property or extra living expenses, and whether a condition barring coverage for concealment, fraud or false statements applied. Others might also come forward. Because it could not decide between the claimants without risking multiple liability, it asked to deposit the remaining benefits with the court, have both claimants make their claims in that one case, be discharged, and recover its fees and costs.³

The parties later settled, so the court never decided who was entitled to the benefits.

Limits: Tashire

In Tashire, a Greyhound bus and a pickup truck collided in California in 1964. Two bus passengers were killed and dozens of people were injured. The truck driver’s liability insurer paid its $20,000 per-occurrence limit into a federal court in Oregon and asked that all claims be decided there, and the district court barred claimants from pursuing related suits elsewhere. The Supreme Court held that interpleader was proper for the insurance fund, but that the court went too far in controlling claims against the insured and others. Interpleader “was never intended” to be “an all-purpose ‘bill of peace.’”²

Money held by a federal court

Money paid into a federal court is deposited “with the Treasurer of the United States or a designated depositary, in the name and to the credit of such court.”⁴ “No money deposited under section 2041 … shall be withdrawn except by order of court.” If money is adjudicated or undisputed but stays unclaimed for at least five years, the court sends it to the Treasury, and a claimant can later petition for its return with notice to the U.S. attorney and “full proof of the right thereto.”⁵

Related

• What is an interpleader action?
• Discharge, fees, and interest
• Escrow and sale proceeds
• Personal injury settlements
• Art, jewelry and other personal property

Footnotes

1. 28 U.S.C. § 1335(a). Cornell LII. ↩

2. State Farm Fire & Casualty Co. v. Tashire, 386 U.S. 523 (1967). Cornell LII. ↩ ↩²

3. Complaint, American Modern Prop. & Cas. Ins. Co. v. Simms, No. 1:25-cv-00118 (D. Colo. filed Jan. 13, 2025). The complaint states the insurer’s allegations; the court made no findings on them. ↩ ↩²

4. 28 U.S.C. § 2041. Cornell LII. ↩

5. 28 U.S.C. § 2042. Cornell LII. ↩