New York Federal Court Authorizes Deposit of Policy Proceeds in Interpleader Action Involving Priority of Liens

In Allstate Indem. Co. v. Collura, the United States District Court for the Eastern District of New York considered an interpleader action brought by a homeowners’ insurer. After determining the amount owed on a partial loss claim, the insurer learned that several parties were lienholders with potential entitlements to the insurance proceeds. The lienholders included the mortgagee, the bank to which the mortgage was assigned, the mortgage servicer, the United States government (which held tax liens), and a third party that asserted a claim against the policyholder. The insurer sought to deposit the actual cash value payment with the Court, and deposit a supplemental replacement cost payment upon the completion of repairs.

The matter was referred to a magistrate, which recommended that the insurer be allowed to deposit $69,596.04 with the Court, representing the full replacement cost. Rejecting the magistrate’s recommendation, the trial court held that the insurer was required to deposit the full policy limits of $363,000 with the Court. The trial court’s decision was based upon the conclusion that interpleader under the Federal Rules of Civil Procedure was unavailable due to the absence of independent federal diversity or subject matter jurisdiction. Instead, the Court determined that the sole basis for interpleader was under a federal statute that required a party seeking interpleader based upon an insurance policy to deposit the full amount of the policy.

On a motion for reconsideration, the Court determined that the existence of federal tax liens established an independent basis for federal subject matter jurisdiction. The Court reasoned that as federal subject matter jurisdiction would clearly be raised by an action by the federal government seeking to enforce a tax lien, subject matter jurisdiction would also exist in an interpleader action concerning the federal government’s potential entitlement to the deposited funds. The Court therefore held that the insurer need only deposit the claim proceeds. The Court further held that the insurer could deposit the actual cash value payment, although it would be required to remain in the case until it made the supplemental replacement cost payment.