Applicability (or not) of Florida Interpleader Statute 624.155(6)(a) to “Wasting” Policies

Interpleader is a procedure that enables a stakeholder to deposit funds with the court to allow parties who claim they are entitled to the funds to litigate their respective entitlement. In many states liability insurers are allowed to interplead insurance proceeds in the face of competing claims by multiple claimants. Historically, however, this procedure was not available in Florida. Hernandez v. Travelers Ins. Co., 356 So. 2d 1342 (Fla. 3d DCA 1978). Consequently, insurers handling claims in Florida were oftentimes forced to pick and choose between settling competing claims in a way that opened them up to criticism, by way of claims for bad faith, for how they settled the competing claims. In March 2023, Florida passed a tort reform bill enacting Florida Statute 624.155(6)(a), which finally allows insurers to interplead insurance funds in the face of  competing liability claims that exceed policy limits. This article addresses issues for insurers to consider before filing an interpleader under section 624.155(6)(a) in connection with a policy with “wasting” limits, meaning that defense costs erode the policy limits.

Understanding Interpleader Under Florida Statute 624.155(6)(a)

Section 624.155(6)(a) provides a way for insurers to limit their exposure to policy limits and protect themselves from claims that the insurer failed to pay all or part of the available policy limits to third-party claimants.  Under this statute, an insurer cannot be held liable for an amount in excess of available policy limits if, within 90 days after receiving notice of the competing claims, the insurer files an interpleader action. The statute provides that, if the competing claimants’ claims are found to be in excess of the policy limits, the claimants are entitled to a prorated share of the policy limits as determined by a trier of fact.

What about “wasting” limits?

Generally, the amount a liability insurer is obligated to pay to defend its insured is separate from the limits available to indemnify an insured for liability to a third-party. However, in “wasting” policies, defense costs reduce the amount of policy limits available to indemnify an insured.

In some jurisdictions, courts have held that an insurer which issued a “wasting” policy has an interest in policy proceeds which have been interpleaded, with some holding that the insurer’s right to those proceeds receives priority over the insured’s and claimant’s rights. See Gabarick v. Laurin Maritime (America) Inc., 635 F. Supp. 2d 499 (E.D. La. 2009). This makes sense because to hold otherwise would mean that an insurer with a “wasting” policy could deposit its policy limit and be separately liable for the cost of defending its insured. In such a scenario, the insurer would not receive the benefit of its bargain because its overall exposure, between indemnification and defense costs, would exceed the policy limit. Nevertheless, other courts have disallowed insurers from seeking to recover from interpleaded funds under “wasting” policies. See Chicago Ins. Co. v. Abstract & Title Guar. Co., Inc., 03-CV-00590-JDT-TA, 2004 WL 2750258 (S.D. Ind. 2004).

Considerations for Insurers

In interpleader actions under Florida Statute 624.155(6)(a), if the policy is a “wasting” policy, insurers may argue that they are entitled to recover defense costs from the interpleaded funds. Claimants likely will contest this by arguing that the policy limits should be preserved for their third-party claims because the statute refers solely to “claimants.” Although section 624.155(6)(a) provides that an insurer’s interpleader action “does not alter or amend the insured’s obligation to defend its insured,” section 624.155(6)(a) is silent on how to handle defense costs under a “wasting” policy. This silence raises questions over how Florida courts will apply section 624.155(6)(a) to these policies. Will the insurer have a priority to the interpleaded funds to pay defense costs? Or will the interpleaded funds be reserved solely for the benefit of the claimants?

Florida Statute 624.155(6)(a) was enacted as part of a broader tort reform package intended to minimize litigation in the state. By allowing insurers to file an interpleader action, the statute’s aim is to help insurers avoid claims of bad faith when they cannot satisfy all third-party claims due to the policy’s limit. In this way, the statute is intended to minimize the number of bad faith claims brought against insurers. If insurers with “wasting” policies were unable to recover defense costs from interpleaded policy proceeds, they would lose the benefits of the new statutory procedures, which would arguably be inconsistent with the statute’s goal of minimizing bad faith litigation.

Given that section 624.155(6)(a) is new, there have been few interpleader actions filed under the statute, most of which are in the very early stages of litigation or which settled or closed quickly after filing and none of which appear to have involved “wasting” policies. This means there is little guidance for how Florida courts will handle an insurer’s claimed interest in interpleaded policy funds.

Conclusion

In short, section 624.155(6)(a) provides a method by which insurers can interplead insurance proceeds to avoid bad faith claims when dealing with multiple claims that may exceed the policy’s limits, but it is unclear whether an insurer under a “wasting” policy will be able to recover defense costs from the interpleaded funds. Consequently, until such time as Florida courts provide some guidance on the interplay between section 624.155(6)(a) and “wasting” policies, insurers will ultimately have to carefully consider the economics between, on the one hand, interpleading insurance funds to insulate themselves against potential “extracontractual” exposure in the form of claims for bad faith, while, on the other hand, potentially incurring a different kind of exposure beyond the stated policy limit by way of defense expenses paid in addition to but not recoverable from interpleaded policy limits.