EQUAL DISTRIBUTION OF INTERPLEAD FUNDS  IS NOT EQUITABLE WHEN CLAIMANTS SUFFER UNEQUAL LOSSES

Samantha Orvis

The Michigan Court of Appeals recently issued an opinion submitted for publication which addressed the appropriate distribution of interpleaded insurance funds when they are deemed inadequate to cover all losses and pay each claimant in full.

In Secura Ins. Co. v. Stamp, the estates of two individuals who were killed in a motor vehicle accident with an uninsured motorist sought UM benefits under a commercial policy issued by Secura. The trial court determined that the policy funds interpleaded by Secura should be distributed on a pro rata basis, and simply divided the $500,000 available remaining under the policy to each estate equally, despite the fact that one of the estates claimed to have suffered greater damages. There was no determination made at the trial court level as to the amount of damages suffered by each estate, a question of fact.

On appeal it was determined that in order for a proper pro rata distribution, the court would have had to ensure that each estate was awarded a “share of the limited funds… equal to the ratio of its damages to the total combined damages suffered by the estates…Merely dividing a limited fund into equal shares when a claimant asserts unequal losses is not an equitable result.” The Court of Appeals determined that Secura’s interpleaded funds had been inappropriately distributed by the trial court without a proper determination as to each party’s losses by way of trial or evidentiary hearing.

In reaching its conclusion, the Court reiterated the equitable nature of an interpleader action. Finding the trial court appropriately relied on Moore v McDowell, 54 Mich App 657 (1974) in determining that a pro rata distribution was appropriate, the Court concluded the trial court’s analysis misinterpreted the meaning of pro rata distribution. Pro rata means that claimants should “receive distributions in proportion to their claims…If the underlying claims are equal, then the claimants will receive the same proportional shares. But if the claims are unequal… the proportional shares will differ.”

Although the underlying facts and holding are not directly applicable to first party claims, it would make sense for such an analysis to apply to requests for similar equitable pro rata distribution of limited allowable expense PIP benefits. Since the No-Fault Act was amended, insurance carriers in first party cases are left seeking guidance on how to pay allowable expense claims in actions brought pursuant MCL 500.3112 seeking “equitable apportionment,” and also actions where limited funds are interpleaded to the court when there are more money damage claims than PIP coverage available under an insurance policy.