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Insurance Law

SNR Denton on McReynolds v. American Commerce Insurance Co.: Interpleader as a Safe Harbor for Multiple Demands

   By Ronald D. Kent, Partner, SNR Denton1

McReynolds v. American Commerce Insurance Co.2 presented an issue at a doctrinal intersection: multiple claims with inadequate limits and claims subject to liens.  The court held that an insurer could meet its obligation to consider the multiple offers in good faith by interpleading its policy limits and continuing to defend the insured.  This commentary considers the case in light of the law elsewhere on both doctrinal points.

Michael McReynolds was seriously injured in an accident with Tania Ranieri, who was insured with American Commerce Insurance Co. (“ACIC”).  McReynolds was treated at Flagstaff Medical Center (“FMC”), which filed a statutory lien in the amount of $43,603.85.  McReynolds demanded policy limits.  ACIC tendered a two-party check (to McReynolds and ACIC) for its $25,000 policy limit.  McReynolds rejected the check, and sued Ranieri.  He then made an offer of judgment for policy limits.  Counsel advised ACIC that payment to McReynolds, without a release from FMC could expose FMC to liability on the lien.  Within the time for acceptance of the offer of judgment, ACIC filed an interpleader and paid its policy limit into court.  Eventually, FMC released its liens and the interpleader was dismissed.  ACIC continued to defend Ranieri, but McReynolds obtained a judgment against her in the amount of $$469,110.67.  Ranieri assigned any bad faith claim she might have to McReynolds, who sued ACIC.  The trial court granted summary judgment to ACIC and the court of appeals affirmed.3

The commentary summarizes the courts analysis, which concluded that approaches which found jury questions in such circumstances “either create substantial uncertainty or risk unfair treatment of claimants.”  In the court’s view, the better approach should offer greater certainty, so the court held that:

(1) the prompt, good faith filing of an interpleader as to all known claimants with (2) payment of the policy limits into the court and (3) the continued provision of a defense for the insured as to each pending claim, acts as a safe harbor for an insurer against a bad faith claim for failure to properly manage the policy limits (or give equal consideration to settlement offers) when multiple claimants are involved and the expected claims are in excess of the applicable policy limits.

The commentary notes that other jurisdictions have not found interpleader so complete a solution:

When insurers are unable to negotiate a global settlement among multiple claimants, they frequently resort to interpleader actions to allocate the available funds.  Indeed, some courts (like the McReynolds court) suggest that an insurer should attempt a global settlement and, if unsuccessful, seek judicial assistance by proceedings in the nature of interpleader.  There certainly are situations where interpleader could be useful in achieving a global settlement.  But, ultimately, interpleader cannot force a settlement where the claimants are unwilling.  An interpleader can only enjoin other actions with respect to the fund interpleaded; it cannot enjoin pursuit of other sources of payment, such as the insured.

But while an alternate approach might be theoretically preferable, it likely would have much the same effect as the McReynolds approach.  So the commentary finds that approach a reasonable alternative to what it regards as the right approach.

Moreover, the commentary explains the result can also be justified on an alternate ground, because the second claim here was not an independent claim, but a lien on McReynolds’ claim.  The commentary explains the reasons for special treatment of lien claims and the ways in which other courts have treated them.


1 Some of the analysis in this commentary is drawn from William T. Barker & Ronald D. Kent, New Appleman Insurance Bad Faith Litigation, Second Edition.

2 McReynolds v. Am. Comm. Ins. Co., 235 P.3d 278 (Ariz. Ct. App. 2010).

3 Id. ¶¶ 1-6.

_____________________________ subscribers can access the complete commentary, SNR Denton on McReynolds v. American Commerce Insurance Co.: Interpleader as a Safe Harbor for Multiple Demands. Additional fees may be incurred. (approx. 7 pages)

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Mr. Kent is a co-author of New Appleman Insurance Bad Faith Litigation, Second Edition.

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