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UNITED SERVS. AUTO. ASSN. v. GERMANTOWN SAV. BANK

April 19, 1978

UNITED SERVICES AUTOMOBILE ASSOCIATION
v.
GERMANTOWN SAVINGS BANK, FRIENDS' CENTRAL SCHOOL CORP., ARLENE SMITH, CHARLES SMITH, and GEORGE J. O'NEILL



The opinion of the court was delivered by: LUONGO

 LUONGO, J.

 United Services Automobile Association, an insurance company, filed the complaint in this statutory interpleader action on January 9, 1978, and paid into the registry of this court $13,071.88, the sum admittedly owing under a policy it issued in 1975. It seeks a ruling as to which of the defendants is entitled to this fund. Friends' Central School Corporation, one of the defendants, seeks dismissal of the complaint on the ground of "inappropriateness." For the reasons hereafter stated, I conclude that the complaint should not be dismissed, and that defendant Germantown Savings Bank is entitled to the disputed fund.

 Motion to Dismiss

 Taking all the well-pleaded allegations of the complaint as true for the purposes of this motion, Miree v. DeKalb County, 433 U.S. 25, 27 n.2, 53 L. Ed. 2d 557, 97 S. Ct. 2490 (1977), the facts underlying this controversy may be summarized as follow. On June 30, 1975, United Services Automobile Association (hereafter Insurance Company) issued a homeowner's insurance policy bearing the number 0542890 90A. This policy covered the Philadelphia residence of Charles Smith and Arlene Smith, the "named insured," who at that time were husband and wife. On January 15, 1976, the Smith residence sustained water damage in the amount of $13,071.88, which Insurance Company agreed it owed to the Smiths. Complaint para. 9. However, three of the defendants in the instant proceeding brought separate actions affecting the insurance proceeds in state court, which ultimately led Insurance Company to seek relief by way of interpleader in federal court.

 In one of these actions, George J. O'Neill, who prior to 1972 had been Arlene Smith's husband, sought, inter alia, (1) a declaration that he owned a one-half interest in the Smith residence, and (2) the appointment of a conservator to take possession of both the residence and the insurance proceeds derived from any damage thereto. O'Neill also informed Insurance Company that he would sue it as well if it paid the $13,071.88 to Arlene Smith without including him as a payee. Letter from Insurance Company's counsel, dated Feb. 28, 1978.

 In a second action, originally instituted in October of 1974, Friends' Central School Corporation (hereafter School) obtained a default judgment against Arlene Smith and George O'Neill for $7,029.44, which sum apparently represented unpaid bills for the instruction of their four minor children. School then obtained a writ of execution, and served Insurance Company with a copy of the writ and with interrogatories in garnishment. See generally Pa. R. Civ. P. 3111, 3144-46, 3252. Based on Insurance Company's answers to the interrogatories, which unreservedly stated that it owed "Arlene Smith, . . . along with her husband or former husband, Charles Smith," $13,071.88 under the homeowners' policy that covered their residence, the Court of Common Pleas of Montgomery County entered judgment for School against Insurance Company as garnishee on April 20, 1977. Garnishee's Answers, para. 5, Exhibit B to Answer and Counterclaim of Friends' Central School Corp. (Document No. 6). See generally Pa. R. Civ. P. 3146(b).

 Germantown Savings Bank (hereafter Bank), the mortgagee of the Smith residence, brought the third state court action after Arlene Smith and Charles Smith apparently defaulted on their mortgage. Bank obtained a default judgment against Charles Smith on August 11, 1976, and it obtained judgment on the pleadings against Arlene Smith on October 28, 1976. Both judgments were entered in the Court of Common Pleas of Philadelphia County, and were in the amount of $41,325.16. Although the Smith residence was sold for $61,200 at a sheriff's sale on December 6, 1976, the proceeds of that sale have not yet been distributed. Bank's judgments thus remain unsatisfied.

 Uncertain as to its obligations, Insurance Company brought this interpleader action to resolve the various claims. Jurisdiction over this action is conferred by 28 U.S.C. § 1335(a) (1970), as at least two of the claimants are of diverse citizenship. Venue in this district is proper under 28 U.S.C. § 1397 (1970). School, however, emphasizing the equitable nature of interpleader jurisdiction, argues that Insurance Company should not be afforded the benefits of that procedure.

 School contends initially that Insurance Company has only itself to blame for its present predicament. The argument runs as follows:

 
"The loss occurred in January of 1976. Plaintiff was required under its policy to pay the insured or if the insured failed to render proof of loss, then the mortgagee was to be paid within sixty days after it rendered proof of loss. Plaintiff has retained possession of the insurance proceeds for two years notwithstanding the submission of proof of loss by Defendant, Arlene Smith.
 
Plaintiff has only now after a judgment has been entered against it, sought to consolidate the claims. Thus, it has chosen to retain possession of the funds knowing they were subject to competing claims. It has created its own quandry and could have feasibly got itself out of it by following the terms of its policy." Brief in Support of Motion to Dismiss (Document No. 18) at 3.

 To begin with, School's recitation of the facts underlying this action is somewhat misleading. Although the loss occurred in January of 1976, Arlene Smith apparently did not file formal proof of loss until December 6, 1976. Answer of Arlene Smith para. 26. The 60-day payment clause that School refers to requires Insurance Company to pay benefits "sixty days after proof of loss . . . is received by [Insurance Company]." Policy No. 0542890 90A, p. 2, lines 150-56. Moreover, Insurance Company apparently was served with a writ of execution and with School's interrogatories in garnishment on January 31, 1977. Answer and Counterclaim of Friends' Central School Corp. para. 26. From that day forward, of course, Insurance Company was enjoined from paying Arlene Smith the full amount that she claimed. See Pa. R. Civ. P. 3111(c), (d), 3252; cf. Helms v. Chandler, 423 Pa. 77, 80, 223 A.2d 30, 31 (1966) ("Service of the writ of execution under Rule 3111 constitutes the attachment."). In addition, as noted earlier, judgment was entered on April 20, 1977 for School and against Insurance Company as garnishee in the amount of $7,029.44. In short, School's contention that Insurance Company "retained possession of the insurance proceeds for two years notwithstanding the submission of proof of loss" is inaccurate.


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