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Interpleader recognized as safe harbor under Indiana law

10/23/25

By: Jacob Berlinger and Donald Patrick Eckler

Indiana’s Supreme Court has announced major changes to the governing standards for insurance disputes in the state. In Baldwin v. Standard Fire Ins. Co., 25S-CT-00033 (2025), the court adopted Section 26 of the Second Restatement of Liability Insurance. Section 26 both requires insurers to try to limit an insured’s overall liability exposure and provides insurers with a “safe harbor” for limiting their own liability through an interpleader action.

Baldwin involves a 2018 car crash caused by Tommi Hummel that seriously injured Bradley Baldwin. Hummel, insured by Standard Fire Insurance under a policy providing $50,000 per person and $100,000 per accident limits, was also injured along with two other passengers. Standard Fire declined Baldwin’s $50,000 settlement demand, fearing it would exhaust the policy and leave Hummel vulnerable to likely high-value claims from the other injured parties.

To avoid exhausting the policy limits, Standard Fire filed an interpleader and deposited the $100,000 policy limit with the court. Baldwin countered by alleging the insurer acted in bad faith and breached its duty of good faith and fair dealing. The trial court sided with Standard Fire, but the court of appeals affirmed in part and reversed in part.

Indiana’s Supreme Court affirmed the trial court’s grant of summary judgment for Standard Fire on Baldwin’s claims for breach of duty of good faith and fair dealing and for bad faith. Emphasizing the need to balance protecting insureds and maintaining a competitive insurance market, the Court recognized interpleader as a common tool for preserving that balance. To guide future cases, the Court adopted Section 26 of the Second Restatement of the Law of Liability Insurance.

Section 26 outlines an insurer’s duty and provides a potential safe harbor from liability in instances in which there are multiple claimants and policy limits insufficient to cover the full settlement value of each claim. Section 26 requires insurers facing such a situation to make a good-faith effort to settle in a way that minimizes the insured’s overall liability. Section 26 also creates a safe harbor for insurers, which they can avail themselves of by filing an interpleader with the court, naming all known claimants and, if obligated, continuing to defend the insured or cover defense costs until the cases are settled, finally resolved or it is determined that the insurer has no duty to defend. When properly invoked, this safe harbor satisfies the insurer’s legal duties and protects it from claims of bad faith.

The Indiana Supreme Court applied the newly adopted Section 26 to the case, holding that Standard Fire did not breach its duty of good faith and fair dealing by rejecting Baldwin’s initial settlement demand and filing an interpleader, as paying Baldwin alone could have excluded the other passengers from recovery and exposed Hummel to greater personal liability. By filing the interpleader and naming all known claimants, Standard Fire satisfied the safe harbor’s requirements. This ruling provides significant legal clarity, establishing a structured path for insurers to resolve multi-claimant cases that exceed policy limits while protecting both their interests and those of their insureds.

Freeman Mathis & Gary attorney Patrick Eckler co-authored an amicus brief for the Defense Trial Counsel of Indiana in support of Standard Fire, arguing the utility of interpleader when a policy may be exhausted due to multiple injuries.

For more information, please contact Donald Patrick Eckler at patrick.eckler@fmglaw.com or your local FMG attorney.

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