Procopio v. Government Employees Insurance Co., A-2313-12T2; Appellate Division; opinion by Parrillo, P.J.A.D.; decided and approved for publication November 21, 2013. Before Judges Parrillo, Harris and Guadagno. On appeal from the Law Division, Camden County, L-6191-11. [Sat below: Judge +.] DDS No. 23-2-xxxx [10 pp.]

Plaintiff James Procopio Jr. was injured in an automobile accident with another driver, also insured by defendant Government Employees Insurance Company (GEICO). He received the tortfeasor’s insurance policy limit of $15,000 and then filed this action asserting claims for underinsured-motorist (UIM) benefits under his own policy and bad-faith refusal to pay the claim, breach of contract and violations of the New Jersey Consumer Fraud Act.

During discovery, plaintiff sought GEICO’s entire claim file and other information related to his bad-faith claims. GEICO moved to sever the bad-faith claims and hold them in abeyance pending resolution of the UIM benefits claim. The motion judge bifurcated the claims for trial and held the bad-faith claims in abeyance, but compelled simultaneous discovery on all claims.

On leave granted, GEICO appealed, arguing that the motion court abused its discretion by compelling discovery on the bad-faith claims before resolution of the UIM claim.

Held: Where an insured asserts both a UM or UIM claim and a bad-faith claim, the bad-faith claim should be held in abeyance and discovery pertaining to that claim should be deferred until resolution of the UM or UIM claim, to avoid judicial inefficiency and possible prejudice to the insurer’s defense.

In general, a party can obtain discovery regarding any nonprivileged materials that are relevant to the underlying matter. A trial court’s decision on discovery matters is reviewed under the abuse-of-discretion standard. Under Rule 4:38-2, the trial court may exercise its discretion to order a separate trial of any claims or issues for convenience or to avoid prejudice.

The panel cites Taddei v. State Farm Indemnity Co., 401 N.J. Super. 449 (App. Div. 2008), in which the insured sued his carrier for uninsured-motorist (UM) benefits after he was injured in an accident with an unknown motorist. Since he did not plead a bad-faith claim but only casually mentioned it during trial, the trial court did not address the claim. Although expressly declining to decide whether the entire-controversy doctrine mandated inclusion of both claims in the complaint, the appellate panel provided guidance on how to properly balance the equities of the parties while adhering to the strictures of the doctrine, saying that the bad-faith claim should be severed from the UIM claim and held in abeyance until conclusion of the latter. The bad-faith claim would then be activated, triggering the possibility for the right to discovery, motions, and, if necessary, a separate trial.

The panel here says that approach promotes judicial economy and efficiency by holding in abeyance expensive, time-consuming and potentially wasteful discovery on a bad-faith claim that may be rendered moot by a favorable ruling for the insurer in the UM or UIM litigation. It also avoids the premature disclosure of arguably privileged materials to the prejudice of the insurer’s defense while preserving the insured’s pursuit of his bad-faith claim.

Also cited is Bartlett v. John Hancock Mut. Life Ins. Co., 538 A.2d 997 (R.I. 1988), in which the plaintiff alleged that the defendant breached its duty under a life insurance contract and acted in bad faith by denying liability for accidental death benefits under the policy. The Rhode Island Supreme Court quashed the trial court’s order compelling discovery of the insurance company’s claim file while the plaintiff’s contract claim was still pending, reasoning that there can be no cause of action for bad-faith until the insured establishes an entitlement on the underlying contract claim. Other jurisdictions have followed suit.

The panel finds Taddei‘s reasoning compelling. It says preserving the insured’s ability to pursue his bad-faith claim while deferring discovery thereon until resolution of the UM or UIM claim best accommodates the varying interests involved and that there is very little benefit in allowing discovery to proceed simultaneously since a claim for UIM benefits is separate and distinct from a claim of bad faith and the evidence used to establish each claim is very different.

Requiring simultaneous discovery on both claims will result in a significant expenditure of time and money, generally rendered needless if the insurer prevails on plaintiff’s UM or UIM claim. Such premature discovery may also jeopardize the insurer’s defense of the UM or UIM claim by the disclosure of potentially privileged materials. Thus, whatever the benefits of simultaneous discovery, they are substantially outweighed by the burdens exacted both institutionally and individually. The motion judge’s failure to recognize these adverse impacts and to properly weigh the interests of the parties resulted in an erroneous exercise of discretion. There is no persuasive reason to depart from the approach suggested in Taddei and adopted in other jurisdictions.

For appellant—Feeda R. Musitief (Fine & Staud). For respondent—Walter H. Iacovone (Margolis Edelstein).