An insurance company that was allegedly "set up" for a claim it acted in bad faith in an auto injury case will get a chance to depose the claimant on the issue, a New Jersey appeals court says.

Monday's ruling came in a pair of consolidated suits that seek to apply in a novel context New Jersey's Rova Farms doctrine, which allows an insured to recover the full amount of a verdict above the policy limits from an insurer that, in bad faith, refused to settle.

Such claims typically involve a carrier's offer of too little money. Here, New Jersey Manufacturers Ins. Co. offered the entire $500,000 policy — minus $22,000 paid for property damage — but did so beyond the 10-day window plaintiff Jennifer Roden had given in her demand. The offer, made about a year after Roden's demand and only a few months before the scheduled trial date, was rejected as too late.

NJM seeks to prove that Roden, her co-plaintiffs and their lawyers deliberately avoided a settlement within the policy limits in order to pave the way for a bad-faith claim.

The Appellate Division now says NJM can within limits depose Roden concerning whether she knew of the settlement offer and whether she would have accepted it. What it can't do is ask about lawyer-client communications.

An Ocean County jury awarded Roden $1 million for fractures to her feet resulting from an Aug. 5, 2006, crash with NJM's insured, Corey Clifford, who veered into oncoming traffic and hit her car head-on. The jury also awarded a combined $16 million to her three children in the back seat, who suffered head injuries, paraplegia and extreme scarring and other severe harm. They ranged in age from three-and-one-half months to six years old and had separate counsel.

Clifford assigned to Roden and the children his right to bring a Rova Farms bad-faith claim.

NJM's attempt to depose Roden on Dec. 30, 2011, was met with repeated objections based on asserted attorney-client privilege.

Superior Court Judge Joseph Foster granted NJM's request to compel Roden to respond to questions. They can ask about her knowledge and understanding of the various settlement demands and offers exchanged between the parties, her reasons for rejecting the $478,000 offered by NJM, and specifics on any meetings she attended with Hobbie Corrigan & Bertucio, the firm representing the children. Those specifics included time, date, place, who else was there and "the nature and content of any communications at such meetings concerning settlement of the underlying matters or settlement offers from the defendants in the underlying matters."

Foster specifically forbade Roden from refusing to answer questions concerning "any settlement demands, offers, or the rejection of any settlement demands or offers by her or any other party in the underlying matters" on the ground of attorney-client privilege.

Appeals judges Carmen Messano, Mitchel Ostrer and John Kennedy held that NJM may ask Roden what she knew about the settlement demands and offer so it could try to prove that it could not have settled within the policy limits.

But they narrowed the scope of the questioning, saying NJM's position was essentially "that there is something unique about a bad-faith claim against an insurance company that essentially strips away any claim of privilege regarding attorney-client communications in the underlying action."

They rejected that view and found that Roden's conversations with her lawyer were not "fair game" under the three-part test for waiver of privilege, which requires that the information sought be necessary; that it be relevant and material; and that there be no less intrusive means to obtain it.

Less intrusive means existed because Foster had ordered the deposition of Roden's attorney, Spring Lake solo Roy Curnow, and the children's attorneys, Norman Hobbie and Jacqueline DeCarlo of Hobbie Corrigan in Eatontown.

In addition, NJM can show Roden records of the settlement demands and ask her questions about them without inquiring into the specifics of her privileged communications with the attorneys, said the panel.

To expedite matters, the court set ground rules for deposing Roden. No blanket objections based on privilege are allowed and her lawyer must show good cause as to any given question.

The court suggested that the deposition be scheduled at a time when Foster will be available to resolve any disputes.

Evan Goldman, a plaintiffs personal injury lawyer not involved in the case, says NJM has been pushing back against Rova Farms the last few years and he believes that it hopes to elicit testimony that the plaintiff would have accepted the offer but her attorney advised against it in order to pursue a bad-faith claim.

"If the court were to open up that avenue, then what prevents us from asking defense counsel, 'reveal to me all discussions with higher ups at NJM why they don't want to pay the policy'?" asks Goldman, of Schiffman Abraham Kaufman and Ritter in Hackensack.

NJM attorney Richard Williams Jr., of McElroy, Deutsch, Mulvaney & Carpenter in Morristown, declines comment.

Hobbie says of the ruling, "We respect the opinion. We will proceed accordingly." Curnow did not return a call.

The cases are V.K., M.K. and G.R. v. New Jersey Manufacturers Ins. Co. and Roden v. New Jersey Manufacturers Ins. Co.