DECEMBER 2013 BAD FAITH CASES: NEW JERSEY SUPERIOR COURT HOLDS SIMULTANEOUS BREACH OF CONTRACT AND BAD FAITH CLAIMS MUST BE BIFURCATED, WITH THE BAD FAITH CLAIM, INCLUDING DISCOVERY, STAYED PENDING RESOLUTION OF THE BREACH OF CONTRACT CLAIM (New Jersey Appellate Division)
The Appellate Division reversed an order from the Law Division bifurcating and staying plaintiff’s bad faith claim from his UIM claim for trial purposes, but allowing discovery to advance simultaneously on the two claims. Although the trial court judge allowed that any discovery requests implicating privileged materials would be subject to a motion for a protective order and that he would not permit discover into a privileged area, the insurer maintained the trial court abused its discretion by compelling discovery on the bad faith claim prior to resolution of the UIM claim.
Based on New Jersey case law, the Appellate Division found an insured cannot obtain complete discovery of an insurance company’s claim file simply by bringing simultaneous breach of contract and bad faith claims, but rather must wait until the insured establishes an entitlement on the underlying contract claim.
Essentially, a plaintiff must first show that he or she is entitled to recover on the contract before he or she can prove the insurer dealt with him or her in bad faith. Furthermore, in instances such as plaintiff’s, the appropriate practice is to sever the bad faith claim, and stay the claim, including discovery, pending resolution of the underlying contract claim to protect against prejudices such as the discovery issue presented by the Law Division’s order.
Thus, the Appellate Division reversed and remanded, finding whatever benefits might be gained by simultaneous discovery were substantially outweighed by the adverse impacts on the parties, making the order an erroneous exercise of discretion by the Law Division.