NEW JERSEY FEDERAL COURT SEVERS AND STAYS BAD FAITH CLAIM (New Jersey Federal)

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New Jersey Magistrate Judge Edward Kiehl recently severed and stay a bad faith claim, from the underlying coverage claim.

Quoting precedent, he applied the following principles:

  1. ““Given that the ‘fairly debatable’ standard necessitates a ruling on coverage prior to the adjudication of a bad faith claim, … it is ‘[n]o surprise, then, that severance and stay of bad faith claims has been called the ‘prevailing practice’ in both the state and federal courts of New Jersey.’”

  2. Whereas “‘breach of insurance contract claims concern policy coverage[,]’” claims for bad faith “‘concern the insurer’s general claims handling procedures, its claims conduct in the case at issue, and its knowledge and state of mind about the grounds for denial of coverage.’”

  3. “Because discovery on a bad faith claim would be rendered needless if the insurer prevails on the coverage claim, ‘proof [that] an insured is entitled to coverage as a matter of law is a necessary prerequisite to pursuing discovery regarding a bad faith claim.’”

  4. In other words, “the insured who alleges bad faith by the insurer must establish the merits of his or her claim for benefits.”

Magistrate Judge Kiehl’s detailed Rule 21 four-factor analysis, as applied to the facts, can be found in his opinion, linked here.

Date of Decision:  June 29, 2021

AIG Specialty Insurance Company v. Thermo Fisher Scientific, Inc., No. 20-CV-13046-CCC-ESK, 2021 WL 2680013 (D.N.J. June 29, 2021) (Kiehl, M.J.)

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