Plaintiff was the beneficiary of a $1 Million life insurance policy. The carrier declined to pay benefits, and she brought 3 claims: (1) a declaration that the policy was valid and she was entitled to the proceeds; (2) breach of contract for damages resulting from delay in payment; and (3) bad faith. The carrier sought to sever the last two claims, and stay discovery, characterizing them both as bad faith claims.
The court found the delay in payment claim simply to be a contract claim for consequential damages, not bad faith in claims handling, and denied the motion on that count. The court also did not expect damage discovery to be extensive or complicated, and there would be no material benefit, or prejudice avoided, by severance and stay.
On the bad faith claim, the court recognized that stay and severance were common in bad faith cases; however, there was no automatic rule to that effect. Rather, each case is determined on its own merits. It cited to the Beachfront case for this proposition, though a stay was granted in that case due to prejudice in allowing the discovery to proceed. Similarly, in this case, plaintiff’s bad faith discovery requests were irrelevant to the underlying claims, and disproportional to those declaratory relief and contract claims.
Further, the focus of the underlying claims was whether the insured made misrepresentations when applying for insurance, whereas the focus of the bad faith case is claims handling and processes. Thus, the two types of claims and are best treated as distinct. Moreover, proof would involve different witnesses and documents. Further, there is also no prejudicial delay, as the bad faith claim could proceed promptly if plaintiff prevails on her contract claims.
Finally, the insurer would be prejudice by continuing with the bad faith discovery. It would have to undergo significant expenditure of time and money, which would be needless if it prevailed on the underlying claims.
Thus, the court severed and stayed the bad faith claim until resolution of those underlying claims.
Date of Decision: October 31, 2018
Ames v. USAA Life Ins. Co., U. S. District Court for the District of New Jersey Civil No. 18-9865 (RMB/JS), 2018 U.S. Dist. LEXIS 186315 (D.N.J. Oct. 31, 2018) (Schneider, M. J.)