Court Bifurcates Contract and Bad Faith Claims for Trial and Discovery

Court Bifurcates Contract and Bad Faith Claims for Trial and Discovery

The Appellate Division of the Superior Court of New Jersey recently issued an opinion addressing whether a claim for breach of insurance contract for UIM benefits should be bifurcated from the attendant bad faith claims.  In particular, in Procopio v Government Employees Ins Co., 433 N.J. Super. 377, 80 A.3d 749 (App.Div. 2013), the court analyzed whether those claims should be bifurcated for all purposes—including trial and discovery.  After analyzing case law from various jurisdictions, the appellate court determined the claims should be bifurcated for all purposes, despite the potential impact on judicial economy.

The case concerned an insured that brought claims for breach of the insurance contract for UIM benefits as well as extra-contractual claims for bad faith and under the New Jersey Consumer Fraud Act (bad faith claims).  As part of the litigation, the insured sought production of a number of materials from the insurance company, including a number of materials directed at the bad faith calims.  The insurance company moved the trial court for an order bifurcating the underlying UIM contract issue from the bad faith claims.  The insured simultaneously moved to compel discovery of all materials sought in discovery.  The trial court agreed to bifurcate the UIM contract issue and hold the bad faith claims in abeyance pending the outcome of the contractual issues, but permitted discovery to continue on both the contractual and extra-contractual claims—subject to a protective order that precluded discovery of certain privileged materials.  The insurance company appealed, seeking a ruling that the bifurcation should be effective as to trial and discovery.

The appellate court considered its prior case law along with decisions from Arizona, Texas, Alabama, and Florida.  In particular, the court cited the reasoning in Taddei v State Farm Indem Co., 401 N.J. Super. 449, 951 A.2d 1041 (App.Div. 2008), which was summarized as follows:

“The approach outlined in Taddei 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. This procedure also avoids the premature disclosure of arguably privileged materials to the prejudice of the insurer’s defense while, at the same time, preserving the insured’s pursuit of its bad faith claim.”

While recognizing the potential toll on judicial resources by deferring consideration of the bad faith claims until after resolution of the underlying contractual issues, the Appellate Court found no reason to depart from the Taddei approach.  Accordingly, it overturned the trial court’s ruling permitting continued discovery on the bad faith claim while the contractual claim was still pending.

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