OR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-2313-12T2

JAMES J. PROCOPIO, JR., APPROVED FOR PUBLICATION Plaintiff-Respondent, November 21, 2013

v. APPELLATE DIVISION

GOVERNMENT EMPLOYEES INSURANCE COMPANY, a/k/a and d/b/a GEICO,

Defendant-Appellant.

Argued September 23, 20131 Reargued November 4, 2013 - Decided November 21, 2013

Before Judges Parrillo, Harris and Guadagno.

On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-6191-11.

Feeda R. Musitief (Fine and Staud, LLP) argued the cause for appellant.

Walter H. Iacovone argued the cause for respondent (Margolis Edelstein, attorneys; Mr. Iacovone, on the brief).

The opinion of the court was delivered by

PARRILLO, P.J.A.D.

1 As Judge Guadagno was added after oral argument, the appeal was reargued pursuant to R. 2:13-2(b). We granted leave to appeal an interlocutory order of the

Law Division that severed for trial purposes plaintiff's

underinsured motorist (UIM) claim from his bad faith and other

claims against his carrier, defendant Government Employees

Insurance Company (GEICO), but nevertheless directed discovery

to proceed simultaneously on all claims. For the following

reasons, we reverse.

Plaintiff James Procopio, Jr. was injured in an automobile

accident with another driver, also insured by GEICO. In his

action against the other driver, plaintiff received the

tortfeasor's GEICO insurance policy limit of $15,000.

Thereafter, plaintiff filed a complaint against GEICO, asserting

claims for UIM benefits under his own policy as well as bad

faith refusal to pay the claim, breach of contract, and

violations of the New Jersey Consumer Fraud Act (bad faith

claims).

During the discovery process, in which plaintiff sought,

among other things, his carrier's entire claim file and other

information specifically related to prosecution of plaintiff's

bad faith claims, GEICO moved to sever the bad faith claims and

hold them in abeyance pending resolution of the UIM benefits

matter. Plaintiff responded by moving to compel discovery. The

motion judge bifurcated the claims for trial, held the bad faith

2 A-2313-12T2 claims in abeyance, but compelled simultaneous discovery on all

claims. The judge denied GEICO's motion for clarification or

reconsideration, reasoning that defendant would not be

prejudiced by compelling discovery of the bad faith claims

contemporaneous with discovery of the UIM claim. Recognizing

the potential problems inherent in such an approach, however,

the court allowed that any discovery requests implicating

privileged materials would be subject to a motion for a

protective order and that he would not permit discovery into a

privileged area.

On appeal, GEICO maintains the motion court abused its

discretion by compelling discovery on the bad faith claims to

proceed before resolution of the UIM claim. We agree.

In general, pursuant to Rule 4:10-2(a), a party can obtain

discovery regarding any non-privileged materials that are

relevant to the underlying matter. "New Jersey's discovery

rules are to be construed liberally in favor of broad pretrial

discovery." Payton v. N.J. Tpk. Auth.,

(1997); see also Jenkins v. Rainner,

(1976). We

review a trial court's decision on discovery matters under the

abuse of discretion standard. Pomerantz Paper Corp. v. New

Cmty. Corp.,

(2011). This standard requires

our court to "generally defer to a trial court's disposition of

3 A-2313-12T2 discovery matters unless the court has abused its discretion or

its determination is based on a mistaken understanding of the

applicable law."

(quoting Rivers v. LSC P'ship,

(App. Div.), certif. denied,

(2005)).

Under Rule 4:38-2, the trial court may order a separate

trial of any claims or issues "for the convenience of the

parties or to avoid prejudice[.]" In general, the power to

sever claims rests in the trial court's discretion. Tobia v.

Cooper Hosp. Univ. Med. Ctr.,

(1994). In

addition, the authority to stay a proceeding is also within the

sound discretion of the trial court. State v. Korbin Sec.,

(App. Div. 1987), rev'd,

(1988). The Supreme Court has noted that

the power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants. How this can best be done calls for the exercise of judgment, which must weigh competing interests and maintain an even balance.

[Landis v. N. Am. Co.,

,

, 165-66,

(1936).]

In Taddei v. State Farm Indemnity Co.,

,

(App. Div. 2008), the insured sued his carrier for uninsured

motorist (UM) benefits after he was injured in an accident with

an unknown motorist.

. Because the insured never

4 A-2313-12T2 pled a bad faith claim, we found that the trial court was not

required to address or make findings on the insured's claim,

casually mentioned for the first time during trial, that the

insurer may have acted in bad faith in delaying resolution of

the insured's claim under the UM provision in his policy.

. Although expressly declining to decide whether the

entire controversy doctrine mandated inclusion of both claims in

the plaintiff's complaint,

, we went on to address

such a situation and to provide guidance on how to properly

balance the equities of the parties while adhering to the

strictures of the doctrine:

[t]o respect the rights of all parties, the underlying [UIM] claim could be severed from the bad faith claim, with the latter being held in abeyance until conclusion of the former. The severed bad faith claim would then be activated, triggering the possibility for the right to discovery, motions, and, if necessary, a separate trial. . . . In this way, the plaintiff's ability to pursue a potential bad faith claim would be preserved, but the insurer would not be required to produce its claim file prematurely, '[o]therwise, privileged material may be disclosed which would jeopardize the insurance company's defense.'

[Id. at 465-66 (citing Bartlett v. John Hancock Mut. Life Ins. Co.,

(R.I. 1988)).]

The approach outlined in Taddei promotes judicial economy

and efficiency by holding in abeyance expensive, time-consuming,

5 A-2313-12T2 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.

In

the plaintiff's complaint alleged that

the defendant both breached its duty under a contract of life

insurance and acted in bad faith by denying liability for

accidental death benefits under the policy in which the

plaintiff was named as sole beneficiary.

. In

quashing the trial court's order compelling discovery of the

defendant insurance company's claim file while the plaintiff's

contract claim was still pending, the Rhode Island Supreme Court

reasoned that "there can be no cause of action for an insurer's

bad-faith refusal to pay a claim until the insured first

establishes that the insurer breached its duty under the

contract of insurance."

. Furthermore, in order to

have a bad faith claim, the plaintiff must establish that there

was no "reasonable basis for denying [him or her] benefits of

the policy and the defendant's knowledge or reckless disregard

of the lack of a reasonable basis for denying the claim."

However, as a threshold matter, there can be no bad faith claim

6 A-2313-12T2 if the insurance company can provide a reasonable basis for

denying the insured the benefits under the contract.

Consequently, the Bartlett court held that 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.

at 1000-

01. In other words, a plaintiff must first show that he or she

is entitled to recover on the contract before he or she can

prove that the insurer dealt with him or her in bad faith.

Other jurisdictions have followed suit. See, e.g., Brown

v. Superior Court,

, 728 n.1 (Ariz. 1983) ("One

could plausibly argue that the law should not allow such

simultaneous actions and that a bad-faith claim can be pursued

only after disposition of the underlying policy claim.");

Maryland Am. Gen. Ins. Co. v. Blackmon,

(Tex. 1982) ("Regardless of the other reasons which might

justify the use of this information, it would be impossible to

limit the prejudicial effect of disclosure on [the insurer's]

right to defend the contract cause of action. Moreover, if a

plaintiff attempting to prove the validity of a claim against an

insurer could obtain the insurer's investigative files merely by

7 A-2313-12T2 alleging the insurer acted in bad faith, all insurance claims

would contain such allegations."); Nat'l Sav. Life Ins. Co. v.

Dutton,

(Ala. 1982) ("In the normal case in

order for a plaintiff to make out a prima facie case of bad

faith refusal to pay an insurance claim, the proof offered must

show that the plaintiff is entitled to a directed verdict on the

contract claim and, thus, entitled to recover on the contract

claim as a matter of law."); Allstate Ins. Co. v. Swanson,

(Fla. Dist. Ct. App. 1987) ("Until the right of

coverage is first established, a plaintiff claiming to be an

insured cannot compel disclosure of the insurer's work product

and privileged matters in its claim file. Otherwise, the

discovery rule established by the courts in these cases could be

circumvented by simply combining the two causes of action."

(citations omitted)).

We find the reasoning of

and the

aforementioned cases compelling. Preserving the insured's

ability to pursue his or her bad faith claim while deferring

discovery thereon until resolution of the UM or UIM claim best

accommodates the varying interests involved. Indeed, we discern

very little benefit in allowing discovery to proceed

simultaneously since a claim for UIM benefits is separate and

distinct from a claim of bad faith and the evidence used to

8 A-2313-12T2 establish each claim is very different, as the motion judge

himself presumably recognized by ordering the severance of these

causes of action.

The toll on judicial economy by allowing full disclosure up

front, on the other hand, is obvious. Requiring simultaneous

discovery on both claims will result in a significant

expenditure of time and money, generally rendered needless if

the insurer prevails on plaintiff's UM or UIM claim.2 Such

premature discovery may also jeopardize the insurer's defense of

the UM or UIM claim by the disclosure of potentially privileged

materials. Indeed, if an insured attempting to prove the

validity of his or her claim against an insurer could obtain the

insurer's investigative files — showing exactly how the company

processed the claim, how thoroughly it was considered and why

the company took the action it did — merely by alleging the

insurer acted in bad faith, then there would be an open

invitation to all plaintiffs to include such allegations with

every breach of contract claim.

Whatever, therefore, the benefits of simultaneous

discovery, they are substantially outweighed by the burdens

2 We leave open the possibility that an insurer's denial of a claim it was not obligated to pay might nevertheless be in bad faith if its conduct was extreme and produced damages unrelated to and independent of the policy claim. See Progressive County Mutual Ins. Co. v. Boyd,

(Tex. 2005).

9 A-2313-12T2 exacted both institutionally and individually. The motion

judge's failure to recognize these adverse impacts and to

properly weigh the interests of the parties resulted, in our

view, in an erroneous exercise of discretion. No persuasive

reason appears in the record to depart from the approach

suggested in

and adopted in other jurisdictions.

Reversed and remanded.

10 A-2313-12T2