On November 21, 2013, in Procopio v. Government Employees Insurance Company, a/k/a and d/b/a GEICO, Docket No. A23-1-12T2, an intermediate New Jersey appeals court held that in a pending uninsured motorist (UM) or underinsured motorist (UIM) coverage case, a policyholder may not file a complaint against its carrier for UM /UIM benefits that contains a claim for bad faith, and then use the bad faith claim as a basis to obtain early access to the insurer’s claim file and/or other privileged information during discovery of the breach of contract claim. The appeals court also held that “a [policyholder] must first show that he or she is entitled to recover on a contract claim before he or she can prove the insured dealt with him or her in bad faith.”
The Procopio case makes it clear that New Jersey courts, like the courts of several other jurisdictions, should allow the severance of the bad faith claim (including all related discovery) until the breach of contract claim is resolved. In explaining its position, the appeals court noted that: “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.”
The court found that it is a waste of judicial resources to allow discovery of bad faith claims to proceed simultaneously with the breach of contract claims because “such expenditure of time and money [would be] rendered useless if the insurer prevails on plaintiff’s UM or UIM claim.” Moreover, allowing discovery with respect to a claim of bad faith before the plaintiff has proven his or her case for coverage may “jeopardize the insurer’s defense of the UM or UIM claim by disclosure of potentially privileged materials.”
Procopio teaches this practical lesson for insurers: As soon as possible after filing an answer to a UM or UIM complaint, the insurer should seek to sever and stay bad faith claims and all related discovery from the breach of contract claims. The court’s ruling may also have application outside the UM/UIM type of coverage where a policyholder sues for coverage and adds a bad faith count in the complaint. Lastly, the holding and reasoning of Procopio make it clear that New Jersey is unlikely to entertain future lawsuits that assert bad faith claims against insurers simultaneously with breach of contract claims; but will await a determination that the carrier is liable before entertaining the claim of bad faith, including claims of wrongful denial of coverage. Such bad faith claims have been permitted outside New Jersey.