Lori A. Wacker-Ciocco and Michael J. Ciocco v. Government Employees Insurance Company, D/B/A Geico

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2547-13T4
LORI A. WACKER-CIOCCO
and MICHAEL J. CIOCCO,
APPROVED FOR PUBLICATION
Plaintiffs-Respondents,
March 16, 2015
v.
APPELLATE DIVISION
GOVERNMENT EMPLOYEES
INSURANCE COMPANY,
d/b/a GEICO,
Defendant-Appellant.
________________________________________________________________
Argued September 22, 2014 – Decided March 16, 2015
Before Judges Lihotz, Espinosa and St. John.
On appeal from Superior Court of New Jersey,
Law Division, Camden County, Docket No. L-
5298-12.
Stephen A. Rudolph argued the cause for
appellant (Rudolph & Kayal, attorneys; Mr.
Rudolph, on the briefs).
Alexander W. Ross, Jr., argued the cause for
respondents (Rakoski & Ross, P.C., attorneys;
Mr. Ross, on the brief).
The opinion of the court was delivered by
ESPINOSA, J.A.D.
In Procopio v. Government Employees Insurance Company, 433
N.J. Super. 377 (App. Div. 2013), the plaintiff insured asserted
a claim for underinsured motorist (UIM) benefits and a bad faith
claim against his carrier. Although the trial court bifurcated
the claims for trial, holding the bad faith claim in abeyance, it
compelled discovery to proceed on all claims. We held it was an
abuse of discretion for the trial court to order that discovery
on both claims proceed simultaneously. In this case, the initial
decision to deny the severance motion came after some discovery
related to the bad faith claim had been provided and before
Procopio was decided. This interlocutory appeal presents the
question whether the disclosure of some bad faith-related
materials brings the denial of a severance motion and the decision
to compel related discovery within the scope of the trial court's
proper exercise of discretion. We hold that it does not.
Plaintiff Lori A. Wacker-Ciocco1 had an automobile insurance
policy issued by defendant Government Employees Insurance Company
(GEICO) that provided uninsured/underinsured motorist benefits in
the amount of $300,000 per accident. She was seriously injured
in a motor vehicle accident on April 5, 2011, when she was rear-
ended by a vehicle operated by John Laratta, and incurred medical
expenses that exceeded $300,000. Laratta's vehicle was insured
1
The complaint also alleged a per quod claim on behalf of Michael
J. Ciocco. We use the term plaintiff to refer to Lori A. Walker-
Ciocco or to the plaintiffs, collectively.
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by a policy that provided coverage of $100,000 per accident.
Plaintiff sought and obtained GEICO's permission to settle her
claim against Laratta within his policy limits for $99,000. She
then notified GEICO of her demands for $200,000 in UIM benefits
and for arbitration of her UIM claim.2
Plaintiff's complaint, filed in December 2012, asserts a
claim for UIM benefits as well as a claim that GEICO acted in bad
faith. In support of her bad faith claim, plaintiff alleged that
GEICO declined to participate in arbitration, failed to make a
reasonable effort to settle the UIM claim and demanded documents
unrelated to the UIM claim.
In the relevant motion practice, plaintiff sought to obtain,
and then compel, the depositions of GEICO's UIM claims adjusters
and documents related to the bad faith claim. GEICO filed motions
to sever the bad faith claim and stay discovery on that issue. In
July 2013, GEICO submitted claim records to plaintiff's counsel.3
GEICO simultaneously filed a motion to sever and stay plaintiff's
2
As a result of the settlement, the amount of $100,000 is credited
against the policy limit plaintiff can recover from GEICO, reducing
the amount at stake to $200,000. See Taddei v. State Farm Indem.
Co., 401 N.J. Super. 449, 463-64 (App. Div. 2008), certif. granted,
201 N.J. 497 (2010), appeal dismissed, 203 N.J. 433 (2010).
3
In its brief, GEICO states the documents included seven letters
from GEICO, a prescription form from Reconstructive Orthopedics,
and a Control File Alert document, which is an internal document
that contains basic information about the claim.
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bad faith claim and discovery relative to that claim until the
underlying UIM action was concluded. In support of its motion,
GEICO referred to correspondence previously sent to plaintiff's
counsel in which it asserted there was a dispute regarding
"causation and quantum of damages that warranted discovery prior
to good faith realistic settlement negotiations."4 To support its
claim that causation was a legitimate issue, GEICO quoted the
January 30, 2012 report of plaintiff's treating physician, in
which he stated, "[a]t this point, I am not certain to the exact
etiology of avascular necrosis in the left hip; however it is
possible that the accident could have been the cause of her
avascular necrosis that then led to the need for subsequent total
hip replacement."5
4
In its brief, GEICO clarifies that plaintiff's coverage is
subject to the verbal threshold, N.J.S.A. 39:6A-8(a), and,
therefore, her entitlement to UIM benefits requires proof she
suffered a permanent injury that was proximately caused by the
accident with Laratta and a jury determination that her damages
exceed $100,000. Neither the policy nor the letter referenced are
included in the record before us.
5
GEICO later provided more specific answers to interrogatories
in which it stated that, based upon information in plaintiff's
medical records and the opinions and conclusions in its expert's
report on his independent medical examination, it had concluded
that plaintiff's injuries were not causally related to the motor
vehicle accident. It stated further that her accident-related
injuries were not permanent as to overcome the verbal threshold
and that she had been fully compensated.
4
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The motion judge looked for guidance in Taddei v. State Farm
Indem. Co., 401 N.J. Super. 449, 455 (App. Div. 2008), certif.
granted, 201 N.J. 497 (2010), appeal dismissed, 203 N.J. 433
(2010), which concerned a first party claim for uninsured motorist
(UM) benefits by a plaintiff who announced an intention to file a
bad faith claim at trial. In Taddei, we were not reviewing whether
a motion to sever a bad faith claim should be granted or not. The
matter had proceeded to verdict on the insured's UM claim alone
and the principal issue before us was whether the insured was
entitled to the full amount of damages awarded by the jury or the
policy limits on his UM coverage. Id. at 452. Nonetheless, we
discussed joinder of a bad faith claim with an underlying claim
for coverage6 and suggested the following:
To respect the rights of all parties, the
underlying 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, otherwise, privileged
6
We note the Supreme Court has "refer[red] to the Civil Practice
Committee, for review and study the entire controversy doctrine,
Rule 4:30A, to consider whether to allow first-party bad faith
claims to be asserted and decided after resolution of an
underlying, interrelated UM action." Wadeer v. N.J. Mfrs. Ins.
Co., ___ N.J. ___, ___ (2015) (slip op. at 5).
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material may be disclosed which would
jeopardize the insurance company's defense.
[Id. at 465-66 (internal citations omitted).]
Finding that GEICO had provided such materials in discovery
and therefore, "the cat [was] out of the bag," the motion judge
here declined to follow our suggestion. By order dated July 26,
2013, he denied GEICO's motion to sever and stay the bad faith
claim, compelled the depositions of GEICO's UIM adjusters, and
ordered GEICO to "answer interrogatories . . . and provide the
full electronic and paper claim file." GEICO's motion for
reconsideration was denied by order dated October 25, 2013.
In November 2013, GEICO filed a motion seeking, inter alia,
to vacate a May 2013 order that dismissed its answer and suppressed
its defenses for failure to provide more specific answers to
interrogatories. In support, GEICO represented it had complied
with all outstanding discovery demands that were the subject of
that order. Plaintiff filed a cross-motion to compel the
depositions of GEICO's UIM adjusters. Prior to oral argument of
this motion, we decided Procopio which, counsel urged, required
the denial of plaintiff's application to compel those depositions.
In Procopio, we noted the benefits of severing and staying a
bad faith claim as suggested in Taddei:
[It] promotes judicial economy and efficiency
by holding in abeyance expensive, time-
consuming, and potentially wasteful discovery
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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.
[Procopio, supra, 433 N.J. Super. at 381.]
We reviewed the reasoning and holding in Bartlett v. John
Hancock Mutual Life Insurance Company, 538 A.2d 997 (R.I. 1988),
as well as cases in other jurisdictions that addressed the
severance issue in similar cases. Observing "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," the Rhode Island Supreme
Court held:
[A] plaintiff cannot obtain complete discovery
of a defendant's claim file by bringing
simultaneous breach-of-contract and bad-faith
claims. 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.
[Id. at 1000-01 (emphasis added).]
The view that the right to coverage must be established as a pre-
requisite to proceeding with discovery on a bad faith claim was
echoed as well in cases from other jurisdictions that addressed a
similar severance issue. See Procopio, supra, 433 N.J. Super. at
382-83. We found this reasoning compelling:
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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.
[Id. at 383.]
We recognized the obvious toll upon judicial economy imposed by
allowing simultaneous discovery that would be "rendered needless
if the insurer prevails on plaintiff's UM or UIM claim." Ibid.
In addition to concerns regarding judicial economy, we noted other
relevant considerations, such as the potential prejudice to the
insurer's defense of the UM or UIM claim by the disclosure of
privileged materials and the risk of encouraging abusive pleading
practice:
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.
[Ibid.]
We concluded, "[w]hatever, therefore, the benefits of simultaneous
discovery, they are substantially outweighed by the burdens
exacted both institutionally and individually." Id. at 383-84.
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Another Law Division judge reviewed the November 2013 motion;
it was not the judge who denied GEICO's first motion to sever and
stay the bad faith claim. Reasoning that the first motion judge
found Taddei did not apply because there had been disclosure of
the carrier's file and other information, the judge entered an
order dated December 6, 2013, that compelled the depositions of
the UIM adjusters.
We granted GEICO's request for interlocutory review of the
order dated July 26, 2013, that denied defendant's motion to sever
and stay plaintiff's bad faith claim and pertinent discovery; the
order dated October 25, 2013, which denied GEICO's motion for
reconsideration; and the order dated December 6, 2013, which
granted plaintiff's motion to compel the depositions of GEICO UIM
adjusters. In this appeal, GEICO argues that it was an abuse of
discretion to deny its motion for severance and a stay and asks
us to vacate these orders and to order that plaintiff's bad faith
claim be severed and stayed until such time as plaintiff
establishes her entitlement to coverage for UIM benefits.
GEICO's motion for severance was governed by Rule 4:38-2(a),
which permits the court to order a separate trial of any claim
"for the convenience of the parties or to avoid prejudice." Like
the other issues raised by GEICO's motion -- the scope of discovery
and the decision whether to grant a stay -- this was a matter
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within the discretion of the trial court. See Tobia v. Cooper
Med. Ctr., 136 N.J. 335, 345 (1994) (decision to grant severance
rests in the trial court's discretion); Procopio, supra, 433 N.J.
Super. at 379-80.7 That standard requires us to defer to the trial
court's decision "unless the court has abused its discretion or
its determination is based on a mistaken understanding of the
applicable law." Pomerantz Paper Corp. v. New Cmty. Corp., 207
N.J. 344, 371 (2011). The nature and requirements of a bad faith
claim weigh heavily in the determination of the severance motion
here.
As a preliminary matter, the insured who alleges bad faith
by the insurer must establish the merits of his or her claim for
benefits. If there is a valid question of coverage, i.e., the
claim is "fairly debatable," the insurer bears no liability for
bad faith. Pickett v. Lloyd's, 131 N.J. 457, 473-74 (1993). This
standard continues to apply to bad faith claims. In Badiali v.
7
See authorities cited therein regarding discretion to order a
stay, including Landis v. N. Am. Co., 299 U.S. 248, 254-55, 57 S.
Ct. 163, 165-66, 81 L. Ed. 153, 158 (1936) ("[T]he 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.");
State v. Kobrin Sec., 221 N.J. Super. 169, 174 (App. Div. 1987),
rev'd, 111 N.J. 307 (1988) (authority to stay a proceeding lies
within the sound discretion of the trial court), and as to
discovery, Pomerantz Paper Corp. v. New Cmty. Corp., 207 N.J. 344,
371 (2011) (a trial court's decision on discovery matters is
reviewed under the abuse of discretion standard).
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New Jersey Manufacturers Insurance Group, ___ N.J. ___ (2015), the
Supreme Court affirmed the applicability of this standard, id.
(slip op. at 18), and recited the following principles:
[T]o establish a first-party bad faith claim
for denial of benefits in New Jersey, a
plaintiff must show "that no debatable reasons
existed for denial of the benefits."
[Pickett, supra, 131 N.J.] at 481.
Under the salutary "fairly debatable"
standard enunciated in Pickett, "a claimant
who could not have established as a matter of
law a right to summary judgment on the
substantive claim would not be entitled to
assert a claim for an insurer's bad-faith
refusal to pay the claim." Id. at 473.
[Id. (slip op. at 12) (citation omitted).]
See also Wadeer v. N.J. Mfrs. Ins. Co., ___ N.J. ___, ___ (2015)
(slip op. at 15-16); Procopio, supra, 433 N.J. Super. at 382-83;
Taddei, supra, 401 N.J. Super. at 460-61.8 If the insured is
8
Unlike the Punitive Damages Act, N.J.S.A. 2A:15-5.9 to -17,
there is no statutory mandate for the bifurcation of the
substantive and bad faith claims. However, the caselaw regarding
bad faith claims reflects a policy similar to that evident in
N.J.S.A. 2A:15-5.12(a), which provides:
Punitive damages may be awarded to the
plaintiff only if the plaintiff proves, by
clear and convincing evidence, that the harm
suffered was the result of the defendant's
acts or omissions, and such acts or omissions
were actuated by actual malice or accompanied
by a wanton and willful disregard of persons
who foreseeably might be harmed by those acts
or omissions. This burden of proof may not
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unable to establish a right to the coverage claimed, the bad faith
claim must be dismissed. Pickett, supra, 131 N.J. at 473. See
also, Bldg. Materials Corp. of Am. v. Allstate Ins. Co., 424 N.J.
Super. 448, 482 n.12 (App. Div.) (noting that, where insured failed
to establish the existence of a covered loss, its bad faith claim
was not sustainable and need not be addressed), certif. denied,
212 N.J. 198 (2012); Am. Wrecking Corp. v. Burlington Ins. Co.,
400 N.J. Super. 276, 285 n.2 (App. Div. 2008) (stating because the
court sustained the exclusion on which the insurer relied, "the
bad faith claim must also be dismissed with prejudice"); Universal-
Rundle Corp. v. Commercial Union Ins. Co., 319 N.J. Super. 223,
249-51 (App. Div.) (applying the holding in Pickett to claim for
bad faith failure to conduct thorough investigation), certif.
denied, 161 N.J. 149 (1999).
Bad faith is an intentional tort. Pickett, supra, 131 N.J.
at 473. To establish bad faith, a plaintiff must show the lack
of a reasonable basis for denying the claim or unreasonably
delaying its processing, and the insurer's knowledge or reckless
disregard that it was acting unreasonably. Id. at 473-74. This
claim cannot be sustained by evidence of negligence, mistake or
delay in payment without some showing of the insurer's wrongful
be satisfied by proof of any degree of
negligence including gross negligence.
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intent. Id. at 474; e.g., Badiali, supra, __ N.J. at __ (slip op.
at 24) (holding that rejection of arbitration award not bad faith
where carrier's position "was at least fairly debatable and based
on a reasonable and principled reading of its policy language");
see also Universal-Rundle Corp., supra, 319 N.J. Super. at 249
("While [the insurer's] decision as such was erroneous, that is
not the equivalent of bad faith.").
Plaintiff argues that her bad faith claim is an integral part
of her UIM claim and should not be severed. She notes that GEICO
gave no reason for failing to pay her UIM claim before suit was
filed and that the claims file it has produced in discovery reveals
no valid reason for failing to effectuate prompt payment and
settlement of her UIM claim. She argues that Procopio is
distinguishable because the motion to sever in that case was made
before any discovery relating to the bad faith claim was provided,
while in this case, proof of her bad faith claim has already been
revealed in the information in GEICO's file produced in discovery.
GEICO argues that the application of Procopio does not turn
on whether or not some bad faith-related discovery has been
provided and further, that such discovery is not complete here
because it has not turned over all its claim files. We agree and
conclude that the denial of GEICO's motion to sever and stay and
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the orders compelling discovery pertaining to the bad faith claim
were based upon a mistaken understanding of the applicable law.
In this case, plaintiff pled both her UIM and bad faith claims
in her complaint, as was her right. She has argued here that
GEICO failed to show a reasonable basis for its actions in failing
to settle her UIM claim in a timely manner. But even her conclusory
statements fail to establish wrongful intent, as opposed to mere
negligence or mistake. See Pickett, supra, 131 N.J. at 474.
In Procopio, we clearly endorsed the principle that proof an
insured is entitled to coverage as a matter of law is a necessary
pre-requisite to pursuing discovery regarding a bad faith claim.
See Procopio, supra, 433 N.J. Super. at 383. This principle does
not become inapplicable simply because some discovery relevant to
the bad faith claim was produced here. GEICO maintains that it
has not provided all documents related to the bad faith claim.9
This is borne out by plaintiff's continuing efforts to compel
additional discovery and the depositions of the UIM adjusters as
well as by the first order that denied GEICO's severance motion
and ordered GEICO to "answer interrogatories . . . and provide the
full electronic and paper claim file." Therefore, the competing
9
Although it does not weigh in our analysis, we note that GEICO's
answer and defenses had been stricken for failure to produce
discovery and that the production of documents coincided with
efforts to reinstate the answer and defenses and to comply with
orders that compelled discovery.
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interests implicated by ordering simultaneous discovery on both
the coverage and bad faith claims remained in play. We conclude
the motion judges were mistaken in concluding that the disclosure
of some bad faith-related discovery resolved the issue of potential
prejudice to GEICO and paved the way for simultaneous discovery
without regard to whether plaintiff had shown she was entitled to
coverage as a matter of law.
The orders of July 26, October 25, and December 6, 2013,
which denied GEICO's motions to sever and stay the bad faith claim
and related discovery until the underlying UIM claim was decided,
and compelled the depositions of UIM adjusters and further
discovery related to plaintiff's bad faith claim are reversed.
Reversed.
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