James J. Procopio, Jr. v. Government Employees Insurance Company, A/K/A and D/B/A Geico

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
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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., 148 N.J. 524, 535
(1997); see also Jenkins v. Rainner, 69 N.J. 50, 56 (1976). We
review a trial court's decision on discovery matters under the
abuse of discretion standard. Pomerantz Paper Corp. v. New
Cmty. Corp., 207 N.J. 344, 371 (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." Ibid. (quoting Rivers v. LSC P'ship, 378 N.J.
Super. 68, 80 (App. Div.), certif. denied, 185 N.J. 296 (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., 136 N.J. 335, 345 (1994). In
addition, the authority to stay a proceeding is also within the
sound discretion of the trial court. State v. Korbin Sec., 221
N.J. Super. 169, 174 (App. Div. 1987), rev'd, 111 N.J. 307
(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., 299 U.S. 248, 254-55,
57 S. Ct. 165, 165-66, 81 L. Ed. 153, 158
(1936).]
In Taddei v. State Farm Indemnity Co., 401 N.J. Super. 449,
(App. Div. 2008), the insured sued his carrier for uninsured
motorist (UM) benefits after he was injured in an accident with
an unknown motorist. Id. at 451. Because the insured never
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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. Id.
at 465. Although expressly declining to decide whether the
entire controversy doctrine mandated inclusion of both claims in
the plaintiff's complaint, id. at 466, 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., 538 A.2d 997,
1000-02 (R.I. 1988)).]
The approach outlined in Taddei promotes judicial economy
and efficiency by holding in abeyance expensive, time-consuming,
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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 Bartlett, supra, 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. 538 A.2d at 997. 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." Id. at 1000. 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." Ibid.
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. Ibid.
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. Id. 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.
Ibid.
Other jurisdictions have followed suit. See, e.g., Brown
v. Superior Court, 670 P.2d 725, 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, 639 S.W.2d 455, 457-58
(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, 419 So. 2d 1357, 1362 (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, 506
So. 2d 497, 498 (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 Taddei, supra, 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, 177 S.W.2d 919, 922 (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 Taddei, supra, and adopted in other jurisdictions.
Reversed and remanded.
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