Following a motor vehicle accident in which she was injured by an underinsured driver, Plaintiff Lindsay Cirelli (Plaintiff) submitted a claim for underinsured motorists benefits (UIM) to her insurer GEICO for her injuries. Due to delays in GEICO providing her the UIM coverage she claimed, she sued GEICO for failing to provide her with UIM coverage as well as a claim for common law bad faith and New Jersey’s newly enacted Insurance Fair Conduct Act (IFCA). As is commonly done by insurance company defendants in UIM/bad faith cases, GEICO moved to sever and stay any bad faith-related discovery until after the UIM matter is resolved. The issue in the published decision, Tenenbaum v. Allstate, 2026 N.J. Super. LEXIS 49 (April 29, 2026) (both Tenenbaum and Allstate were companion parties who resolved their issues before this decision) was whether a trial court abuses its discretion by refusing to sever and stay discovery on common law and IFCA bad faith claims before resolving the underlying UIM claim.
A UIM claim is when the value of an insured’s injuries from a motor vehicle accident exceed the liability limits of the driver who caused the accident, allowing the insured to pursue a claim against his insurer for UIM benefits. Under New Jersey common law, any party to a contract has the duty to act in good faith, this includes insurers when handling UIM insurance claims. A UIM cause of action arises, as here, in the event the insurer allegedly delays or denies payment on a valid claim. A common law bad faith claim flows from and is derivative of the UIM claim, arising in the event the insurer’s delay or denial was purportedly in bad faith. From this background, the New Jersey legislature recently passed the IFCA which provided a first-party, private cause of action for insureds to sue their insurers for an unreasonable denial or delay for their legitimate claims.
UIM/bad faith lawsuits are commonly brought together, and under those circumstances, New Jersey courts would traditionally sever (or “bifurcate”) the discovery to be conducted on the bad faith claim from discovery in the underlying UIM claim and, after determining the UIM claim, engage in the bad faith discovery. The general reasoning for this is that the insurer who would have to produce its claim file, including privileged material, in the bad faith litigation, which would prejudice its ability to defend the underlying UIM claim. Further, doing so promotes judicial economy and efficiency to hold off on timely, expensive, and wasteful bad faith discovery that may be mooted if the insurer succeeds in the plaintiff’s bad faith claim. Ultimately, because bad faith directly flowed from the right to UIM coverage, the court determined an insured must show entitlement to coverage before pursuing a bad faith claim. As a result, courts consistently severed and stayed discovery in UIM/bad faith matters.
Under this framework, at the outset of her suit, Plaintiff demanded discovery from GEICO arising from her UIM claim and both her common law bad faith and IFCA claims. GEICO moved to sever and stay the UIM discovery from the bad faith discovery. Plaintiff opposed, arguing that the first-party IFCA claim trumped the prior reasons for severing and staying common law bad faith claims, the court found that the sever and stay practice did not apply to a first-party IFCA claim and allowed Plaintiff to pursue discovery on “any issue relevant to [the] entire complaint.” With this decision, Plaintiff attempted to depose GEICO’s CEO and two of its adjusters, obtain the entire claims file, and their “Reserves/Profit Loss Ratios” as to how long a case is held versus payment of the claim – all substantial demands. After motion practice, GEICO appealed, arguing that the simultaneous discovery on UIM/IFCA bad faith ran contrary to New Jersey practices and would allow any plaintiff to assert an IFCA claim in an effort to circumvent the traditional sever/stay practice.
The Appellate Division rejected the categorical conclusion that simple existence of an IFCA claim should bar the practice of severing and staying a bad faith claim and its discovery. Such a holding fails to address the underlying concerns of judicial economy, efficiency, and prejudice the sever/stay mechanism; it would allow bad faith discovery to continue without an insured first showing any entitlement to UIM coverage. Such a condition would permit plaintiffs to bypass a stay simply by alleging an IFCA violation and serve as an “open invitation” for plaintiffs to routinely tack bad faith claims onto every standard UIM solely to fish through insurer files. Moreover, discovery is already quite broad; to allow the deposition of a CEO and the discovery of sensitive reserve data underscore the burdens and inevitable and significant discovery disputes that would arise from permitting such a practice. The Appellate Division thus reversed the trial court and held that when both common law and IFCA bad faith claims accompanied a UIM claim, the proper course of action was to sever and stay bad faith discovery pending the outcome of the UIM matter, and remanded the matter back to the trial court.
The critical elements of the court’s determination was in the policies it propounded: judicial economy, efficiency, and avoiding protracted, expensive, and potentially unnecessary, discovery practice. It found that, because UIM matters typically resolve to moot bad faith discovery, requiring the right to UIM coverage before permitting such discovery reinforces the sever/stay procedure. It also set forth the precedent that, contrary to the trial court’s position, asserting an IFCA claim will not bypass the need for a stay.
