New Jersey Appeals Court Rules IFCA Bad Faith Discovery Must Await Resolution of UIM Dispute — At Least on These Facts

NEWARK (LN) — A New Jersey appellate panel on Tuesday reversed a trial court's refusal to stay bad faith discovery in a car accident coverage dispute, holding that claims under the state's recently enacted Insurance Fair Conduct Act — like their common-law predecessors — should be severed and held in abeyance until the underlying underinsured motorist dispute is resolved, at least where the record presents the circumstances present here.

The ruling, issued April 29 in consolidated appeals involving Allstate Insurance Company and Government Employees Insurance Company, marks the first published appellate guidance on how IFCA claims interact with the procedural framework New Jersey courts have long applied to common-law bad faith suits under Pickett v. Lloyd's.

The IFCA, signed by Governor Philip D. Murphy and effective January 18, 2022, created a private cause of action allowing UIM claimants to sue their insurers for unreasonable delays or denials of coverage. A prevailing claimant can recover actual damages up to three times the coverage amount, plus pre- and post-judgment interest, attorneys' fees, and litigation expenses.

GEICO had sought to sever Lindsay Cirelli's bad faith and IFCA claims and stay discovery on both until her underlying UIM dispute was resolved. A Middlesex County trial court initially granted that application, then reversed itself on reconsideration, concluding the IFCA created a sufficiently distinct cause of action that it should proceed alongside the coverage case. The court drew an analogy to bifurcated punitive damages trials, where a single jury hears both the underlying liability case and the punitive damages phase.

The appellate panel, in an opinion by Judge Natali, rejected that reasoning. The court acknowledged the IFCA is not simply a statutory restatement of Pickett — it incorporates violations of the Unfair Claims Settlement Practices Act, omits Pickett's "fairly debatable" standard, and creates remedies unavailable at common law. But those distinctions, the panel said, do not override the judicial economy and privilege-protection rationale that drove the court's earlier decisions in Procopio v. Government Employees Insurance Co. and Wacker-Ciocco v. Government Employees Insurance Co.

Severing and staying discovery promotes judicial economy and efficiency, the panel said, by holding in abeyance expensive, time-consuming, and potentially wasteful discovery that may be rendered moot by a favorable ruling for the insurer in the UM or UIM litigation — language the panel drew from Procopio.

The facts of the Cirelli case illustrated the concern in concrete terms. Before establishing any right to UIM coverage, Cirelli had served deposition notices on two claims handlers and on Todd Combs, GEICO's Chief Executive Officer. She also demanded production of GEICO's complete claim file and the company's "Reserves/Profit Loss Ratios as to how long a case is held versus payment of the value associated therewith." The panel noted those demands alone would generate significant motion practice — including likely fights over apex depositions and reserve information — before any coverage question was answered.

The panel was careful to frame its holding as fact-specific rather than categorical. Courts retain broad discretion, it said, and a different record — a standalone IFCA claim with no parallel Pickett count, a less complex coverage dispute, or more targeted discovery — could support a different result. The opinion also left open whether, once a UIM claim is resolved, an IFCA claim and a common-law bad faith claim must be tried to the same jury or may proceed separately.

The companion appeal involving Allstate and plaintiff Noah Tenenbaum was dismissed as moot after the parties resolved their underlying UIM dispute while the appeal was pending. Allstate had argued the case remained live because "hundreds of claimants" had amended or filed new complaints asserting IFCA violations and trial courts needed guidance. The panel declined, finding the concerns adequately addressed by its ruling in the GEICO matter.

The case is remanded to the Middlesex County Law Division. Under the panel's ruling, Cirelli's IFCA and common-law bad faith claims remain alive — they simply cannot move forward until her UIM case is decided.