New Appellate Court Decision Regarding Stay of the NJIFCA Claim Until After a Decision is Reached on an Insured’s UM/UIM Claim

On April 29, 2026, the Superior Court of New Jersey Appellate Division ruled that the trial court erroneously denied a defendant insurer’s request to sever and stay an insured’s New Jersey Insurance Fair Conduct Act (“NJIFCA”) claim along with her common law bad faith claim in an action for Uninsured/Underinsured Motorist (“UM/UIM”) benefits against her insurer. See Lindsay Cirelli v. Government Employees Ins. Co., Docket No. A-0988-25, decided and approved for publication on April 29, 2026; and its companion case, Noah Tenenbaum v. Allstate Ins. Co., Docket No. A-0742-25. The Appellate Court held that where an insured plaintiff has pled a common law bad faith claim along with a NJIFCA claim in a UM/UIM action, and propounded discovery near certain to lead to discovery disputes, the best course of action, that generally promotes judicial economy and efficiency, is to sever and stay discovery in the bad faith/NJIFCA part of the action until the underlying UM/UIM claim is resolved. See Id. at 28.

The Appellate Court based its decision on the long standing precedent involving common law bad faith claims in New Jersey to “regularly sever first-party breach of insurance contract claims from bad faith claims, stay discovery of the bad faith claim, and proceed with resolution of the contract-based claims before addressing the merits of any bad faith claim.” Id. at 19. To reach this conclusion, the Appellate Court relied on three seminal common law bad faith decisions. First, Taddei v. State Farm Indem. Co., in which the Appellate Court explained that

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 material may be disclosed which would jeopardize the insurance company’s defense.

401 N.J. Super. 449, 456-66 (App. Div. 2008) (internal citations omitted).

Second, Procopio v. Gov. Employees Ins. Co., 433 N.J. Super. 377 (App. Div. 2013), in which the Court explained that the appropriate approach when dealing with a matter involving both UIM and common law bad faith claims is to sever the bad faith component of the litigation and stay discovery with respect to both claims to “promote[] judicial economy and efficiency by holding in abeyance expensive, time-consuming, 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.” In Procopio it was also noted that this method “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.” Id. at 381. This decision noted that this approach best accommodates all interests as it preserves “the insured’s ability to pursue his or her bad faith claim while deferring discovery thereon until resolution of the [underlying] claim.” Id. at 383.

Lasty, Wacker-Ciocco v. Gov’t Emps. Ins. Co., in which the defendant insurer produced discovery before filing its severance application, the Court emphasized the principles outlined in Procopio that “proof an insured is entitled to coverage as a matter of law is a necessary prerequisite to pursuing discovery regarding bad faith claim.” 439 N.J. Super. 603, 613-614 (App. Div. 2015).

In Cirelli, the Appellate Court acknowledged that common law bad faith claims and NJIFCA claims are separate and distinct causes of action, but determined that the NJIFCA claims, just like the common law bad faith claims, should await resolution of the underlying UM/UIM claim before proceeding.

While this ruling is clearly favorable for insurance carriers in that they will not be required to produce often sensitive bad faith discovery with respect to any NJIFCA claim prior to resolution of the UM/UIM claim, the Appellate Court included some significant comments at the end of the decision. First, the Court noted that a trial court’s grant of severance and a stay is highly discretionary, and stated that a case with different facts could result in a different conclusion. Second, whether an insured plaintiff pled just the NJIFCA alone or both common law bad faith and the NJIFCA, could impact whether a severance and stay is appropriate. In addition, the complexity of any coverage related issues and the specific discovery requested by plaintiff could affect the severance and stay of the claims.