                NOT FOR PUBLICATION WITHOUT THE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.


                                  2
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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.


                                 3
                                                           A-2547-13T4
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
                                                                    A-2547-13T4
     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).
                                5
                                                           A-2547-13T4
            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

                                      6
                                                                     A-2547-13T4
            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:

                                       7
                                                                   A-2547-13T4
            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.




                                     8
                                                                    A-2547-13T4
     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


                                      9
                                                                  A-2547-13T4
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).


                                 10
                                                            A-2547-13T4
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


                               11
                                                           A-2547-13T4
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.


                                12
                                                           A-2547-13T4
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




                                       13
                                                                      A-2547-13T4
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.
                                14
                                                           A-2547-13T4
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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