In Bridgewater Wholesalers, Inc. v. Pennsylvania Lumbermens Mut. Ins. Co., a recent Hurricane Sandy coverage case, the Court granted the insurer’s motion to sever the insured’s bad faith claim and stay that claim pending the resolution of the insured’s breach of contract claim.
The case arose out of an alleged breach of insurance contract between the insurer and the insured for claims stemming from losses sustained during Hurricane Sandy. The insured alleged that the insurer underpaid its business loss of income claim, and filed suit alleging breach of contract and breach of the implied duty of good faith.
The Court listed the following factors to consider in determining whether severance was warranted: “(1) whether the issues sought to be tried separately are significantly different from one another, (2) whether the separable issues require the testimony of different witnesses and different documentary proof, (3) whether the party opposing the severance will be prejudiced if it is granted, and (4) whether the party requesting severance will be prejudiced if it is not granted.”
In finding that the first relevant factor weighed in favor of severance, the Court noted that the breach of contract claim concerned lost sales and the insurer’s obligation under the contract, while the bad faith claim addressed the insurer’s general claims handling procedures. Accordingly, the Court found that viewing these claims as separate and distinct actions would promote judicial economy. Second, the two claims required testimony of different witnesses and different documentary proof. Specifically, the insured sought numerous documents not directly relevant to the contract claim, which the Court found would distract from and delay the resolution of the primary focus of the case – whether the contract claim should be paid in the amount of the claim or at all.
Third, the Court found that the insured would not be prejudiced by severance because the bad faith claim may be premature and the insured would still have the ability to pursue its bad faith claim if it prevailed on its breach of contract claim. Finally, the Court found that the insurer would be prejudiced if the claims were not severed, reasoning that in order to litigate the bad faith claim now, the insurer would suffer by engaging in expensive and time-consuming discovery that would ultimately be rendered needless if the insurer prevails. Accordingly, the claims were severed and the bad faith issues stayed pending the adjudication of the breach of contract claim.
The case is Bridgewater Wholesalers, Inc. v. Pennsylvania Lumbermens Mutual Insurance Co., Civil Action No. 2:14-CV-3684-SDW-SCM (D.N.J. November 2, 2015).