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Legends Management Co. v. Affiliated FM Ins.

United States District Court, D. New Jersey

September 26, 2017

Legends Management Co.
Affiliated FM Ins., et al.


          STEVEN C. MANNION United States Magistrate Judge.

         Dear Counsel:

         Before this Court is an informal motion by Defendant/Third-Party Plaintiff Affiliated FM Insurance Company (“Affiliated FM”) against Plaintiff Legends Management Company, LLC (“Legends”) and Third-Party Defendant/Counterclaimant Metairie Corporation (“Metaire”) (collectively, the “Legends Parties”) to sever and stay bad faith claims alleged by the Legends Parties.[1] Upon consideration of the parties' respective submissions, oral arguments heard on March 8, 2017 and July 13, 2017, and for the reasons set forth below, the Court GRANTS Affiliated FM's motion to sever and stay the bad faith claims.


         The relevant facts of this case have been set out in this Court's September 22, 2017, Opinion, [3] therefore, this Opinion will only discuss those facts necessary to adjudicate the present informal motion. At issue here is Affiliated FM's request to sever and stay the Legends Parties' bad faith claims.[4]

         On June 2, 2016, at their initial conference, Affiliated FM requested that the Legends Parties agree to sever the bad faith claims in this matter.[5] Affiliated FM maintains that the Legends Parties would only be able to pursue their bad faith claims if they first prevail on their coverage claims.[6] Consequently, Affiliated FM argues that severing and staying the bad faith claims until after resolving the coverage issue would avoid the expenditure of substantial judicial and party resources.[7]

         On June 21, 2016, the Legends Parties advised that they would not agree to sever and stay the bad faith claims.[8] Thereafter, according to Affiliated FM, Metaire served a number of interrogatories and document requests, “requesting an enormous amount of information and documents relating solely to the bad faith allegations.”[9] In particular, the interrogatories sought information for claimed “losses resulting from the September and October storms, the percentage of claims which Affiliated FM accepted coverage, and the total dollar amount paid for such claims.”[10]

         Similarly, Affiliated FM contends that Metaire requested a substantial number of documents “irrelevant” to the issue of coverage, such as the:

(1) policies, practices and/or procedures used by Affiliated FM concerning the employment of experts, consultants, engineers, adjusters, representatives and/or claims handlers; (2) policies, practices and/or procedures of Affiliated FM relating to its claims handling under a property insurance policy and claims manuals, guidelines, protocol, emails, memoranda and other documents to be used or followed by a representative in adjusting, handling, processing, evaluating, analyzing, paying and/or responding to a claim under a property policy; and (3) “the geographic scope, severity, timing, and/or consequences of the September” or October storms, including any documents “prepared, transmitted, or received in connection with the processing, handling, evaluating, analyzing, adjusting, or responding to other policyholders' claims resulting from the September” or October storms.[11]

         Affiliated FM objected to those discovery requests “on the grounds that they: seek information that is irrelevant and not reasonably calculated to the discovery of admissible evidence; are overly broad and unduly burdensome; and seek confidential, proprietary and trade secret information and competitively sensitive data and material.”[12]

         On October 25, 2016, the parties met and conferred regarding the bad faith related discovery, but were unable to reach an agreement.[13] Consequently, on January 23, 2017, Affiliated FM, filed an informal request to sever and stay the bad faith claims in this matter, [14] and on February 8, 2017, the Legends Parties filed their opposition.[15] In arguing whether severance is appropriate, the parties respectively maintain that the bad faith and coverage claims are “separate and distinct” and “wholly intertwined.”[16]


         Magistrate judges are authorized to decide any non-dispositive motion designated by the Court.[17] This District specifies that magistrate judges may determine all non-dispositive pre-trial motions which includes discovery motions.[18] Decisions by magistrate judges must be upheld unless “clearly erroneous or contrary to law.”[19]


         Courts haves discretion in deciding to sever any claim.[20] Severing breach of insurance contract claims from bad faith claims, and then proceeding with the bad faith claims if necessary following the adjudication of the contract claim, is the prevailing practice in both state and federal courts.[21] The practice “is appropriate where the claims to be severed are 'discrete and separate' in that one claim is 'capable of resolution despite the outcome of the other claim.'”[22] In making its determination, a court may consider the following factors: "(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."[23]

         While the Legends Parties maintain that the breach of contract and bad faith claims are wholly intertwined and incapable of separation, the Court cannot agree.[24] Here, Affiliated FM's alleged bad faith is premised upon “(a) refusing to reimburse all of Legends' covered losses; (b) acting in its own self-interest…(c) refusing to accept its coverage obligations…(d) failing to effectuate a prompt, fair, and equitable resolution of Legends' claims…(e) engaging in efforts to avoid or delay its obligations; (f) compelling Legends' to instate litigation . . . (g) seeking to intimidate it[s] policyholder; and (h) failing to promptly provide a fair and reasonable explanation of its positions.”[25] A review of the claims demonstrates that the contract claim concerns coverage under the Policy while the bad faith claims concern Affiliated FM's general claims handling procedures, its claims conduct in this case, and its knowledge ...

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