A New Jersey appeals court just handed insurers a significant procedural win in the growing wave of litigation under the state's Insurance Fair Conduct Act.
In a published decision dated April 29, 2026, the Appellate Division ruled that IFCA claims – like their common law bad faith counterparts – should generally be severed and stayed until the underlying uninsured or underinsured motorist dispute is resolved. The consolidated opinion, delivered by Judge Natali, covered two appeals arising from separate lawsuits against Allstate Insurance Company and Government Employees Insurance Company.
The cases involved two policyholders who were each in separate car accidents allegedly caused by underinsured drivers. Noah Tenenbaum was insured by Allstate, and Lindsay Cirelli by GEICO. Both filed lawsuits against their insurers asserting common law bad faith and statutory claims under the IFCA, the 2022 law that gives first-party claimants the right to sue their auto insurer for unreasonably delaying or denying UM/UIM claims. The statute carries serious teeth – a prevailing claimant can recover actual damages up to three times the coverage amount, plus attorney's fees, pre- and post-judgment interest, and litigation expenses.
At the trial court level, both insurers moved to pause the bad faith and IFCA claims until the UIM coverage disputes were sorted out, relying on well-established New Jersey precedent that treats bad faith discovery as premature while the underlying claim remains unresolved. Allstate sought dismissal of the claims without prejudice pending resolution of the UIM dispute, while GEICO filed an application to sever and stay. In the Allstate matter, the trial court dismissed the common law bad faith claim by consent but denied dismissal of the IFCA claim. In the GEICO matter, the trial court initially granted the severance and stay application, but reversed course on reconsideration after the plaintiff argued the court had failed to account for the significance of the IFCA. The result, in both cases, was that the IFCA claims were allowed to proceed alongside the unresolved UIM disputes.
The Appellate Division disagreed – at least on the GEICO case.
The Tenenbaum appeal was dismissed as moot after the parties settled the underlying UIM dispute during the pendency of the appeal. But the Cirelli matter remained very much alive, and the court used it to lay down a framework that will likely shape IFCA litigation across the state for years to come.
The court acknowledged upfront that the IFCA is not simply a repackaged version of the common law bad faith standard established in Pickett v. Lloyd's. The statute incorporates violations of the Unfair Claims Settlement Practices Act, does not adopt Pickett's "fairly debatable" threshold, and provides remedies – including damages up to three times the coverage amount and fee-shifting – that go well beyond what common law bad faith offers. The statute also expressly provides that it operates alongside any other existing law, which the court took as a clear signal that the Legislature intended the IFCA to complement, not replace, existing bad faith claims.
That said, the court found that none of those distinctions justified throwing out the procedural rationale for staying bad faith discovery. The logic, as the court saw it, is straightforward. If the insurer ultimately prevails on the UIM claim, then all the time and expense spent litigating bad faith and IFCA issues would have been wasted. Staying those claims avoids that risk while preserving the plaintiff's right to pursue them later.
The court pointed to what happened in the Cirelli case as a textbook illustration of why stays matter. After the trial court allowed the IFCA claim to proceed alongside the UIM dispute, Cirelli's counsel served three deposition notices on GEICO – two directed at claims handlers and one targeting Todd Combs, the CEO of GEICO. The notices demanded production of GEICO's complete claim file and its reserves and profit/loss ratios showing how long cases are held versus when payments are made. All of this came before the plaintiff had even established she was entitled to UIM coverage in the first place.
The court observed that those discovery demands alone would trigger significant motion practice, consume court resources, and distract from the primary task of resolving the coverage question. It also noted that staying the claims protects insurers from being forced to prematurely turn over privileged materials – a concern the Appellate Division has flagged repeatedly in prior decisions.
The panel was careful not to announce a blanket rule. It emphasized that severance and stay decisions are highly discretionary and fact-sensitive. A different case – perhaps one where the UIM issues are straightforward, or where only an IFCA claim is pled without a companion common law bad faith count – might warrant a different result. The court identified several factors that could influence the analysis in future cases, including the complexity of the coverage dispute, whether the IFCA claim stands alone or is paired with a common law claim, and the nature of the discovery being sought.
The court also pushed back on the trial court's analogy to bifurcated punitive damages trials, noting that unlike the Punitive Damages Act, the IFCA contains no statutory mandate for bifurcation.
One practical observation from the panel is worth noting for insurers watching IFCA exposure closely. The court expressed confidence that the significant remedies available under the IFCA – damages up to three times the coverage amount, attorney's fees, litigation expenses – will themselves incentivize insurers to process UM/UIM claims promptly, regardless of whether a stay is in place. In other words, the statute's penalty structure does its own work as a deterrent against delay, even without simultaneous litigation pressure.
The decision lands at a moment when the IFCA is generating substantial litigation volume. Allstate told the court that hundreds of claimants have amended existing complaints or filed new ones asserting IFCA violations. This ruling gives insurers and their defense teams a published appellate decision to cite when seeking stays – a tool that, until now, did not exist for IFCA-specific claims.
The Cirelli orders were reversed and the case sent back to the trial court for proceedings consistent with the opinion. The court did not retain jurisdiction.
