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Supreme Court, Appellate Division, First Department, New York.

KARTA INDUSTRIES, INC., et al., Plaintiffs-Appellants, v. The INSURANCE COMPANY OF the STATE OF PENNSYLVANIA, Defendant-Respondent.

Decided: February 23, 1999

SULLIVAN, J.P., NARDELLI, RUBIN and MAZZARELLI, JJ. Joshua L. Mallin, for plaintiffs-appellants. Jeffrey C. Crawford, for defendant-respondent.

Order, Supreme Court, New York County (Edward Lehner, J.), entered on or about December 5, 1997, denying plaintiffs' cross-motion to compel defendant Insurance Company of Pennsylvania (ICP) to comply with plaintiffs' notice of discovery and inspection with regard to 35 documents against the production of which ICP has asserted various privileges, unanimously modified, on the law and the facts, to grant the cross-motion to the extent of directing the production of the accountant's report and, except as thus modified, affirmed, without costs or disbursements.

This action arises out of a July 7, 1993 fire at plaintiffs' premises for which it has recovered from its insurer, defendant, both its building and personal property loss.   The subject of this action is plaintiffs' business interruption claim, which defendant challenges for, inter alia, misrepresentation and concealment of material facts concerning the loss and the amount thereof.   In the course of discovery, plaintiffs served a production demand for documents as to 35 of which defendant asserted privilege or irrelevancy.   As to 21 documents defendant claimed attorney-client privilege, as to 8 documents requesting reinsurance information and 4 documents seeking reserve information defendant claimed, inter alia, irrelevancy and as to 2 documents defendant denied the work product privilege.   The court conducted an inspection, in camera, and upheld all the objections to the documents' production, finding, specifically, that an accountant's report, a detailed evaluation of the loss claimed by plaintiffs, which was prepared prior to the commencement of this action, was a privileged work product.   After review of the documents, we affirm the motion court's determination except with respect to the accountant's report, which is discoverable.  “[T]he payment or rejection of claims is a part of the regular business of an insurance company” (Millen Ind. v. American Mut. Liab. Ins. Co., 37 A.D.2d 817, 324 N.Y.S.2d 930).  Reports prepared by or for an insurer before its insured's direct claim is either paid or rejected are discoverable “as having been made in the regular course of the [insurer's] business” (Roman Catholic Church of The Good Shepherd v. Tempco Sys., 202 A.D.2d 257, 258, 608 N.Y.S.2d 647.)

We have examined plaintiffs' other arguments and find that they are without merit.


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