The Second Department determined the file for a pre-litigation investigation of a fire insurance claim done by a law firm hired by the insurer was discoverable. The court further found the attorney who conducted the investigation was properly disqualified because she may be a fact witness in the underlying litigation, but her law firm should not have been disqualified because her testimony would not be prejudicial to the client’s case:
CPLR 3101(a) entitles parties to “full disclosure of all matter material and necessary in the prosecution or defense of an action, regardless of the burden of proof.” Discovery determinations should be evaluated on a case-by-case basis “with due regard for the strong policy supporting open disclosure” … .
“[T]he payment or rejection of claims is a part of the regular business of an insurance company. Consequently, reports which aid it in the process of deciding [whether to pay or reject a claim] are made in the regular course of its business” … . Reports prepared by insurance investigators, adjusters, or attorneys before the decision is made to pay or reject a claim are not privileged and are discoverable, even when those reports are mixed/multi-purpose reports, motivated in part by the potential for litigation with the insured … .
Here, the Supreme Court properly compelled disclosure, as the material … was prepared by [the law firm] as part of [the insurer’s] investigation into the claim, and was not primarily and predominantly of a legal character … . …
The Supreme Court providently exercised its discretion in disqualifying … the attorney who conducted the investigation … since she was likely to be a witness on a significant issue of fact … . However, it improvidently exercised its discretion in disqualifying [the law firm] itself …. Pursuant to Rule 3.7(b)(1) of the Rules of Professional Conduct, “[a] lawyer may not act as [an] advocate before a tribunal in a matter if . . . another lawyer in the lawyer’s firm is likely to be called as a witness on a significant issue other than on behalf of the client, and it is apparent that the testimony may be prejudicial to the client”… . Here, there was no showing that [the attorney’s] testimony may be prejudicial to [the client’s] case … . Advanced Chimney, Inc. v Graziano, 2017 NY Slip Op 05927, Second Dept 8-2-17
INSURANCE LAW (DISCOVERY, ATTORNEYS, PRE-LITIGATION INVESTIGATION BY THE INSURER’S LAW FIRM INTO WHETHER TO REJECT OR PAY AN INSURANCE CLAIM IS NOT PRIVILEGED AND IS DISCOVERABLE, THE ATTORNEY WHO CONDUCTED THE INVESTIGATION WAS PROPERLY DISQUALIFIED FROM THE UNDERLYING LITIGATION, BUT HER LAW FIRM SHOULD NOT HAVE BEEN DISQUALIFIED (SECOND DEPT))/CIVIL PROCEDURE (INSURANCE LAW, ATTORNEYS, PRE-LITIGATION INVESTIGATION BY THE INSURER’S LAW FIRM INTO WHETHER TO REJECT OR PAY AN INSURANCE CLAIM IS NOT PRIVILEGED AND IS DISCOVERABLE, THE ATTORNEY WHO CONDUCTED THE INVESTIGATION WAS PROPERLY DISQUALIFIED FROM THE UNDERLYING LITIGATION, BUT HER LAW FIRM SHOULD NOT HAVE BEEN DISQUALIFIED (SECOND DEPT))/ATTORNEYS (INSURANCE LAW, PRE-LITIGATION INVESTIGATION BY THE INSURER’S LAW FIRM INTO WHETHER TO REJECT OR PAY AN INSURANCE CLAIM IS NOT PRIVILEGED AND IS DISCOVERABLE, THE ATTORNEY WHO CONDUCTED THE INVESTIGATION WAS PROPERLY DISQUALIFIED FROM THE UNDERLYING LITIGATION, BUT HER LAW FIRM SHOULD NOT HAVE BEEN DISQUALIFIED (SECOND DEPT))