Wednesday, May 27, 2009

Court Denies Summary Judgment Motion Based on Insureds' Recorded Statements

Metropolitan Cas. Ins. Co. v. Shaid

(Sup. Ct., Queens Co., decided 5/21/2009)

On June 8, 2006, a vehicle operated by the underlying plaintiff Justin Marvisi collided with a vehicle insured by Metropolitan operated by Arshad and owned by Shaid. In initially reporting the accident, Shaid advised Metropolitan that he did not know the identity of the person who was driving his vehicle at the time of the accident and that he had dropped off his vehicle at a service station with the keys inside it. It was not until 2008 that Shaid acknowledged that he knew Arshad, the driver, and had given him permission to use the vehicle for personal and non-business related reasons. Both Shaid and Arshad provided recorded statements to an investigator for Metropolitan.

In October 2006, Metropolitan denied liability coverage to Shaid and Arshad based on the policy's exclusion for use of the insured auto in an “auto business.” Marvisi brought a personal injury action against Shaid and Arshad and obtained a default judgment against them. Metropolitan then commenced this action, seeking a declaratory judgment declaring that Shaid and Arshad had breached the policy's cooperation clause.

Metropolitan moved for summary judgment based on the contents of recorded statements obtained from Shaid and Arshad. Queens County Supreme Court Justice Bernice Siegel initially agreed that:
[t]he law is well settled that an insured who falsely informs his insurer as to who was driving the insured vehicle at the time of the accident breaches the cooperation clause of the insurance policy. (Geico v. Fisher, 54 AD2d 1087 [4th Dept 1976].)In this matter, the insurer contends that Shaid knew who was driving his vehicle at the time of the accident and for what purpose, but intentionally misrepresented those facts to Metropolitan.

An insured breaches the condition of cooperation and seriously prejudices the insurer in handling the claims and lawsuits arising out of the accident when making false statements concerning the facts of an accident. (see State Farm Mutual Automobile Ins. Co. v. Brown, 21 AD2d 742 [4th Dept. 2004].) However, even through the insurer may be prejudiced by the lack of cooperation “[t]he lack of prejudice to the insurer is immaterial when there has been a breach of a condition.” (National Grange Mutual Liab. Co. v. Fino, 13 AD2d 10 [3d Dept 1961].)
In spite of these legal principles, however, the court denied Metropolitan's motion for summary judgment, finding that the recorded statements Shaid and Arshad gave to Metropolitan's investigator were not business records that qualified as admissible under the business records exception to the hearsay rule:
Hearsay is a statement made out of court offered for the truth of the fact asserted in the statement. (People v. Romero, 78 NY2d 355 [1991].) A hearsay statement may be received in evidence only if it falls within one of the recognized exceptions to the hearsay rule, and then only if the proponent demonstrates that the evidence is reliable. (Nucci v. Proper, 95 NY2d 597 [2001].)

Plaintiff contends that the statements fall under the business records exception to the hearsay rule. For the purposes of determining whether hearsay is admissible under business records exception, the concern relating to trustworthiness extends to “each participant in the chain producing the business record, from the initial declarant to the final entrant.” (Matter of Leon RR, 48 NY2d 117 [1979].)

The Court of Appeals has ruled that “the statement is inadmissible hearsay if any of the participants in the chain is acting outside the scope of the business duty.” Id. at 122. It is undisputed that the insured was outside the insurers enterprise at the time of the statement.

At issue though, is whether the duty of an insured to cooperate with an insurer is comparable to a business duty during an insurance investigation. (Hochhauser v. Electric Insurance Co., 46 AD3d 174 [2d Dept 2007].) However, “despite potential consequences which may befall an insured who fails to provide accurate and truthful information to, or to cooperate with, an insurer, the insured’s statement to the insurance investigator ... was not made under the circumstances which create a high probability that the statement was truthful.” (Corsi v. Town of Bedford, 58 AD3d 225, 231 [2d Dept 2008], quoting Hochhauser v. Electric Insurance Co., 46 AD3d at 1823.)

The essence of the business records exception to the hearsay rule is that records systematically made for the conduct of business are inherently highly trustworthy because (1) the records are routine reflections of the day to day operations of a business; (2) the entrant is obliged to be truthful and accurate for purposes of conducting the enterprise. (Hochhauser v. Electric Insurance Co., 46 AD3d 174 [2d Dept 2007].)

Here, the insured was outside of the insurer’s enterprise and was not communicating information regarding the accident under the compulsion of any business duty. (see generally, Matter of Leon RR , 48 NY2d 117 [1979].) Accordingly, the statements made by Shaid and Arshad to the insurance investigator do not constitute a business record. Without the benefit of the business record exception, the plaintiffs statements to the investigator are simply impermissible hearsay.
Contrast this decision with Tower Ins. Co. v. Rajaram (Sup.Ct., NY Co., 2008) and Tower Ins. Co. v. Kravtchouk (Sup.Ct., NY Co., 2008) in which New York County Supreme Court Justice Eileen Rakower found signed statements of the insureds to be admissible as evidence on Tower's motions for summary judgment in those cases. In rejecting the defendants' argument that their signed statements were inadmissible hearsay, Justice Rakower ruled: "While hearsay, admissions by a party of any fact material to the issue are always competent evidence against that party."

Did Metropolitan also argue that Shaid's and Arshad's recorded statements constituted party admissions and, thus, were admissible under a separate exception to the hearsay rule? Once the declaratory judgment action was pending, couldn't Metropolitan also have converted the recorded statements into evidentiary form by attaching transcripts to a notice to admit or marking and using the transcripts during party depositions of Shaid and Arshad? This decision does not indicate in what form and under whose sponsoring affidavit the recorded statements were submitted in support of Metropolitan's motion.


Larry Rogak said...

In my own commentary on this case today, I opined that an EUO would be a more effective tool than a signed statement.

Anonymous said...

Embarrassing. Clearly, the statement here is not hearsay because it is not being used for its truth, but to show it was made. Therefore, it is outside the definition of hearsay. This decision demonstrates that counsel, and Justice Siegel, missed the ball on this straightforward evidence issue.

Zuppa said...

Roy a little confusing. Was the lie the recorded statement or the truth the recorded statement.

The Court's decision is dead on regarding business records.

Secondly anonymous makes a technical point that at first blush might cause one to leap for it. But if the truth was the recorded statement than it was made for the truth of the matter asserted. If the lie was the recorded statement we run into the issue of what constitues the "truth of the matter asserted." It is broader than anonymous opines. This is not a case where a prior inconsistent statement is being offered on cross to demonstrate just that -- inconsistency. And it is not a case as it would seem where we are offering a statement to show a state of mind.

The statement was a lie. It is being offered to demonstrate a lie which is non-cooperation. If the same statement were introduced in opposition to a motion for summary judgment than it would be admissible as non-hearsay because it would merely demonstrate inconsistency. Here the lie is being offered to show a lie and most courts would conclude that this is hearsay. To hold otherwise would open the door to a host of out of court statements rendering every case the equivalent of a no fault farce.

Perhaps to refine anonymous' argument it would have been better to classify the statement as a verbal act -- like saying I accept in a contract action. The statement "I don't know who was driving" was a verbal act of non-cooperation and therefore not hearsay. The equivalent of a refusal to answer.

But that brings us to hearsay layers and authentication. An admission would cure one layer. I assume that the recorded statement was transcribed. The transcript is another layer. It is another out of court statement as opposed to a person testifying IN COURT that a Party to the action said this or that. The plaintiff tried to get the transcript in as a business record. No go. If it were admitted as business record than the statement itself would have been an admission.

Hence Larry's EBT analysis. Under the CPLR if the party is given the opportunity to review his transcript the EBT can be used for almost anything.

I don't know the facts of the Tower case. Were the signed statements used to obtain summary judgment or defeat it.

Anonymous said...

To clarify my earlier comment, and respond to Zuppa, the statement here is not hearsay. Hearsay is evidence that depends for its probative value on the veracity of an out-of-court declarant. It is claimed that the declarant (Shaid) made a false statement. Therefore, the probative value does not depend on whether Shaid was lying, the only relevant fact is whether the statement was in fact made to the insurer.

Zuppa, although I understand your concern that the statement is being offered to prove a lie, that's not really correct. Presumably, the insurer has non-hearsay evidence to prove that this statement is, in fact, false. Thus, the necessity of first proving the statement was made (non-hearsay use), followed with admissible evidence proving the falsity of the statement.

An example: In a defamation case, the plaintiff offers the defamatory statement. Objection: hearsay. Response: the statement is not being offered to prove the truth of its content, but to show that it was made. Result: the statement is let in.

zuppa said...

It is a tough issue and I am tending to agree with you more. I am going to pull the case when I get time and the other cases.

I absolutely know your argument but still stand by the fact that courts define what constitues "the truth of the matter asserted" more broadly.

Your hearsay hypo is convincing but flawed. If a witness came into court and testified Defendant said "Zuppa is a hack" than we'd have an admission which overcomes the single layer of hearsay.

zuppa said...

I've read the decision. The facts are not sufficiently described to make any judgments here visa-vi the above issues. This is a good Judge so I am giving the Judge the benefit of the doubt here. The attorneys for the insurance company certainly had to be smart enough to argue admission and nonhearsay but instead sought entry of the statement via the business records exception. That argues in favor of the multiple layer of hearsay theory.

Zuppa said...

And the Tower case doesn't address hearsay. Apparently the issue was not raised by the great attorneys for the defendants.

DLev said...

The opinion does not clearly identify the statement being considered. There are two statements: the original false statement that the insured did not know the identity of the driver, and the subsequent true statement that he did know the identify of the driver. The first statement is not hearsay. It is more likely that the opinion is about the second statement

zuppa said...

I said that in my first comment. But calling the first statement "not hearsay" is not necessarily true. Forget whether the statement is in and of itself hearsay. They manner in which the statement is introduced can be but another layer of hearsay. For example if the non-hearsay statment is being presented via the transcript of a recorded statement. The transcript is hearsay. The transcript must fall under an exception i.e. business record or statement taken under oath, etc. Than there are reams of authentication issues. How do we know it was actually John Doe that made the statement as opposed to someone else posing as John Doe. You would need some form of authentication.

I am sorry but that is evidence. I didn't show up to court with a bag full of cocaine and intro it into evidence: "Here it is your honor." I had to establish chain of custody.

More on point when I introduced taped conversations from wiretaps I had to lay out a massive authentication from the monitoring through the sealing and the unsealing.

Evidence is a lost art. It mine as well be lost since many courts do not even understand it.