(New) NY CPLR § 4549 -- Admissibility of an Opposing Party's Statement

I've alerted you about Original Strength CIDA and the impending CIDA Light, but another new civil action-related provision was signed into law in New York on December 31, 2021 that will impact civil litigation in New York state courts. 

 Senate Bill S7093 amends the New York state court rules of evidence by adding CPLR § 4549 to permit the admission of an opposing party's statement if made by an agent or employee made within the scope of that relationship and during the existence of that relationship. 

 CPLR § 4549 reads:

§ 4549. Admissibility of an opposing party's statement. A statement offered against an opposing party shall not be excluded from evidence as hearsay if made by a person whom the opposing party authorized to make a statement on the subject or by the opposing party's agent or employee on a matter within the scope of that relationship and during the existence of that relationship. 

The Senate sponsor's memo explained: 

This is one in a series of measures being introduced at the request of the Chief Administrative Judge upon the recommendation if his Advisory Committee on Civil Practice. 

This measure would relax the common law exclusion of the hearsay statement of a party's agent or employee, provided that the statement was on a matter within the scope of that employment or agency relationship, and made during the existence of the relationship. The measure would add a new CPLR 4549, and cause New York's hearsay exception to follow the approach of Federal Rule of Evidence 801(d)(2)(D). 

The measure is intended to change the extent of authority that a proponent must show in order to make the hearsay statement of an opposing party's agent or employee admissible. While under current law it appears clear that a hearsay statement will be admissible if there was actual authority to speak on behalf of the party, such authority often may be shown only by implication in light of the circumstances of the employment or agency relationship. In practice, this tends to limit 'speaking authority' to only the high levels of management. 

Professor Michael J. Hutter has analyzed several Appellate Division cases that take a very strict view of the predicate proof for speaking authority, and these cases indicate that an employee or agent who is not in charge of the business will have no implied authority to speak on behalf of the employer -- even if the statement made relates to an activity the person was charged to undertake. Instead, the proponent of the hearsay statement may need to make the difficult showing of express authority to speak on behalf of the employer. See Boyce v Gumley-Haft, Inc., 82 AD3d 491 (1st Dept 2011); Scherer v Golub Corp., 101 AD3d 1286 (3d Dept 2012); Hutter, "Speaking Agent Hearsay Exception: Time to Clarify, if Not Abandon," New York Law Journal, June 6, 2013, Pg. 3, col. 1, Vol. 249, No. 108. 

We believe a strict requirement to demonstrate such authority to speak may exclude reliable proof of an event, even though the employer as a party might not be treated unfairly by admissibility, either because the statement is true and made by a person with relevant knowledge, or because the employer is able to introduce other proof in opposition to the implications of the hearsay statement. As noted above, the current strict requirement to show speaking authority is contrary to Federal Rule of Evidence. See Barker and Alexander, Evidence in New York State and Federal Courts (2d ed.) 8:26, p. 148. 

We further believe that the rule is unlikely to change without legislative action. (See, Loschiavo v Port Auth. of New York & New Jersey, 58 NY2d 1040, 1041 (1983) ("We decline plaintiff's invitation to change this well-settled, albeit widely criticized rule of evidence but note, in this connection, that a proposal for modification of the hearsay rule in this state in now before the legislature"). 

An example of statements excluded under the current rule include an employee-driver's admissions of negligence, unless the driver was authorized by the employer to speak about the subject accident. In Schner v Simpson, (286 AD 716, 718 [1st Dept 1955]), an employee's statement "I am sorry that I knocked you down, but I think you will be able to get up" was held inadmissible on the ground that "[g]enerally speaking, employment does not carry authority to make either declarations or admissions."(See, also, Jankowski v Borden's Condensed Milk Co., 176 AD 453 [2d Dept 1917] [Driver's statement that it was his fault held not admissible]; and Raczes v Home, 68 AD3d 1521, 1522-1523 [3d Dept 2009] [Maintenance worker's statement: "This is the third time that I fixed this railing and I'm getting sick of it", not competent to establish notice on the part of employer]). 

However, such employee statements generally are admissible in Federal court and would be admissible under this measure. (See Corley v Burger King Corp., 56 F3d 709, 710 [5th Cir 1995]; Martin v Savage Truck Line, 121 F Supp 417, 419 [DDC 1954]). On the other hand, an employee's statement would not be admissible against the employer where it concerned a matter that was not within the employee's scope of employment. (See, e.g., Wilkinson v Carnival Cruise Lines, Inc., 920 F2d 1560 [11th Cir 1991]; Hill v Spiegel, Inc., 708 F2d 233, 237 [6th Cir 1983]). 

We believe that the Federal approach is an improvement over the current state of New York decisional law, and that trial judges will exercise appropriate discretion to exclude such hearsay evidence when there is inadequate foundation or indicia of reliability.

Be careful corporate defendants. If one of your employees or agents makes a statement "on a matter within the scope of that relationship and during the existence of that relationship", the statement now may be admissible in New York state court actions under CPLR § 4549. 

For example, if an independent adjuster says or writes something about a claim they are handling for an insurer... 

#nonhearsay #evidence #civillitigation

Evidence of Interest in Evidence

My May 27th Court Denies Summary Judgment Motion Based on Insureds' Recorded Statements post generated many thoughtful comments on how an insured's recorded statement might better have been presented to avoid being characterized as inadmissible hearsay and permit its introduction and use on Metropolitan's motion as admissible evidence. In case you did not click on and read those comments, I'm reprinting that thread in this separate post.

In support of its motion for summary judgment seeking a declaration that its named insured and insured driver had breached the policy's cooperation clause by lying to Metropolitan in their recorded statements about whether the driver had the owner/named insured's permission to use the insured vehicle, Metropolitan submitted those recorded statements to prove the misrepresentations and non-cooperation. The decision does not indicate in what form Metropolitan submitted the recorded statements, although it was most likely via typed transcripts of those statements. Metropolitan argued that the statements were admissible under CPLR 4518 as business records and, thus, excepted from the hearsay rule. The court disagreed.

The commenters observed:

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. http://groups.yahoo.com/group/TheRogakReport/message/2046

May 27, 2009 12:18 PM

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.

May 27, 2009 2:45 PM

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 constitutes 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.

May 27, 2009 11:08 PM

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.

May 28, 2009 8:54 AM

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 constitutes "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.

May 28, 2009 12:36 PM

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.

May 28, 2009 8:31 PM

Zuppa said...

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

May 28, 2009 10:23 PM

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

June 2, 2009 5:11 PM

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 mi[ght] as well be lost since many courts do not even understand it.

June 3, 2009 2:22 PM 

Post Script ~~ I'll only add my opinion that it would be inexact for a litigator to conclude or argue from this decision that all recorded statements are inadmissible hearsay. As the commenters point out, there are both non-hearsay and other exceptions to hearsay arguments that can be and perhaps should have been made.

Court Denies Summary Judgment Motion Based on Insureds' Recorded Statements

AUTO – NON-COOPERATION – FALSE REPORTING – INADMISSIBILITY OF RECORDED STATEMENTS – BUSINESS RECORD EXCEPTION TO HEARSAY RULE
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.

Hearsay, Hearsay -- Medical Billing Company's Claim Forms Ruled Inadmissible

NO-FAULT – BUSINESS RECORD EXCEPTION TO HEARSAY RULE – MEDICAL BILLING COMPANY CLAIM FORMS
Second Med., P.C. a/a/o Marvin Calender v. AutoOne Ins. Co.
(NYC Civil, Kings Co., decided 5/2/2008)

Once a week, someone from Second Medical, PC, would deliver a bunch of patient files to Inga Lev at Maugust, Inc. Maugust served as Second Medical's billing company. Each file contained one or more medical reports, which described the nature of the services that Second Medical purportedly provided to a particular patient, as well as an executed AOB form and information identifying the patient's no-fault insurer. Either Ms. Lev or one of her co-workers would prepare no-fault claim forms based upon the information contained on the documents contained in patient files and mail the claim forms, along with an executed assignment, to the insurers responsible for payment of the no-fault benefits.

At the trial of this action, Ms. Lev testified to the above procedure, that the claim form her company had prepared was mailed to AutoOne, and that payment was not made within 30 days. Ms. Lev gave no testimony, however, concerning the practices and procedures that plaintiff Second Medical had utilized in creating the documents contained in the patient files.

Although AutoOne's NF-10, which acknowledged receipt of the Maugust-generated claim form, was offered and received into evidence, AutoOne objected to the admission of the claim form, arguing that Ms. Lev had failed to lay a proper foundation for its admission as a business record pursuant to CPLR § 4518(a). Relying "primarily" on the Appellate Term, Second Department's September 2006 decision in Pine Hollow Medical, P.C. a/a/o Karen Allen v. Progressive Cas. Ins. Co., another case involving a no-fault medical billing company, plaintiff's counsel argued that since Ms. Lev established plaintiff had a business duty to Maugust to deliver the patient files, and that Maugust routinely relied on the medical reports and other documents contained in the files and fully incorporated them into no-fault claim forms which it created in the regular course of its business, a proper foundation for the admission of the claim form as a business record had been laid.

In sustaining AutoOne's objection and dismissing plaintiff's complaint, Judge Peter Paul Sweeney reviewed the business record hearsay exception rule of CPLR § 4518(a):

Here, Ms. Lev did not demonstrate any familiarity with plaintiff's [Second Medical's] business practices and procedures. Accordingly, she did not establish that the documents contained in Mr. Calender's patient file were business records within the meaning of CPLR 4518[a]. Further, she did not establish the admissibility of the file documents under any other hearsay exception. Since all the documents contained in Mr. Calender's patient file constituted inadmissible hearsay, it necessarily follows that the no-fault claim form, which incorporated these records, is also hearsay.

Judge Sweeney also distinguished the Pine Hollow Medical case by stating:

Plaintiff's reliance on Pine Hollow Medical, P.C. is misplaced. In Pine Hollow Medical, P.C., the court stated that "it is well-settled that where an entity routinely relies upon the business records of another entity in the performance of its own business' . . . , and fully incorporate[s]' said information into records made in the regular course of its business. . . , the subsequent record is admissible notwithstanding that the preparer lacked personal knowledge of the information's accuracy,'" (13 Misc 3d 131(A), 2006 NY Slip Op. 51870 (U) [citations omitted & emphasis added] ). While this is a true statement of law, it was never demonstrated in this case that the documents contained in the patient files which Ms. Lev and her co-workers routinely relied upon and fully incorporated into the no-fault claim forms qualified as business records within the meaning of CPLR 4518[a]. The root of plaintiff's argument appears to be that the term "business records" as used in Pine Hollow Medical, P.C. means any records, including records that may constitute hearsay. The premise of plaintiff's argument is without logic or support and is belied by the cases cited in Pine Hollow Medical, P.C.

The court went on to discuss and distiguish the non-no-fault cases cited and relied upon by the Appellate Term in Pine Hollow Medical, ultimately concluding that "since the documents contained in Mr. Calender's patient file constituted hearsay, the no-fault claim form which was based on the information contained in these documents is also hearsay. Hearsay cannot be transformed into non-hearsay simply because a business routinely relies upon it and integrates it into its own records." As plaintiff submitted no other evidence in admissible form establishing the facts asserted in the Maugust claim form, the court held that it had not made out a prima facie case.

No-fault medical provider suits continue to be won or lost on procedural issues and defenses wholly unrelated to substantive coverage defenses. Expect more litigation on this issue, as both providers and insurers will likely assert this holding in support of objections to the proferred admission of any business records that themselves rely on information from other business records.

Post Script - The question of whether the business record exception to the hearsay rule applies to insurance claim documents has come up before in a non-no-fault context. In Hochhauser v. Electric Ins. Co. (2nd Dept., decided 10/23/2007), the Second Department ruled that since an insured lacks a business duty, as opposed to a contractual duty, to report to his or her insurer in the course of its investigation regarding insurance coverage, neither the insured’s statement nor testimony regarding such a statement is admissible pursuant to the business records exception to the hearsay rule.