Supreme Court, Queens County: Business Records Exception Held Not To Apply To Insured's Statements To Insurer

The business records exception to the rule against hearsay was considered in the recent decision of the Supreme Court, Queens County in Metropolitan Insurance Casualty Company v Shaid (2009 NY Slip Op 51038(U)).

The plaintiff insurer sought summary judgment against the defendant, among others, who was the owner insured of a motor vehicle that had been involved in an accident causing injury to an unrelated party, which party had brought a separate preceding suit against the defendants out of the circumstances of that accident.

The defendant insured was alleged by the plaintiff to have given false statements to the plaintiff insurer that he did not know who was operating the vehicle at the time of the accident, and consequently it was alleged that the defendant had breached the cooperation clause in the contract of insurance.

At issue was whether the insured's statements to the insurer were false. In support of its motion for summary judgment under CPLR 3212, the insurer alleged that the defendant knew who the driver of the vehicle was, and was thereby prejudiced by the lack of cooperation.

The defendant insured alleged that evidence of its statements to the insurer was hearsay, and therefore as they were the basis of the plaintiff's motion for summary judgment, that motion should be denied.

The plaintiff insurer contended that the evidence was not only reliable, but fell within the business records exception to the rule against hearsay and therefore the statement of the defendants could be lead.

The court examined the use of the business records exception as follows:

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 [*3]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.

Practice Note: With respect generally to the business records exception in New York State, counsel are reminded of the terms of CPLR 4518.