A New York state appeals court recently held that an insured’s statements made pre-litigation to an insurer’s investigator, as well as subsequent testimony in the investigation regarding those statements, are inadmissible hearsay. Hochhauser v. Electric Ins. Co., 2007 N.Y. Slip Op. 08037 (N.Y. App. Ct. Oct. 23, 2007). In so holding, the court ruled that the business records exception to the hearsay rule did not apply because 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. While such statements might constitute admissions in the typical insurance coverage dispute or be subject to one of the other hearsay exceptions, such was not the case here.

The statements concerned whether the injured plaintiff was a resident of the insured’s household, an element necessary to coverage. At issues were the insured’s statements to the insurer’s investigator that, at the time of the accident in question, the plaintiff stayed with the insured’s family for a weekend every other month. On this basis, the investigator concluded that the plaintiff was not a resident of the insured’s household. The trial court had granted summary judgment in favor of the insurer based on testimony of the investigator as to the insured’s statements.

On appeal, the Appellate Division reversed the summary judgment order in favor of the insured. As the basis for its reversal, the court noted that the essence of the business records exception to the hearsay rule is that records systematically made for the conduct of a business are inherently trustworthy because they are routine reflections of day-to-day operations and because the entrant’s obligation is to make such records truthful and accurate for the purposes of the conduct of the enterprise. In this case, however, the court noted, the insured was undisputedly outside the insurer’s enterprise. Although the insurer argued that an insured has a duty to cooperate in an insurance investigation by its insurer, the court noted that the insurer failed to support that argument with any case law holding that the duty to cooperate with an insurer equates to a business duty to report information during an insurance investigation. Thus, the statement given by an insured during the course of such an investigation lacked the requisite reliability or trustworthiness to fall within the business records exception to the hearsay rule.

Because the insured’s hearsay statements had served as the sole basis for the court’s summary judgment below, the appeals court accordingly reversed summary judgment.

A full copy of the court’s opinion is available here.