Federal Evidence Review

Computer-generated summaries reflecting the insurance company’s indemnity payments and loss adjustment expense payments for insurance claims were admissible as a business record and authenticated under FRE 901(b)(9) by the claims manager who “was familiar with the recordkeeping practices of the company, testified regarding the computer system used to compile and search the insurance claim records, and testified regarding the process of querying the computer system to create the summaries”, U-Haul Intern., Inc. v. Lumbermens Mut. Cas. Co., 576 F.3d 1040 (9th Cir. Aug. 12, 2009) (No. 07-16187)

Computers are often used to maintain company records, including expense payments. How can these records be admitted over hearsay and authentication concerns? A case involving an insurance action recently considered these issues.

In the case, the insurance dispute was brought by the insured and primary insurer against the excess insurer. The insured settled three claims covered under the insurance policies. The defense and settlement costs were funded by the insurance companies under a reservation of rights to later resolve any coverage obligations. The dispute centered on “whether payments of loss adjustment expenses, which are legal fees incurred in the investigation, negotiation and defense of an insurance claim, made by [the primary insurer] should be considered in determining whether the [primary insurer’s] policies had been exhausted.” U-Haul Intern., 576 F.3d at 1042. Resolution of that issue affected the amount that the excess insurer was required to pay.

The district court resolved a number of issues under summary judgment for the insured and primary insurer, leaving for a bench trial the issue of damages. In the bench trial, the claims manager for the primary insurer used three exhibits to show the amounts paid in “defending and settling the claims.” The exhibits:

“contained computer-generated summaries of payments for loss adjustment expenses made by [the primary insurer] on the insurance claims. Each exhibit related to an individual insurance claim. Each exhibit included a summary page showing the indemnity and expenses paid on the claim, the names of each vendor paid on the claim, and the total amounts paid to each vendor. Also included were additional pages listing vendor numbers, transaction dates, check numbers, and amounts of payments made.”

U-Haul Intern., 576 F.3d at 1043. The district court overruled the excess insurer’s hearsay objection and entered a judgment for the insured and primary insurer for $1,958,535.69. The excess insurer appealed the admission of the computer-generated evidence.

The Ninth Circuit affirmed the admission of the records and the entry of judgment. The records were admissible as business records and were properly authenticated. The records did not need to satisfy the summary requirements under FRE 1006.

Business Records (FRE 803(6))

The hearsay issue focused on whether the computer records were business records under FRE 803(6). As the circuit noted, “evidence that has been compiled from a computer database is also admissible as a business record, provided it meets the criteria of Rule 803(6).” U-Haul Intern., 576 F.3d at 1043-44 (citing United States v. Fujii, 301 F.3d 535, 539 (7th Cir. 2002) (airline check-in and reservation records maintained in the ordinary course of business admitted under FRE 803(6)); Potamkin Cadillac Corp. v. B.R.I. Coverage Corp., 38 F.3d 627, 632 (2d Cir. 1994) (“A business record may include data stored electronically on computers and later printed out for presentation in court, so long as the original computer data compilation was prepared pursuant to a business duty in accordance with regular business practice”) (citation and internal quotations omitted)).

The circuit agreed with the district court that:

“the exhibits summarizing loss adjustment expense payments for each claim fit squarely within the business records exception of Rule 803(6). As the district court found (1) the underlying data was entered into the database at or near the time of each payment event; (2) the persons who entered the data had knowledge of the payment event; (3) the data was kept in the course of Republic Western’s regularly conducted business activity; and (4) [the claims manager] was qualified and testified as to this information.”

U-Haul Intern., 576 F.3d at 1044. The circuit rejected the claim of the excess insurer that the exhibits were “prepared solely for the purposes of litigation and not kept in a company’s regular course of business.” The computer records were maintained in the regular course of business.

The circuit found equally unpersuasive the challenge that the claims manager was unqualified to testify because “he did not isummarizing loss adjustment expense payments that underlies the summaries.” He was familiar with the practices for adding the data, which was sufficient to qualify him as a witness. The proponent of the evidence did not need to call each company employee who entered the records. U-Haul Intern., 576 F.3d at 1044-45.

Authentication (FRE 901(b)(9))

The circuit also found that the computer records were properly authenticated under FRE 901(b)(9), which provides for authentication based on “[e]vidence describing a process or system used to produce a result and showing that the process or system produces an accurate result.” See also U-Haul Intern., 576 F.3d at 1045 (citing United States v. Miller, 771 F.2d 1219, 1237 (9th Cir. 1985) (“It is not necessary that the computer programmer testify in order to authenticate computer generated records.”); S. Rep. No. 93-1277, 93rd Cong., 2d Sess. 17 (1974) (noting authentication may be made by “one who has knowledge of the particular record system”; a party “‘need not produce expert testimony as to [the] mechanical accuracy of [a] computer where it presented evidence that [the] computer was sufficiently accurate [so that the] company relied upon it in conducting its business.’”) (citing United States v. De Georgia, 420 F.2d 889, 893 n.11 (9th Cir. 1969)). The claims manager:

“testified regarding the process of inputting data into the computer and the process of querying the computer to compile the information to create the summaries. [The claims manager] testified that he was familiar with the recordkeeping practices of the company, testified regarding the computer system used to compile and search the insurance claim records, and testified regarding the process of querying the computer system to create the summaries admitted at trial. This description of the process used to create the summaries was sufficient to authenticate the evidence, and the district court did not abuse its discretion in holding that a sufficient foundation was laid to admit the exhibits.”

U-Haul Intern., 576 F.3d at 1045.

Summaries (FRE 1006)

Finally, the circuit rejected the excess insurer’s claim that the records failed to qualify under the summary records requirement under FRE 1006. The rule requires pretrial availability of the original or duplicate records. The Ninth Circuit readily dismissed the argument noting that “the summaries themselves constituted the business records” as “the writings at issue.” Consequently, the requirements under FRE 1006 did not apply.

The U-Haul case provides a useful example of admitting the company records. Because the records satisfied the business record requirements under FRE 803(6), they were not inadmissible as hearsay. The proponent authenticated the computer records under FRE 901(b)(9) by demonstrating the process used to create them and by showing the accuracy of the process. Finally, the summary rule did not apply on the facts of the case since the computer records were introduced as the writing and were not summarized.