Morgan v. Valley Prop. & Cas. Ins. Co.

• Decision Date: 28 December 2017
• Docket Number: A158506
• Parties: Jerry MORGAN and Debbie Morgan, Plaintiffs-Respondents, v. VALLEY PROPERTY AND CASUALTY INSURANCE COMPANY, Defendant-Appellant.
• Court: Oregon Court of Appeals

289 Or.App. 454

410 P.3d 327

Jerry MORGAN and Debbie Morgan, Plaintiffs-Respondents,

v.VALLEY PROPERTY AND CASUALTY INSURANCE COMPANY, Defendant-Appellant.

A158506

Court of Appeals of Oregon.

Argued and submitted September 15, 2016.

December 28, 2017

Paul D. Nelson argued the cause for appellant. With him on the briefs was Bullivant Houser Bailey PC.

George W. Kelly, Eugene, argued the cause and filed the brief for respondents.

Before DeVore, Presiding Judge, and Garrett, Judge, and Wollheim, Senior Judge.^*

DEVORE, P. J.

This appeal arises from an insurance dispute after a warehouse fire. The issue in this case concerns the admissibility of an inventory spreadsheet of the warehouse contents that the jury was allowed to consider before awarding plaintiffs $832,000 in damages. The trial court admitted the spreadsheet over defendant's hearsay objections, ruling that the spreadsheet, which had been prepared by plaintiffs' adjusters, satisfied the business-record exception to the hearsay rule under OEC 803(6). Defendant challenges that ruling. We agree that the spreadsheet was not admissible as a business record because its information about dollar values originated from outside sources who were not under a duty to report such information to the adjusters. See State v. Cain , 260 Or.App. 626, 632-34, 320 P.3d 600 (2014) (discussing duty to report requirement). We reverse and remand.

We review the trial court's factual determinations for any evidence in the record that supports them, and we review the court's legal conclusions regarding the admissibility of a hearsay statement under an exception to the hearsay rule for legal error. State v. Cook , 340 Or. 530, 537, 135 P.3d 260 (2006).

Plaintiffs Jerry and Debbie Morgan own and operate Boyd's Meat Co., a meat processing and restaurant supply company, which was insured under a policy unrelated to the one at issue in this case. Boyd's leased a warehouse a few blocks away from its meat processing plant to store its supplies and equipment. Boyd's had a second insurance policy to cover its property in the warehouse. The warehouse and the property inside were destroyed in a fire. Under that second policy, Boyd's received the policy limits, $125,000, for its lost business property.

The Morgans had a separate, personal, homeowners' insurance policy with defendant (Valley) that covered fire losses to their personal property with a blanket policy limit of $832,000. Their policy covered personal property owned or used by an insured "anywhere in the world."¹ That homeowners' policy is the policy at issue in this case. The Morgans claimed that personal property was also stored and destroyed at the warehouse. They reported that the personal property included old meat processing, restaurant, and other industrial equipment acquired over the years—equipment that Mr. Morgan spent his spare time repairing or restoring. They contended that the loss of those commercial items should be covered under the homeowners' policy.

Soon after the fire, the Morgans hired Adjusters International Pacific Northwest (Adjusters International), a claims adjusting company, to prepare their personal property claim. In turn, Adjusters International hired three separate independent contractors to perform related tasks to assist in the creation of an inventory spreadsheet to support the Morgans' claim. Adjusters International did not engage any employee of its own in the preparation of the spreadsheet. The independent contractors worked for Adjusters International, not one for another. Their resulting spreadsheet listed nearly 1,300 items destroyed in the fire, showed the replacement cost values for each item, and concluded with the actual cash value of each item after subtraction of depreciation.² The total value exceeded $1,000,000, but the claim was limited to the policy limit of $832,000.

Shortly after the spreadsheet was submitted, Valley sought additional information about the claim. In response, the Morgans filed this action against Valley for breach of contract. Valley moved in limine to exclude the spreadsheet, arguing that it included inadmissible hearsay. The Morgans acknowledged that the spreadsheet included hearsay but argued that it was admissible under the business-record exception to the hearsay rule. The trial court denied Valley's motion, reasoning that the spreadsheet would be admissible as a business record of "the adjusters who do this regularly in the normal course of their business" under OEC 803(6), provided that the Morgans could lay a proper foundation at trial.

At trial, adjuster Randy Gower, of Gower, Inc., testified that Adjusters International had hired him to oversee and submit the inventory spreadsheet to Valley. Gower explained that he is an independent public adjuster licensed in Oregon and Washington who works for insurers or insureds and who does 90 percent of his work for Adjusters International. He acknowledged that Adjusters International was to be paid by receipt of 10 percent of the Morgans' total recovery from Valley and that he was to receive 25 to 27 percent of that 10 percent. Asked if he earns more money if the Morgans do, Gower replied, "Absolutely."

Gower provided an overview of the process of creating the inventory spreadsheet. Adjusters International had told him that he would work with two other independent contractors that Adjusters International had hired. The first was Craig Ritchie, who was responsible for visiting the warehouse site and identifying the losses. The second was Heather Connell, who was responsible for creating a spreadsheet and researching replacement costs. Ritchie sent photographs and recorded statements to Connell. She listed Ritchie's information in the spreadsheet.

In addition to the items inventoried by Ritchie, Gower explained that Mr. Morgan made a "memory list" of hundreds of items that Ritchie could not identify. Those items were added to the spreadsheet over the course of several months. Mr. Morgan also identified the ownership interest of each item on the list. Relying on Mr. Morgan's notes, Gower had those changes incorporated into the spreadsheet. Gower did not know how many different people provided information that was entered into the spreadsheet. After Gower received the final spreadsheet from Connell with replacement cost values, Gower next worked with Mr. Morgan to depreciate each item on the spreadsheet. After all of that was completed, about one year after the fire, he sent a copy of the final spreadsheet to Valley.

Gower had no knowledge about how the other adjusting contractors kept their records in the course of their businesses. He admitted that he did not have a duty to keep official corporate documents for Adjusters International or any other entity involved in the spreadsheet process. He claimed that the spreadsheet was his business record, but he admitted that it was Connell who created it and that the spreadsheet bore the name and logo of Adjusters International.

At the conclusion of Gower's testimony, the Morgans offered the spreadsheet as evidence to prove the personal property destroyed in the fire and the value of each item. Based on Gower's testimony, the trial court admitted the spreadsheet as a business record under OEC 803(6) and over Valley's objections.³

Ritchie testified at trial, too. He was an employee of Greenspan Adjusters International, a separate entity from Adjusters International. He acknowledged that he was to receive a share of Adjusters International's 10 percent commission of the Morgans' recovery from Valley. Ritchie recounted that he visited the warehouse, took photographs, and documented the loss on a digital voice recorder. Ritchie inventoried 567 of the 1295 items listed on the spreadsheet. He said that he had no knowledge as to who added the latter 728 additional items on the spreadsheet. He sent the audio file and the photographs to "a secondhand party from [his] company, which was Heather Connell." Connell turned his information into the property-listing part of the spreadsheet.

Connell's testimony was offered in the form of a perpetuation deposition that was read to the jury. She testified that she is an inventory specialist with her own company, DYP Enterprises. Adjusters International hired DYP Enterprises to create the inventory spreadsheet, research replacement costs for each item, and work with Mr. Morgan to "flesh out the inventory list." In her words, her "job function was to take the physical inventory that had been produced by [Ritchie] and work with Mr. Morgan on the list that he created * * * to put it all into one master list, and then work with Mr. Morgan to develop the cost to replace those items today." The replacement cost values represented "what it would cost to go out and buy [the item] today."

Connell collected the dollar values in the form of such replacement costs. To gather those figures, Connell said that she relied on the internet, telephone conversations with vendors, or visits to local stores. In "some instances, if it was a collaborative effort with Mr. Morgan, especially for the items that were—that were completely gone, he would often send over a ‘here's what I had,’ and then we would cross-check it to make sure it was accurate." Connell added that one of her "office data entry people" helped her to create the spreadsheet. For example, if "Jerry sent [Connell] a 28-page fax," she would ask the assistant to "transcribe it into the spreadsheet." Connell also asked the assistant to call vendors and get replacement costs quotes over the phone. Connell testified that, despite her reliance on the assistant to gather information into the spreadsheet, everything "filter[ed] through me in the end."

Mr. Morgan testified about the spreadsheet, as well. He explained that he gave information to correct for ownership interests of different items, and he personally created a list of hundreds of items that were added to the spreadsheet. Those items were added to the 567 items...