Construction is a document-intensive industry. Construction disputes are equally document-intensive. Given the critical role of written documentation in preserving and resolving construction claims, it is essential that construction companies adequately train the people who create and manage written documentation. Otherwise, evidentiary challenges could sink an otherwise meritorious claim or defense.
This issue recently came to a head in case of Arrowood Indemnity Co. v. Fasching, 369 Or 214 (Feb. 10, 2022). While not a “construction” case, Arrowood Indemnity highlights the importance of proper document creation and management.
In Arrowood Indemnity, the plaintiff insured a student loan. The defendant defaulted on the loan. The plaintiff paid the claim and sued defendant to recoup its payment. At trial, the parties filed cross-motions for summary judgment, each of which pivoted on whether documents the plaintiff received from a third party were admissible under the rules of evidence. The “rules of evidence” are designed to ensure the reliability of the evidence offered at trial. One such rule—the rule against hearsay—provides that an out-of-court statement, which includes documents, cannot be admitted into evidence. Instead, a competent witness must testify that something happened (or did not happen).
An important exception to the hearsay rule, particularly for document-heavy construction projects, is the “business records” exception. Under this exception, written business records may be admissible, even if the author is unavailable to testify, provided the author created the document based on knowledge of the event, near the time when the event occurred, and as part of the business’s regular record keeping activity.
In Arrowood Indemnity, the plaintiff argued documents from third parties qualified as admissible business records. The defendant disagreed, arguing that, in order for the documents to qualify for the business records exception, the plaintiff had to present evidence about the record-making practices of the businesses that created the documents, and the plaintiff failed to do so. The trial court agreed with the plaintiff, ruling that “as long as the documents [were] received, incorporated, and relied upon” by the plaintiff, the documents were “admissible as business records.” The trial court granted the plaintiff’s motion for summary judgment, denied the defendant’s cross-motion for summary judgment, and entered a judgment in the plaintiff’s favor. The defendant appealed, which was affirmed by the Oregon Court of Appeals.
Defendants petitioned the Oregon Supreme Court to address the issue of what evidence a party must present to establish the business records exception for documents created by third parties. The Supreme Court held that the party proffering the documents must present evidence of the third party’s record-making practices sufficient to establish that the documents were made contemporaneously with the acts they describe, by (or from information transmitted by) a person with knowledge, as part of a regularly-conducted business activity, and pursuant to a regular record-making practice. Because the plaintiff failed to present such evidence, the trial court erred in admitting the documents into evidence, remanding for further proceedings.
Applying Arrowood Indemnity to your next construction project:
- Document the event at or near the time of occurrence. A daily field report summarizing an on-site conversation about a site condition may be excluded from evidence if the information about the conversation was written down days or weeks after the conversation took place. If too much time passes, project documentation could be excluded from evidence.
- The author must have knowledge of the event. The project manager’s letter based on what the project superintendent told him or her may be excluded from evidence; the project manager does not have the knowledge to accurately document the condition or occurrence. While the rule allows the document to be written from information transmitted by someone with knowledge, the better practice is for the document be written by a person who has seen or experienced what the document is about.
- Have a regular practice of record keeping. Daily field reports should be consistent and uniform in what they record about the project. Inconsistent field reports could be inadmissible to prove critical events otherwise noted in the reports.
Proper project documentation is critical to maintain any claim or defense. Proper documentation alone is only half the battle; the document must also be admissible as evidence. For documents to be admitted as evidence, the people in the field should know how to document the events in a manner that ensures the document would be admissible as evidence to prove a claim or defense.