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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
CERTAIN UNDERWRITERS AT LLOYD'S,
LONDON,
Plaintiff-Appellee,
No. 97-2634
v.
THOMAS C. SINKOVICH,
Defendant-Appellant.
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Frederic N. Smalkin, District Judge.
(CA-95-3698-S)
Argued: October 28, 1998
Decided: November 2, 2000
Before WIDENER and WILKINS, Circuit Judges, and
G. Ross ANDERSON, Jr., United States District Judge for the
District of South Carolina, sitting by designation.
_________________________________________________________________
Vacated and remanded for new trial by published opinion. Judge
Widener wrote the opinion, in which Judge Wilkins and Judge Ander-
son concurred.
_________________________________________________________________
COUNSEL
ARGUED: Daniel Mark Press, CHUNG & PRESS, P.C., McLean,
Virginia, for Appellant. Steven Eric Goldman, GOLDMAN & HELL-
MAN, P.A., New York, New York, for Appellee.
_________________________________________________________________
OPINION
WIDENER, Circuit Judge:
Plaintiff, Certain Underwriters at Lloyd's, London (Underwriters),
brought this case for declaratory relief pursuant to 28 U.S.C. § 2201
et seq. against defendant, Thomas C. Sinkovich, for resolution of a
dispute involving Underwriters's hull insurance policy for
Sinkovich's yacht. The district court found that Sinkovich did not ful-
fill the policy's terms and held that Underwriters was not obligated
to pay Sinkovich the insurance proceeds. For the reasons stated
below, we vacate the district court's judgment and remand this case
for a new trial.
On the morning of August 1, 1995, Sinkovich set sail from Puerto
Azul, Venezuela with his fiancee. While sailing on a compass course
set for approximately 84 degrees on autopilot, Sinkovich felt an
unknown thump to his boat. Sinkovich testified that although he was
not positive as to his location at the time of the incident, he was prob-
ably less than a mile offshore.
After feeling the thump, Sinkovich disengaged the autopilot and
attempted to steer as the boat veered off course to the right. The steer-
ing mechanism, however, was locked, and he shifted the engine to
neutral. Sinkovich proceeded to inspect the boat from topside to
determine whether the boat had hit something or if he could detect a
problem. He then went below decks to see if the boat was taking on
water, and the interior of none of the compartments showed visible
signs of water. He returned to the helm to attempt to steer the boat,
at which time the boat struck submerged rocks that were an estimated
300-400 yards offshore. Sinkovich testified that he estimated 20 or 25
minutes elapsed from the time that he felt the thump to when he
struck the rocks.
After learning of Sinkovich's accident, Underwriters hired Edwin
S. Geary, a marine surveyor and investigator, to investigate the acci-
dent and the facts and circumstances surrounding the incident. Geary
compiled a comprehensive file of several hundred pages regarding the
incident. In preparing the report, Geary investigated the wreckage and
interviewed Sinkovich, his fiancee, and other people with information
2
concerning the wreck. The Joint Appendix describes the papers
involved as Edward Geary's File and Trial Exhibit 3. The file was
admitted into evidence as a business record and consists of 343 pages.
Underwriters's policy for Sinkovich's boat contains what is called
a sue and labor clause that provides: "in the event of a loss" the
insured must "immediately take all possible steps to minimize the loss
and protect the property from further loss. Failure to do so may invali-
date your insurance coverage or reduce the amount of any claims
thereunder." The district court's proceedings accordingly were con-
cerned with whether a "loss" occurred at the time when Sinkovich felt
the thump to his yacht and lost steering, thus triggering the sue and
labor clause and Sinkovich's duty to take steps to minimize further
loss.
During discovery, Sinkovich properly requested that Underwriters
identify all expert witnesses in accordance with Fed. R. Civ. P.
26(a)(2) and (b)(4) and disclose any documents related to experts, as
well as documents related to the facts of the case. Underwriters did
not list Geary as an expert nor reveal his substantial report or file con-
cerning the incident. Accordingly, at trial the district court stated that
it would limit Geary's testimony to what he observed but nothing
beyond lay knowledge. Cf. Fed. R. Evid. 701. Sinkovich argues that
despite the court's limitation on Geary's testimony, the court admitted
several statements from him regarding the vessel and conditions sur-
rounding the accident that only an expert could make. He also argues
that the district court erroneously admitted Geary's investigative
report under the business record exception to the hearsay rule.
At the conclusion of the bench trial, the district court found that the
thump to Sinkovich's boat caused a loss under the sue and labor
clause and triggered Sinkovich's duty to minimize further damage.
The court further found that Sinkovich did not take reasonable steps
to avoid increased damage to the boat and held that Underwriters was
not liable under the policy because Sinkovich failed to comply with
the requirements of the sue and labor clause. The district court denied
Sinkovich's motions to amend the judgment or for a new trial, and
Sinkovich appealed.
We hold that the district court erred in admitting improper expert
testimony from Geary, a lay witness, and by admitting Geary's inves-
3
tigative report under the business record exception. Accordingly, we
vacate the judgment of the district court and remand this case for a
new trial.
We first address the district court's admission of Geary's testimony
as a lay witness. The district court ruled that in light of Underwriters
failure to identify Geary as an expert during discovery, the court
would limit Geary's testimony to that of a lay witness. Sinkovich
argues that despite this ruling, the court repeatedly admitted testimony
from Geary that only an expert was capable of delivering. Therefore,
he argues that Geary's testimony was inadmissible.
Fed. R. Evid. 702 provides that "[i]f scientific, technical or other
specialized knowledge will assist the trier of fact to understand the
evidence or to determine a fact in issue, a witness qualified as an
expert by knowledge, skill, experience, training, or education, may
testify thereto in the form of an opinion or otherwise." Rule 701, how-
ever, is limited to situations where a witness is"not testifying as an
expert." It provides that a lay witness can give an opinion if it is "(a)
rationally based on the perception of the witness and (b) helpful to a
clear understanding of the witness' testimony or the determination of
a fact in issue."
Rule 701 permits lay witnesses to "offer an opinion on the basis of
relevant historical or narrative facts that the witness has perceived."
MCI Telecomm. Corp. v. Wanzer, 897 F.2d 703, 706 (4th Cir. 1990)
(quoting Teen-Ed, Inc. v. Kimball Int'l, Inc. , 620 F.2d 399, 403 (3d
Cir. 1980)). This rule, however, generally does"not permit a lay wit-
ness to express an opinion as to matters which are beyond the realm
of common experience and which require the special skill and knowl-
edge of an expert witness." Randolph v. Collectramatic, Inc., 590
F.2d 844, 846 (10th Cir. 1979). A critical distinction between Rule
701 and Rule 702 testimony is that an expert witness"must possess
some specialized knowledge or skill or education that is not in the
possession of the jurors." Redden & Saltzburg, Federal Rules of Evi-
dence Manual 225 (1975). Unlike a lay witness under Rule 701, an
expert can answer hypothetical questions and offer opinions not based
on first-hand knowledge because his opinions presumably "will have
a reliable basis in the knowledge and experience of his discipline."
Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 592 (1993).
4
Although the district court indicated it would limit Geary's testi-
mony to that of a lay witness, much of his testimony was in the form
of responses to hypothetical or like questions that required specialized
knowledge to answer. For example: over Sinkovich's objections, the
district court admitted Geary's responses to these hypothetical ques-
tions: "Would the anchor depicted in the photograph have held on that
bottom?"; "Would the same [referring to holding] be true if any of the
other three anchors had been released?"; "Would an anchor, had it
been thrown overboard by you or by Mr. Sinkovich or anybody, taken
hold and prevented the vessel from drifting in to shore to scrape on
rocks?"; "How long would it have taken you to have utilized any one
of those anchors after hearing the thump described by Mr.
Sinkovich?"; "How long would it have taken you to have freed that
dingy?"; "And, again, based on your own navigation in this area, your
own experiences, how long would it have taken a vessel to drift in
from a mile to a mile and a half?"; "Based on your own experience,
if you had been further offshore than a mile or a mile and a half, if
you had been two or three miles, it would have taken even longer to
drift in[?]." Such questions require specialized knowledge and calcu-
lations of an expert, not a lay, witness regarding the vessel's size and
location; the condition of the bottom at a particular location; the wind
and current conditions at the time of the accident and their effect on
the particular vessel; whether the anchors at hand would hold in the
bottom under the vessel, etc. For an example of the expert knowledge
of the seaman, see Knight's Modern Seamanship , 10th Ed. (1941).
Geary did not have any first-hand knowledge of the accident nor
were his conclusions ones that a normal person would form based
upon his perceptions. Geary's sole basis of knowledge concerning the
accident derived from his investigation and his analysis of the data he
collected. He did not see the accident; nor did he have personal
knowledge of the vessel's location, the bottom conditions of that loca-
tion, or the wind, wave, and current conditions at the time of the acci-
dent. As a lay, not expert, witness, he lacked the personal knowledge
necessary to express the opinions that he did. Furthermore, his
answers as to the effectiveness of dropping anchor, the location of the
vessel, and the time interval between the thump and the grounding
exceed the scope of common experience. Such conclusions could only
be drawn by an experienced seaman or marine engineer. Despite its
failure to sustain Sinkovich's objections to Geary's testimony, the dis-
5
trict court even recognized that Geary was testifying as to "the appli-
cation of the art and science of navigation" and that the average
citizen could not reach a certain conclusion of Geary upon application
of the facts at hand. We hold that the district court erred in admitting
Geary's testimony, as mentioned, and like testimony, as lay testimony
in this case, even under Rule 701.
Sinkovich also argues that the district court abused its discretion by
admitting Geary's investigative report of the accident as a business
record under Fed. R. Evid. 803(6).1 Sinkovich maintains that Geary's
incident report lacks the requisite indicia of reliability and trustwor-
thiness that are necessary for the business record exception to apply
because the report was not made in the ordinary course of business,
but instead, it was compiled with an eye towards litigation.2
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1 Rule 803(6) provides as an exception to the heresay rule: "A memo-
randum, report, record, or data compilation, in any form, of acts, events,
conditions, opinions, or diagnoses, made at or near the time by, or from
information transmitted by, a person with knowledge, if kept in the
course of a regularly conducted business activity, and if it was the regu-
lar practice of that business activity to make the memorandum, report,
record, or data compilation, all as shown by the testimony of the custo-
dian or other qualified witness, unless the source of information or the
method or circumstances of preparation indicate a lack of trustworthi-
ness."
2 The report of Geary admitted into evidence by the district court and
described in the Appendix as "Trial Exhibit 3, Edward Geary's File" con-
sists of 343 pages of documents of every description with respect to the
wreck and includes, for example, such papers as a letter to the insurance
company's attorney of some 13 pages, which is an item-by-item critique
and criticism of a deposition of Sinkovich, with the disagreement of
Geary to much of that deposition; another letter from Geary to the insur-
ance company's attorney containing the factual and legal conclusions
that ". . . the loss of the yacht PALS I, the failure of the insured to avert
the grounding, failure to attempt to mitigate the damages after the
grounding, failure to act as a prudent uninsured, and failure to advise
Underwriters as soon as possible of the loss are considered to be a clear
breach and violation of the terms and conditions of the policy as speci-
fied under 11. Your Duties in the Event of a Loss;" and a letter to a Miss
DiGennaro, an employee of the insurance company, which contained,
among other things, the comment that ". . . Mr. Sinkovich is basically a
6
Reports and documents prepared in the ordinary course of business
are generally presumed to be reliable and trustworthy for two reasons:
"First, businesses depend on such records to conduct their own
affairs; accordingly, the employees who generate them have a strong
motive to be accurate and none to be deceitful. Second, routine and
habitual patterns of creation lend reliability to business records."
United States v. Blackburn, 992 F.2d 666, 670 (7th Cir. 1993) (citing
United States v. Rich, 580 F.2d 929, 938 (9th Cir. 1978)). The
absence of trustworthiness is clear, however, when a report is pre-
pared in the anticipation of litigation because the document is not for
the systematic conduct and operations of the enterprise but for the pri-
mary purpose of litigating. As Blackburn, 992 F.2d at 670, points out,
the Advisory Committee's notes in § 803(6) provide in terms:
"[a]bsence of routine raises lack of motivation to be accurate." See
also Palmer v. Hoffman, 318 U.S. 109, 114 (1943);3 Scheerer v.
Hardee's Food Sys. Inc., 92 F.3d 702, 706-07 (8th Cir. 1996) (stating
that a report lacks trustworthiness because it was made with knowl-
edge that incident could result in litigation).
It was undisputed that Underwriters hired Geary to prepare the
report specifically for this case. This admission reveals Underwrit-
_________________________________________________________________
nice chap, but I think he may be undergoing a delayed identity crisis in
his life which may be affecting his judgment. He has a 20-year old . . .
girlfriend who he explained has no education and therefore he should
possibly prepare her statement."
We have not attempted to list all the papers in the report, but the few
items just mentioned illustrate the reason that such documents as this,
prepared in view of litigation, are not admissible as business records
under Rule 803(6) and illustrate the often-quoted words of Judge Jerome
Frank, in Hoffman v. Palmer, 129 F.2d 976, 991 (2d Cir. 1942), that such
documents prepared specifically for use in litigation are "dripping with
motivations to misrepresent."
We cast no reflection on Geary for the letters from him to his
employer. Admitting his file into evidence, however, is simply not to be
permitted.
3 Palmer was decided under what is sometimes called the Business
Records Act then in effect, 28 U.S.C. § 695, which was not different in
any respect pertinent here from § 803(6).
7
ers's motivation for having the report prepared and precludes it from
relying on the business record exception. Underwriters, however,
argues that the prohibition against admitting records prepared in
anticipation of litigation under the business record exception does not
apply here because Underwriters, itself, did not prepare the report.
Rather, it contracted an outside investigator (Geary) to prepare the
report, and Geary regularly prepares and maintains a file of such
reports as part of his ordinary course of investigating. We find this
argument unpersuasive.
The report is no more trustworthy because Geary prepared it than
if Underwriters had done so. Whether Underwriters compiled the
report as part of an internal investigation with in-house employees or
whether Underwriters hired an outside investigator to prepare the
report, the conclusion remains that the primary motive for initially
preparing the report was to prepare for litigation. See Blackburn, 992
F.2d at 670 (stating that report prepared by lenscrafter at the FBI's
request and with knowledge that any information it supplied would be
used in ongoing investigation was not prepared or kept in the ordinary
course of the lenscrafter's business). Litigants cannot evade the trust-
worthiness requirement of Rule 803(6) by simply hiring an outside
party to investigate an accident and then arguing that the report is a
business record because the investigator regularly prepares such
reports as part of his business. If that were the case, parties that face
litigious situations could always hire such nonaffiliated firms and
investigators to prepare a report and then seek to admit the document
over hearsay objection. The primary motive for preparing the report
in the first place is a better indicator of trustworthiness than the form
of the investigation or the identity of the investigator.4
We conclude that the district court erred by admitting expert testi-
_________________________________________________________________
4 Blackburn, 992 F.2d at 670, relates, and we agree, that the rule is well
established that documents made in anticipation of litigation are inadmis-
sible under the business records exception. See also: Lamb Eng'g. and
Constr. Co. v. Nebraska Public Power Dist., 103 F.3d 1422 (8th Cir.
1997); AMPAT/Midwest, Inc. v. Illinois Tool Works, Inc., 896 F.2d 1035
(7th Cir. 1990); Noble v. Alabama Dept. of Envtl. Mgmt., 872 F.2d 361
(l1th Cir. 1989); Broad. Music, Inc. v. Xanthas, Inc., 855 F.2d 233 (5th
Cir. 1988).
8
mony from Geary as a lay witness and by admitting Geary's report
as a business record under Rule 803(6). In so doing, it abused its dis-
cretion.
Accordingly, the judgment of the district court must be vacated and
the case remanded for a new trial.
VACATED AND REMANDED FOR A NEW TRIAL
9
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