¶ 116. JON P. WILCOX, J. (dissenting).

I do not join the majority opinion because I disagree that the residuum rule is applicable to this case. The majority's application of the residuum rule is erroneous for several reasons. First, under the clear holding of Richardson v. Perales, 402 U.S. 389 (1971), the residuum rule — which posits that an administrative agency cannot base factual findings on uncorroborated hearsay — does not apply to reliable, probative, documentary evidence (particularly standard medical reports) in administrative proceedings. Further, applying the residuum rule to prohibit agencies from considering uncorroborated documentary evidence regardless of its reliability and probative value conflicts with the relaxed evidentiary standards in administrative proceedings and this court's deferential standard of review. Finally, applying the residuum rule in such a fashion will be harmful to claimants in future cases and is inconsistent with the reality of administrative proceedings.

¶ 117. The pertinent question before the court is whether uncorroborated hearsay in the form of medical reports that are contradicted by live testimony at an administrative hearing can ever constitute substantial evidence supporting an agency's factual findings. The substantial evidence rule is set forth in Wis. Stat. § 227.57(6) (2001-02), which prescribes the standard to be used when reviewing agency decisions: "The court shall . . . set aside agency action or remand the case to the agency if it finds that the agency's action depends upon any finding of fact that is not supported by substantial evidence."

¶ 118. Our case law has defined substantial evidence as "such relevant evidence as a reasonable mind would accept as adequate to support a conclusion." Sea View Estates Beach Club, Inc. v. DOR, 223 Wis. 2d 138, 148, 588 N.W.2d 667 (Ct.App. 1998) (citing Sterlingworth Condo. Ass'n, Inc. v. DNR, 205 Wis. 2d 710, 727, 556 N.W.2d 791 (Ct. App. 1996)). This definition of substantial evidence is consistent with that employed in Perales: "Substantial evidence" is "'more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.'" Perales, 402 U.S. at 401 (quoting Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938)). It is noteworthy that the definition of substantial evidence focuses on the relevancy of the evidence and how a reasonable mind might view its probative value.

¶ 119. The majority unnecessarily adds to this definition, applying the legal residuum rule that was set forth by this court in Folding Furniture Works, Inc. v. Wisconsin Labor Relations Bd., 232 Wis. 170, 188-89, 285 N.W. 851 (1939). Majority op., ¶¶ 53-54, 81. As the majority correctly notes, id., ¶ 54, the court in Folding Furniture, 232 Wis. at 189, adopted the legal residuum rule, which provides that uncorroborated hearsay cannot constitute substantial evidence, from the United States Supreme Court's decision in Consolidated Edison, 305 U.S. at 235.

¶ 120. However, the United States Supreme Court subsequently repudiated this interpretation of Consolidated Edison in Perales, concluding:

The contrast the Chief Justice was drawing [in Consolidated Edison], at the very page cited, was not with material that would be deemed formally inadmissible in judicial proceedings but with material "without a basis in evidence having rational probative force." This was not a blanket rejection by the Court of administrative reliance on hearsay irrespective of reliability and probative value. The opposite was the case.

Perales, 402 U.S. at 407-08 (emphasis added). Thus, Perales held that uncorroborated hearsay could constitute substantial evidence in administrative proceedings if the evidence possessed sufficient indicia of reliability and probative value. Id. at 402. "The Supreme Court has explained that hearsay has not been rejected for consideration at administrative hearings, but only hearsay without a basis in evidence having rational probative value." Leitman v. McAusland, 934 F.2d 46, 51 (4th Cir. 1991).

¶ 121. Yet, the majority misconstrues Perales, arguing that the holding in Perales was unique to the context of the Social Security Administration, majority op., ¶¶ 62, 65-66, and that Perales is distinguishable from the present case because there supposedly was an expert that corroborated the medical reports at issue in Perales. Id., ¶ 67. The majority is simply wrong on both counts.

¶ 122. The issue in Perales was "whether physicians' written reports of medical examinations they have made of a disability claimant may constitute 'substantial evidence' supportive of a finding of nondisability . . . when the claimant objects to the admissibility of those reports and when the only live testimony is presented by his side and is contrary to the reports." Perales, 402 U.S. at 390 (emphasis added). As the Perales court stated: "The issue revolves, however, around a system which produces a mass of medical evidence in report form. May material of that kind ever be 'substantial evidence' when it stands alone and is opposed by live medical evidence and the client's own contrary personal testimony." Id. at 399 (emphasis added).

¶ 123. While the hearing examiner in Perales, 402 U.S. at 396 did call an independent medical advisor as a witness, this witness merely reviewed the medical reports at issue and summarized their contents, testifying that "the consensus of the various medical reports was that Perales had a mild low-back syndrome of musculo-ligamentous origin." There is nothing in the Perales opinion to suggest, as the majority does, that the independent medical advisor rendered a separate opinion agreeing with the substance of the medical reports. Quite the contrary, the Court twice referred to the medical reports as standing alone and being contradicted by the live testimony. Id. at 390, 399. Indeed, the precise holding of Perales was as follows:

[A] written report by a licensed physician who has examined the claimant and who sets forth in his report his medical findings in his areas of competence may be received as evidence in a disability hearing and, despite its hearsay character and an absence of cross-examination, and despite the presence of opposing direct medical testimony and testimony by the claimant himself, may constitute substantial evidence supportive of a finding by the hearing examiner adverse to the claimant, when the claimant has not exercised his right to subpoena the reporting physician and thereby provide himself with the opportunity for cross-examination of the physician.

Id. at 402.

¶ 124. In addition, contrary to the majority's argument, the rationale of Perales focused on the fact that the medical reports at issue were reliable and probative because they were standard reports that were routinely utilized in administrative proceedings and the physicians who authored the reports had personally examined the claimant. Id. at 402-06. Therefore, the express language of Perales and its rationale refute the majority's attempts to sidestep the importance of that decision.

¶ 125. Rather than being a decision peculiar to the social security context, Perales has been recognized by other courts as " the leading recent case dealing with the question of 'substantial evidence' in administrative decisionmaking[.]" Unemployment Comp. Bd. of Review v. Ceja, 427 A.2d 631, 639 (Pa. 1981) (emphasis added). Numerous other courts have applied the Perales holding beyond the context of social security hearings to an assortment of administrative proceedings. See, e.g., Leitman, 934 F.2d at 48, 51 (decision of Defense Logistics Agency that debarred plaintiff from purchasing government property under the Federal Acquisition Regulations); Bell Helicopter Int'l, Inc. v. Jacobs, 746 F.2d 1342, 1343-44 (8th Cir. 1984) (decision of Benefits Review Board under the Longshoremen's and Harbor Workers' Compensation Act); Calhoun v. Bailar, 626 F.2d 145, 146-47, 149 (9th Cir. 1980) (discharge of postal employee); Johnson v. United States, 628 F.2d 187, 188, 190 (D.C. Cir. 1980) (decision of the United States Civil Service Commission removing plaintiff from his position as a special agent in the Bureau of Alcohol, Tobacco, and Firearms); Sch. Bd. of Broward Co. v. Dep't of Health, Educ. and Welfare, 525 F.2d 900, 903-04, 906 (5th Cir. 1976) (decision of Commissioner of Education that school board was not eligible for federal aid).

¶ 126. These decisions appropriately recognize that in the Perales decision:

the Supreme Court . . . sanctioned the use of written reports of licensed physicians in administrative hearings, despite the hearsay character of the reports and the absence of opportunity for cross-examination. . . . Such hearsay evidence alone may therefore support an agency determination.

Bell Helicopter, 746 F.2d at 1344 (citations omitted). Thus, properly interpreted, Perales represents a landmark decision that altered the standards as to what constitutes substantial evidence in administrative proceedings:

It is undisputed that an adjudicative official at an administrative hearing can consider hearsay. It is also clear that hearsay alone may not be sufficient as a substantial basis for a decision. The Supreme Court has explained that hearsay has not been rejected for consideration at administrative hearings, but only hearsay without a basis in evidence having rational probative value.

Leitman, 934 F.2d at 51 (citations omitted).

¶ 127. Therefore, the significance of Perales lies not in anything unique to the Social Security Administration, but rather in its recognition that "it is not the hearsay nature per se of the proffered evidence that is significant, it is its probative value, reliability and the fairness of its use that are determinative." Calhoun, 626 F.2d at 148. In other words, Perales "rejected a rigid rule and held that the proffered hearsay evidence could constitute substantial evidence. In doing so, the Court explained that there could be no blanket rejection of administrative reliance on hearsay evidence irrespective of reliability and probative value." Id. at 149. In essence, Perales appropriately recognized that reasonable fact-finders could rely on uncorroborated hearsay that is sufficiently reliable and probative when making factual findings.

¶ 128. As such, contrary to the majority's assertion, majority op., ¶ 64, Perales did more than simply cast doubt on the legitimacy of the residuum rule. Courts applying the substantial evidence rule in light of Perales have recognized that "[a] residuum of corroborating evidence of the type admissible in a jury trial is no longer required." Bell Helicopter, 746 F.2d at 1344. In the aftermath of Perales, "[the residuum] rule no longer controls. We have rejected a per se approach that brands evidence as insubstantial solely because it bears the hearsay label." Johnson, 628 F.2d at 190.

¶ 129. In light of the explicit language of Perales and its subsequent application by other courts, I would conclude that the holding of Perales is applicable to the case at bar. The holding of Perales, which focuses on the reliability and probative force of hearsay evidence, is much more congruent with Wisconsin's statutory framework for administrative proceedings than the residuum rule that the majority applies.

¶ 130. Wisconsin Stat. § 227.45(1), governing administrative procedure, provides:

Except as provided in ss. 19.52(3) and 901.05, an agency or hearing examiner shall not be bound by common law or statutory rules of evidence. The agency or hearing examiner shall admit all testimony having reasonable probative value, but shall exclude immaterial, irrelevant or unduly repetitious testimony or evidence that is admissible under s. 901.05. . . . Basic principles of relevancy, materiality and probative force shall govern the proof of all questions of fact.

(Emphasis added).

¶ 131. Importantly, the statute provides that an agency shall not be bound by formal rules of evidence and that the proof of facts is governed by basic principles of relevancy and probative force. This statute represents a legislative determination to relax the rules of evidence in administrative proceedings. Wal-Mart Stores, Inc. v. LIRC, 2000 WI App 272, ¶ 20 n. 8, 240 Wis. 2d 209, 621 N.W.2d 633; Pieper Elec., Inc. v. LIRC, 118 Wis. 2d 92, 97, 346 N.W.2d 464 (Ct.App. 1984). In addition, Wis. Admin. Code § ETF 11.06(1) (Jan., 2004), which sets forth the evidentiary rules to be used at administrative hearings, provides: "Rules of privilege recognized by law shall be given effect. However, common law or statutory rules of evidence do not apply. The hearing examiner shall admit all testimony having a reasonable probative value. The hearing examiner shall exclude from the record irrelevant, immaterial, or unduly repetitious testimony." Contrary to the residuum rule, Perales is consistent with Wis. Stat. § 227.45(1) and Wis. Admin. Code § ETF 11.06(1) because it recognizes that reliable and probative uncorroborated hearsay may constitute substantial evidence supporting an agency's factual finding.

¶ 132. The residuum rule is incongruent with § 227.45(1) for several reasons. First, by prohibiting an agency from considering uncorroborated hearsay, the residuum rule forces an agency to follow formal rules of evidence. An administrative agency operating under the residuum rule must make two determinations: 1) whether the evidence is hearsay and 2) whether the evidence is corroborated. The first of these inquiries is very problematic in light of the statutory framework. "Hearsay" is defined by the rules of evidence as "a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted." Wis. Stat. § 908.01(3).

¶ 133. Thus, at the outset, when operating under the residuum rule, it is necessary to turn to the rules of evidence to determine whether a particular piece of evidence constitutes hearsay. "Evidence is 'hearsay' only if all elements of the definition are satisfied." 7 Daniel D. Blinka, Wisconsin Practice: Wisconsin Evidence § 801.1, at 521 (2d ed. 2001) (emphasis added). That is, to constitute hearsay under the statutory definition, there must be: 1) a declarant; 2) who offers a statement; 3) that is made out of court; and 4) is offered for the truth of the matter asserted. If a piece of evidence fails to meet any one element, then it is not hearsay. Id., § 801.1, at 522. Specifically, "[o]ut of court statements may be offered to prove innumerable relevant propositions apart from the truth of the matter (explicitly) asserted." Id., § 801.3, at 536. This recognition is extremely important because "[i]f the statement is being offered to prove anything other than the truth of the matter asserted, it is not 'hearsay.'" Id., § 801.3, at 534.

¶ 134. In addition to having to consider this technical definition of hearsay, an agency operating under the residuum rule will have to contend with the fact that Wis. Stat. § 908.01(4) sets forth two categorical exemptions from the hearsay rule. Section 908.01(4) provides that prior statements of witnesses and admissions by party opponents are not hearsay. Each of these exemptions, in turn, has numerous technical elements that must be satisfied. Therefore, an agency operating under the residuum rule must necessarily violate both the express language of § 227.45(1) and the spirit of relaxed evidentiary standards in administrative proceedings because it must make technical evidentiary determinations in order to decide whether an item of evidence is hearsay.

¶ 135. Furthermore, the residuum rule is inconsistent with that part of § 227.45(1) which provides that "[b]asic principles of relevancy, materiality and probative force shall govern the proof of all questions of fact" because it fails to take into account that some uncorroborated hearsay is relevant and probative. The residuum rule represents a classic case of evaluating form over substance. The residuum rule fallaciously assumes that all hearsay, including all documentary evidence, is inherently unreliable and applies a categorical bar to the consideration of uncorroborated hearsay, rather than allowing for a case-by-case analysis of the actual reliability and probative value of individual pieces of evidence. The residuum rule fails to recognize that corroboration does not equal reliability and that some forms of hearsay may be reliable and probative despite their lack of corroboration.

¶ 136. In sum, the inherent problem with the residuum rule is as follows:

[It] fails to distinguish between reliable and unreliable hearsay, thus hampering the administrative decision-making process; while it equally fails to thoroughly protect due process rights, because unobjected to hearsay, no matter how unreliable, if corroborated, no matter how slight the legal evidence, may provide the substantial evidence needed to support an administrative finding. Corroboration in and of itself is not dispositive of the issue of reliability. If available, corroboration may be a factor in determining reliability, but corroboration or the lack thereof neither ensures nor precludes reliability. The standard is, therefore, at the same time too rigid and too indefinite.

Ceja, 427 A.2d at 638.

¶ 137. It is simply inconsistent with § 227.45(1) to argue that all uncorroborated hearsay, no matter what its relevance or probative value, is categorically insufficient to allow a reasonable mind to base a factual conclusion upon it. "Any evidence, whether corroborated or not, if relevant and reliable, should be capable of supporting a factual finding." Ceja, 427 A.2d at 643.

¶ 138. The Perales decision allows uncorroborated hearsay to constitute substantial evidence if it bears sufficient indicia to "assure underlying reliability and probative value." Perales, 402 U.S. at 402. This standard for substantial evidence, contrary to the residuum rule, comports with the prescription in § 227.45(1) that "[b]asic principles of relevancy, materiality and probative force shall govern the proof of all questions of fact" in administrative proceedings.

¶ 139. While the majority argues that without corroboration, hearsay is categorically not probative, majority op., ¶¶ 89-91, it also recognizes that hearsay is admissible in administrative proceedings. Id., ¶¶ 49-51, 86. These two conclusions represent a misunderstanding of the requirements of admissibility in Wisconsin and the relation between probative value and relevance. Wisconsin Stat. § 904.02 provides that "[a]ll relevant evidence is admissible. . . . Evidence which is not relevant is not admissible." Wisconsin Stat. § 904.01, in turn, defines "relevant evidence" as "evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." "Relevance under the Wisconsin rules, then, conflates the probative value of the evidence (the link between the evidence and the proposition to be proven) and the question whether the substantive law regards this proposition as one "of consequence[.]" 7 Daniel D. Blinka, Wisconsin Practice: Wisconsin Evidence § 401.1, at 81 (2d ed. 2001). "Only where the evidence lacks any probative value should it be excluded as 'irrelevant.'" Id., § 401.102, at 87. "[T]he probative value of the evidence . . . is a function of its relevance under § 904.01." Id., § 403.1, at 113. "Probative value, then, is the product of relevance and an assessment of what the evidence adds to the case." Id., § 403.1, at 114.

¶ 140. As such, evidence must have some probative value to be admitted in the first instance. This is explicitly recognized in § 227.45(1), which provides that "[t]he agency or hearing examiner shall admit all testimony having reasonable probative value. . . ." Once evidence is properly admitted, it necessarily contains some probative value. Thus, it is entirely incorrect to posit that uncorroborated hearsay, as a category, lacks any probative value once properly admitted.

¶ 141. However, this does not mean that simply because evidence has sufficient probative value to be admitted, it automatically constitutes "substantial evidence." See Calhoun, 626 F.2d at 150 ("[H]earsay admitted without objection is ordinarily given its normal probative effect."). Rather, the definition of substantial evidence requires an evaluation of how much probative value a given piece of evidence possesses. See Johnson, 628 F.2d at 190-91 (noting that the Perales rule calls for an evaluation of "the weight each item of hearsay should receive according to the item's truthfulness, reasonableness, and credibility"). In other words, a given piece of evidence constitutes substantial evidence if it possesses a degree of probative value sufficient to allow "a reasonable mind [to] accept [it] as adequate to support a conclusion." Sea View Estates Beach Club, 223 Wis. 2d at 148. See also Gray v. Adduci, 532 N.E.2d 1268, 1269 (N.Y. 1988) ("The quantum of evidence before the Administrative Law Judge was substantial since a reasonable mind could accept the report as 'adequate to support a conclusion or ultimate fact.'") (quoted source omitted); Black's Law Dictionary 1442 (7th ed. 1999) (The "substantial-evidence rule" is "[t]he principle that a reviewing court should uphold an administrative body's ruling if it is supported by evidence on which the administrative body could reasonably base its decision."). Under the residuum rule, an agency is never allowed to consider and weigh the probative value or reliability of a given piece of uncorroborated hearsay.

¶ 142. In addition, the notion that all forms of hearsay are intrinsically unreliable is flawed because it fails to account for the fact that hearsay subject to a recognized exception is inherently reliable. While the majority states that "[h]earsay that is subject to an exception is still hearsay," majority op., ¶ 89, this observation misses the point. Each hearsay exception under the rules of evidence "represents a determination of categorical reliability; that is, hearsay falling within any one of the rules carries with it guarantees of trustworthiness and reliability comparable to in-court testimony." 7 Daniel D. Blinka, Wisconsin Practice: Wisconsin Evidence § 801.1, at 523 (2d ed. 2001). See also Ceja, 427 A.2d at 640-41 ("Once evidence is admitted under a recognized exception . . . the evidence is given full probative weight."). By placing an absolute bar on the consideration of uncorroborated hearsay, the majority ignores the fact that certain types of hearsay are categorically considered reliable and trustworthy, despite lack of corroboration.

¶ 143. In addition, the Perales rule, "which requires administrative consideration of probative value and reliability in the first instance comports with . . . the limited review of administrative actions." Calhoun, 626 F.2d at 149-50. Regarding agency factual findings, the legislature has provided that "the court shall not substitute its judgment for that of the agency as to the weight of the evidence on any disputed finding of fact." Wis. Stat. § 227.57(6). By focusing on whether an item of evidence is sufficiently reliable and probative for a reasonable fact-finder to form a conclusion based on the evidence, the Perales decision is in harmony with this deferential standard of review for factual findings that the legislature has provided. In contrast, the majority has essentially substituted its judgment for all agencies by concluding that uncorroborated hearsay, no matter how reliable or probative, can never support a factual finding.

¶ 144. In addition to being inconsistent with the statutory framework for administrative hearings, application of the residuum rule to reliable, probative, documentary evidence is substantially unfair to claimants in administrative proceedings. Because the residuum rule requires corroboration of hearsay in all cases, regardless of the probative value or reliability of a given piece of evidence, "the effect of the residuum rule is to create an evidentiary standard actually stricter than that adhered to in jury trials." Ceja, 427 A.2d at 636. In contrast, the Perales decision allows for "the full development of the record." Calhoun, 626 F.2d at 150.

¶ 145. As the residuum rule imposes an evidentiary standard stricter than in jury trials, it does not afford "protection for the parties[,]" majority op., ¶ 90, in administrative proceedings. Quite the contrary, the residuum rule makes it more difficult for parties, particularly claimants, to prove their case before an administrative body. The majority recognizes that many claimants in administrative proceedings are unrepresented. Majority op., ¶ 51. Yet, by subjecting these unrepresented claimants to the requirements of the residuum rule, the majority forces them to operate under the intricacies of the hearsay rule and its exemptions. The majority also recognizes that many claimants cannot afford expert witnesses and need to be able to present their position as simply and inexpensively as possible at a hearing. Majority op., ¶¶ 102-03. However, it fails to recognize that the residuum rule cuts both ways and applies to all parties in administrative proceedings.

¶ 146. The majority implies that the residuum rule may not be applicable if harmful to a claimant by stating that "[c]orroboration of hearsay is not always required in administrative proceedings." Majority op., ¶ 104. However, the majority offers absolutely no authority for this inexplicable conclusion, which flies in the face of the remainder of the opinion. The majority theorizes that parties may stipulate to the facts or agree that an agency may base its findings of fact on uncorroborated hearsay. Id. One has to wonder why a defendant in an administrative proceeding, which usually will possess greater resources and the ability to call experts, would ever stipulate to facts if the claimant is unable to produce live testimony.

¶ 147. In addition, the majority's suggestion that the parties can somehow agree that an agency can base its findings on hearsay runs contrary to the agency's own rule, which purportedly prohibits the agency from basing factual findings upon hearsay. Wis. Stat. § ETF 11.12(2)(b) (Jan., 2004). The majority has cited no case or principle of law that stands for the proposition that parties can agree to have an agency violate its own rules in rendering decisions. In sum, while the majority's comments in ¶¶ 103-04 imply that the residuum rule does not apply when its operation would be adverse to claimants, the reality is that no case stands for this proposition and that the residuum rule will apply equally to all claimants and defendants.

¶ 148. Furthermore, the rule the majority applies today extends well beyond claims for income continuation insurance benefits and imposes an artificially high evidentiary bar in a variety of administrative proceedings. While the result of the majority's decision may be beneficial to the claimant in the present case, the rule the majority adopts will harm countless claimants in this and other contexts because it imposes an evidentiary standard stricter than that in jury trials. To add insult to injury, the majority imposes a standard of corroboration that is stricter than that which is required during criminal trials. Id., ¶¶ 92-101.

¶ 149. If the majority were truly concerned with "fairness," id., ¶ 82, it would recognize that the residuum rule, which requires an understanding of the technicalities and nuances of evidence law, is inherently unfair to unrepresented claimants. In contrast, the Perales decision, which allows parties to submit all of the evidence they consider relevant to the fact-finder for consideration, and then requires the fact-finder to evaluate each piece of evidence individually for reliability and probative value, is both consistent with principles of equity and the relaxed evidentiary standards that are, by statute, supposed to govern administrative proceedings.

¶ 150. Finally, the majority's application of the residuum rule to standard medical reports ignores the reality of administrative proceedings. The majority implies that medical reports prepared in connection with potential litigation are unreliable. Majority op., ¶¶ 69-71, 86. However, the reports at issue in Perales, 402 U.S. at 402-04, were also prepared by experts retained by the government in connection with litigation. In determining that the medical reports before it constituted substantial evidence, the Supreme Court in Perales examined numerous factors, 402 U.S. at 402-06, several of which are applicable in the present case, stressing that "[t]hese are routine, standard, and unbiased medical reports by physician specialists concerning a subject whom they had seen." Perales, 402 U.S at 404. Thus, Perales "laid great stress on the fact that the reports were independent medical reports routinely prepared and submitted in disability cases." Calhoun, 626 F.2d at 149.

¶ 151. As such, Perales recognized the reality that administrative agencies routinely rely on reports prepared by experts who have examined claimants, and that such reports are probative and reliable. The Perales court "specially noted, first, that the fact that the government calls in and remunerates consultative physicians does not undermine the independence of those physicians' opinions or indicate bias in favor of the [agency]. . . ." Allen v. Heckler, 749 F.2d 577, 580 (9th Cir. 1984).

¶ 152. Perales correctly recognized that documentary evidence, especially medical reports, are routinely utilized in administrative proceedings. Indeed, the Wisconsin Legislature has acknowledged the importance of such evidence in the context of the Workers' Compensation Law by providing that certified reports of medical institutions and practitioners who have examined a patient constitute prima facie evidence as to the matters contained in the reports. Wis. Stat. § 102.17(1)(d). Administrative proceedings are designed to allow for the efficient and fair resolution of claims without the formalities and intricate rules of a full judicial proceeding before a court. By requiring live testimony in every case and preventing agencies from considering evidence that is commonly utilized by parties, the majority ignores this reality and frustrates the purpose of administrative hearings.

¶ 153. For the aforementioned reasons, I respectfully dissent.

¶ 154. I am authorized to state that Justice DAVID T. PROSSER, JR. joins this opinion.

¶ 155. DAVID T. PROSSER, J. (dissenting).

Luann Gehin is a sympathetic figure, but her victory in this court comes at a heavy cost. My purpose in this dissent is to illuminate that cost.

¶ 156. The dissent is divided into three parts. Section I laments the majority's decision to take Wisconsin out of the mainstream of administrative law and predicts some of the consequences that will flow from the decision. Section II challenges the majority's interpretation of a key piece of evidence in the record. Section III outlines the majority's disturbing disregard of the waiver issue and the standard procedures of the Wisconsin Group Insurance Board.

I

¶ 157. In Richardson v. Perales, 402 U.S. 389 (1971), the Supreme Court held that written reports prepared by physicians who have examined a claimant for disability insurance benefits under the Social Security Act constitute "substantial evidence" supporting a finding of non-disability, notwithstanding the hearsay character of the reports, the absence of cross-examination (through the claimant's failure to exercise subpoena rights), and directly opposing testimony by the claimant and the claimant's medical witness. This landmark decision validated reliance on some uncorroborated hearsay evidence in administrative proceedings by taking into account the nature of the proceedings, "the reliability and probative worth of written medical reports," and the claimant's unutilized opportunity for cross-examination. The decision seriously undercut the validity and scope of the so-called legal "residuum rule."

¶ 158. The majority opinion in this case represents a frontal assault on the holding in Perales. The opinion adheres to the precepts of the residuum rule despite a growing body of contrary decisions and the modern trend in scholarship advocating the rule's abolition.

¶ 159. The residuum rule provides, in essence, that "uncorroborated hearsay alone does not constitute substantial evidence [in administrative proceedings]." Majority op., ¶ 56. In other words, there must be some "residuum" of non-hearsay evidence upon which an agency bases its factual findings.

¶ 160. The better rule, as many courts and scholars now recognize, is that hearsay evidence may constitute substantial evidence in administrative proceedings if the hearsay evidence bears inherent guarantees of reliability and trustworthiness.

¶ 161. Wigmore's treatise on evidence asserts that: "The residuum rule . . . is decidedly not the wise and satisfactory rule for general adoption." John Wigmore, 1 Wigmore on Evidence § 4b at 122 (Tillers rev. 1983) (hereinafter Wigmore). The majority admits that the residuum rule "has been criticized by commentators" because it "ignores the reliability of evidence incompetent under the hearsay rule." Majority op.,

¶ 60. The wisdom behind these criticisms is manifest. As the Wigmore treatise summarizes:

Plausible as the residuum rule seems from the liberal point of view, it is not acceptable. . . . [T]he residuum rule rests logically on [a] fallac[y] . . . that this "residuum of legal evidence," which is to be indispensable, will have some necessary relation to the truth of the finding. But the "legal" rules have no such necessary relation. In the mass, they do tend to secure a reliable body of evidence; but, taking each rule individually, it is obviously fallacious to assume that one or more pieces of "legal" evidence are per se a sufficient guarantee of truth.

Wigmore, supra, at 120-21.

¶ 162. To illustrate this point, consider two potential pieces of evidence. First, consider the medical reports by Dr. Whiffen and Dr. Lemon in this case, recalling that Dr. Whiffen was Gehin's treating physician. Second, consider oral testimony from someone like a claimant's spouse that the claimant is "totally disabled." The majority opinion concludes that because the latter evidence is "legal," it may serve as substantial evidence, but because the medical reports are technically "hearsay," they may not. Does this make sense? As Wigmore's treatise points out,

[B]oth may be true, or both may be false; truth or falsity depends on the circumstances in each case. But truth or falsity does not depend on the one type of evidence being "legal" and the other being "illegal". . . . Yet the rule for a "residuum of legal evidence" rests on the assumption that the "legal" evidence is always credible and sufficient but the "illegal" evidence is never credible or sufficient.

Wigmore, supra, at 122.

¶ 163. In 1971 the Supreme Court decided that the residuum rule does not apply to social security disability proceedings in which the agency relies on medical records. The Court said:

We conclude that a written report by a licensed physician who has examined the claimant and who sets forth in his report his medical findings in his area of competence may be received as evidence in a disability hearing and, despite its hearsay character and an absence of cross-examination, and despite the presence of opposing direct medical testimony and testimony by the claimant himself, may constitute substantial evidence supportive of a finding by the hearing examiner adverse to the claimant, when the claimant has not exercised his right to subpoena the reporting physician and thereby provide himself with the opportunity for cross-examination of the physician.

Perales, 402 U.S. at 402 (emphasis added).

¶ 164. As courts fell into line behind the Perales approach, Wigmore's treatise noted: "The residuum rule generally has been abandoned." Wigmore, supra, at 122. The National Judicial College predicted that even in jurisdictions still favoring the residuum rule, "any evidence that an Administrative Law Judge finds to be trustworthy and reliable should meet the exception to the hearsay rule and thus satisfy the legal residuum rule in those jurisdictions that apply the rule." Melvin Goldberg, Goldberg's Deskbook on Evidence for Administrative Law Judges, IV-16 (1993) (published in cooperation with the National Judicial College). The majority opinion bludgeons this prediction.

¶ 165. Wigmore's treatise further notes that the residuum rule has been replaced by the "substantial evidence" standard. Wigmore, supra, at 122-23. In Wisconsin, the "substantial evidence" test is statutory. Wis. Stat. § 227.57(6) ("The court shall, however, set aside agency action or remand the case to the agency if it finds that the agency's action depends on any finding of fact that is not supported by substantial evidence in the record."). Wisconsin courts evaluate whether "reasonable minds could arrive at the same conclusion as the agency." Kitten v. DWD, 2002 WI 54, ¶ 5, 252 Wis. 2d 561, 644 N.W.2d 649. "Many courts and almost all scholars agree that hearsay and other 'incompetent' evidence may constitute 'substantial evidence.'" Wigmore, supra, at 123-24.

¶ 166. Despite the modern trend against the residuum rule, Wigmore's treatise admits that "[s]ome courts . . . have effectively subverted the original purpose of the substantial evidence standard by holding that hearsay evidence in and of itself cannot constitute 'substantial evidence.'" Wigmore, supra, at 124-25.

¶ 167. The approach advocated by Wigmore's treatise and approved by the Supreme Court in Perales could hardly be more apposite to this case. In fact, the Perales Court resolved exactly the same issue we face today — namely, whether written medical reports by licensed physicians may constitute substantial evidence in administrative proceedings. The Supreme Court held that medical reports do constitute substantial evidence. Today the majority holds that they do not. I would follow Perales, not because we are bound to do so, but because the reasoning behind the Supreme Court's decision, coupled with the modern trend of authority and scholarship, convinces me that we should do so.

¶ 168. The Perales Court cited nine factors it believed established the inherent reliability of the medical records in that case. Most, if not all, are present in this case as well.

¶ 169. First, the Court noted that each hearsay medical report was prepared by a practicing physician who had examined the claimant. Perales, 402 U.S. at 402. The Court refused to "ascribe bias" to any of these doctors. Id. at 403. In the present case, the medical reports relied on by the Board — that is, the Whiffen and Lemon reports — were prepared by medical doctors who examined Gehin at the time of the disability determination. Some reports were prepared by Gehin's own physician (Whiffen). By contrast, Dr. Shannon's examination of the claimant came two years after the determination at issue. Ironically, the relevance of Dr. Shannon's testimony, which was contested at the hearing, depended in large part upon the written "hearsay" reports of others. There is no reason for this court to ascribe bias to the medical reports relied on by the Board.

¶ 170. Second, the Perales court cited the impartiality of the administrative agency evaluating the claim. Id. at 403. Similarly, in this case, there is nothing in the record to cause this court to believe that the Wisconsin Group Insurance Board (the Board), which employed a hearing examiner to conduct a hearing and review evidence, was biased.

¶ 171. Third, the Court hailed the process by which medical reports are generated.

One familiar with medical reports and the routine of the medical examination, general or specific, will recognize their elements of detail and of value. The particular reports of the physicians who examined [the claimant] were based on personal consultation and personal examination and rested on accepted medical procedures and tests.

Id. In the present case, the majority has not suggested that the character of medical reports is today less reliable than it was at the time the Supreme Court decided Perales. Accordingly, that factor is also present here.

¶ 172. Fourth, the Court cited the range of examinations to which the claimant submitted. Id. at 404. In this case, Gehin's examinations were relatively similar, with each designed to determine whether Gehin was "totally disabled" within the meaning of the ICI policy. Concededly, the fourth Perales justification is not present in this case.

¶ 173. Fifth, the Court noted the consistency among all the medical reports. Id. In this case, the majority goes to some lengths to show that hearsay cannot be corroborated by other hearsay, majority op., ¶¶ 92-101, thus rejecting consistency between independent medical reports as evidence showing the reliability of such reports. This conclusion is hard to defend.

¶ 174. Sixth, the Court noted that the claimant had the opportunity to cross-examine the doctors by requesting subpoenas for them, but did not do so. Perales, 402 U.S. at 404-05. Gehin had the same opportunity. The majority cites a treatise by Professor Bernard Schwarz stating that claimants rarely subpoena physicians due to the expense. Majority op., ¶ 84 n. 88. But that is exactly what the majority's opinion will force claimants to do. Claimants will have to foot the bill for their own experts to appear in person, if the opposing party makes an expected objection to "hearsay" medical reports.

¶ 175. Seventh, the Court noted that even in formal trials before competent courts, medical records are admitted and considered despite their hearsay character, as an exception to the hearsay rule. Id. at 405. The same is true in Wisconsin. See Wis. Stat. § 908.03(6m).

¶ 176. Eighth, the Court noted that prior decisions have recognized the "reliability and probative value" of medical reports. Perales, 405 U.S. at 405. The Court found that these decisions "demonstrate traditional and ready acceptance of the written medical report in social security disability cases." Id. at 406. Although the Court referenced social security disability cases, the character of the medical report does not change based on the type of administrative proceeding in which it is used. Rather, the character of the report is grounded in the process used to generate the report. See id. at 403-04.

¶ 177. Ninth, the Court recognized the sheer magnitude of the administrative process, and reasoned that requiring live testimony by doctors would "be a substantial drain" both financially and on the energy of physicians. Id. at 406. Both reasons apply here as well.

¶ 178. Commentators in the wake of the Perales decision approved the Court's change in focus from a per se rule that hearsay cannot be substantial evidence to an evaluation of the reliability of the hearsay evidence. "Such a direct look at the reliability of the evidence makes far more sense than a per se rule that hearsay cannot be substantial evidence." The Supreme Court, 1970 Term, 85 Harv. L. Rev. 38, 328 (1971-72) (citing 2 K. Davis, Administrative Law, §§ 14.10, 14.11 (1958); I J. Wigmore, Evidence § 4(b) (3d ed. 1940)).

¶ 179. Hearsay rules originally developed as protections in the jury trial context to preclude laypersons from placing too much evidence on arguably unreliable hearsay evidence. Id. at 329 (citing Thayer, Preliminary Treatise on Evidence at the Common Law 180, 181 (1896); I J. Wigmore, Evidence § 4(b) (3d ed. 1940)). That concern is not present in administrative hearings. "[W]here the jury is supplanted by a trained hearing examiner or administrative board, often with expertise in evaluating evidence, the rationale for the use of hearsay standards disappears." Id.

¶ 180. The Court decided Perales 33 years ago. Since then, many courts have relied on its reasoning. Today this court becomes one of the few, if not the only, court to disagree substantively with the rationale and rule of law announced in Perales.

¶ 181. The majority provides several reasons for distinguishing Perales, majority op., ¶ 66, none of which withstands close examination. First, the majority distinguishes Perales based on the vast scope of the Social Security Administration (SSA). Majority op., ¶ 66. The majority cites a 1992 law review article which stated that the SSA considers more than one million disability applications a year. Majority op., ¶ 66. However, this figure of "one million . . . applications" is irrelevant. The relevant consideration is the number of cases involving a contested hearing. At the time of the Supreme Court's decision, the SSA conducted only 20,000 claim hearings annually — a number one-fiftieth the size of the amount the majority uses as justification. Perales, 402 U.S. at 406. Our record does not reveal how many cases the Wisconsin Group Insurance Board considers each year, so that there is no way to compare the scope of the two programs.

¶ 182. In any event, although the Supreme Court noted the scope of the SSA as one of the nine reasons supporting its holding, id., this scope was not the principal reason for its decision. As the Court put it:

The matter comes down to the question of the procedure's integrity and fundamental fairness. We see nothing that works in derogation of that integrity and of that fairness in the admission of consultants' [medical] reports, subject as they are to being material and to the use of the subpoena and consequent cross-examination.

Id. at 410.

¶ 183. The Court was ultimately persuaded by the "underlying reliability and probative value" of the medical reports, not by the sheer scope of the SSA. This makes sense, because if the only goal were to make it easy to process an immense number of claims quickly, the practical approach would be to give the decision-maker broad autonomy to dispose of claims quickly. Instead, the Court wisely promulgated a rule based on the underlying reliability and probative value of the medical reports.

¶ 184. Second, the majority distinguishes Perales because in claim hearings before the SSA (at issue in Perales), "most claimants are not represented by counsel." Majority op., ¶ 66. Later in the opinion, the majority poses an excellent question:

[I]f hearsay is admissible in court as an exception to the hearsay rule and a fact-finder in a judicial proceeding may base its decision on admissible hearsay, why then apply what appears to be a more restrictive rule barring an administrative agency from basing its decision on uncorroborated hearsay that falls within a hearsay exception?

Majority op., ¶ 90.

¶ 185. The majority answers its own question by stating that the "primary reason" for imposing stricter evidentiary standards on administrative agencies than on criminal courts is that "in administrative hearings the claimants are often not represented by counsel. . . ." Id. In this case, however, Gehin was represented by counsel, the hearing examiner was an attorney, and the Group Insurance Board collectively had substantial experience and expertise. Thus the facts were similar to the facts in Perales. Imposing an evidentiary standard for administrative hearings higher than the standard applied in courts does not assist a person who is not represented by counsel.

¶ 186. Third, the majority distinguishes Perales because "procedures must be kept as simple and inexpensive as possible for the system to work." Majority op., ¶ 66. This is really just a restatement of the majority's first ground for distinguishing Perales — the scope of the SSA. As already discussed, that was not the impetus behind the Supreme Court's holding. The majority provides no reason that proceedings before the Group Insurance Board should not also be simple and inexpensive.

¶ 187. The majority also distinguishes Perales on factual grounds because in that case "the doctors' written reports were corroborated by in-person testimony. The evidence in Perales consisted of [the written medical reports, oral testimony for the claimant, and] a government-paid doctor's testimony that corroborated the substance of the written hearsay reports." Majority op., ¶ 67. This summarization overstates what the "government-paid doctor" actually did. The government-paid doctor never examined the claimant. Perales, 402 U.S. at 396. He simply summarized the hearsay medical reports, and provided the hearing examiner with a "consensus" of the medical reports. Id. In effect, he explained to the examiner what the medical reports said.

¶ 188. In the case at bar, the Group Insurance Board examiner had the benefit of the detailed forms completed by the doctors. The examining doctors had to answer a simple question: Is Luann Gehin "totally disabled" within the meaning of the ICI policy? The doctors simply checked "yes" or "no" after providing their findings and reasoning. The examiner did not need another medical doctor to provide the "consensus" of these reports. The examiner could simply count how many doctors answered "yes" and how many answered "no."

¶ 189. Instead of relying on Perales, a Supreme Court case directly on point, the majority chooses to rely on Folding Furniture Works, Inc. v. Wisconsin Labor Relations Board, 232 Wis. 170, 285 N.W. 851, 286 N.W. 875 (1939). It thereby disregards the remarkable similarity of the factual situation in Perales and turns to the fundamentally different factual situation in Folding Furniture.

¶ 190. Folding Furniture is a case about unfair labor practices in the context of collective bargaining between a labor union and an employer. 232 Wis. at 178-79. The employer in Folding Furniture objected to the Wisconsin Labor Relations Board's admission of and reliance on employee testimony about what the owner's motivation was in certain statements he made and actions he took and what the owner's sons' opinion was about wage increases. Id. at 188. Statements such as these fall within the heart of the prohibition on hearsay. See Wis. Stat. §§ 908.01(3) (definition of hearsay), 908.02 (hearsay inadmissible unless otherwise excepted from the general rule). In the instant case, the evidence at issue is not oral statements by laypersons of "mere opinion," but medical reports prepared by doctors after personal examinations. This court has already ratified the trustworthiness inherent in medical reports by expressly exempting "Health Care Provider Records" from the operation of the general rule prohibiting hearsay. Wis. Stat. § 908.03 preamble and (6m).

¶ 191. Despite the factual differences, the majority cites Folding Furniture because it quotes the United States Supreme Court opinion in Consolidated Edison Co. v. National Labor Relations Board, 305 U.S. 197 (1938), which stated "Mere uncorroborated hearsay or rumor does not constitute substantial evidence." Id. at 230. In Folding Furniture, this court did not analyze the statement from Consolidated Edison, but merely quoted it. See Folding Furniture, 232 Wis. at 189.

¶ 192. Had Perales not addressed this language from Consolidated Edison, this court might have reason to struggle with the two cases. But it need not do so because the Perales Court expressly clarified and distinguished the quoted statement from Consolidated Edison:

The contrast the Chief Justice was drawing, at the very page cited, was not with material that would be deemed formally inadmissible in judicial proceedings but with material "without a basis in evidence having rational probative force." This was not a blanket rejection by the Court of administrative reliance on hearsay irrespective of reliability and probative value. The opposite was the case.

Perales, 402 U.S. at 407-08 (emphasis added). The Court makes plain that its paradigm for evaluating hearsay evidence is not based on its hearsay nature, but rather on the inherent reliability of the hearsay evidence.

¶ 193. Unable to ignore this express language in Perales, the majority is forced to admit that " Perales casts doubt on the continued viability of Consolidated Edison." Majority op., ¶ 64. Yet the majority persists that "many states continue to operate under rules that function like the legal residuum rule." Majority op., ¶ 62. The majority punctuates its analysis with a substantial footnote purporting to show the vast number of jurisdictions that do not follow Perales. Majority op., ¶ 62 n. 76. Close inspection of the material therein reveals that much of it does not support the majority's conclusion. The majority later admits that "some cases and . . . some commentators" support the opposing position as advanced by the court of appeals. Majority op., ¶ 85. Notably, most of the authority that favors the court of appeals' Perales-based result is more recently minted than the authority favoring the majority's approach. Compare majority op., ¶ 85 n. 89 (all cases cited are 1998 or newer) with majority op., ¶ 62 n. 76 (all cases cited are 1986 or older).

¶ 194. Even the majority's preferred Consolidated Edison test only restricts reliance on "uncorroborated hearsay." Here, there is evidence in the record to corroborate the medical reports. The Board's "Finding of Fact #7" states that Gehin participated in a job-retraining program through the State of Wisconsin Division of Vocational Rehabilitation. Her duties included "typing on both a typewriter and a computer, filing, answering the telephone, and other clerical duties."

¶ 195. Gehin's participation within the job retraining program shows that she was not "totally disabled" within the meaning of the ICI contract, thereby corroborating the hearsay medical records. The majority has recited that definition in full, majority op., ¶ 14 n. 18, including the language " complete inability by reason of any medically determinable, physical or mental impairment, to engage in any substantial gainful activity" (emphasis added). Suffice to say that Gehin was not "totally disabled" within the meaning of the ICI contract if she was capable of earning an amount at least equal to her ICI benefit. Id. Gehin's monthly ICI benefit was $979.37. Id. If, as the Board found, Gehin was capable of working a minimum of 24 hours per week for four weeks each month, she could work a minimum of approximately 96 hours each month. The Wisconsin Department of Workforce Development maintains average salary statistics for a myriad of professions in Wisconsin, broken down by job title and by locality. In Madison, "secretaries" now earn an average of $14.17 per hour. If Gehin had worked 96 hours at $3.50 per hour less than that rate, she would have earned in excess of her monthly ICI benefit of $979.37. This factual finding by the Board corroborates the conclusion that Gehin was not totally disabled as expressed in the medical reports. The majority disregards this evidence, instead finding that "if the uncorroborated written hearsay medical reports are eliminated from consideration, no evidence exists in the record to support the [Board's] findings" about the claimant's physical condition. Majority op., ¶ 47 (emphasis added).

¶ 196. The majority's opinion helps the claimant in this case. But in many future cases, the shoe will be on the other foot. The court's decision will force financially struggling claimants to pay the bills for expert testimony. The majority recognizes this concern. Majority op., ¶¶ 102-03. The majority claims that its decision should not be read to require corroboration by non-hearsay evidence in all instances. Majority op., ¶ 103; but see majority op., ¶ 81 ("[U]ncorroborated hearsay alone does not constitute substantial evidence in administrative hearings."). The majority suggests that the parties may stipulate to some or all of the facts or to the submission of and reliance upon the contents of written hearsay reports. Majority op., ¶ 104. The majority also suggests that the parties may stipulate that the agency may base its findings of fact on uncorroborated hearsay. Id.

¶ 197. It should be obvious that when a claimant decides against appealing a decision based on adverse medical reports, the claimant willingly or unwillingly accepts the judgment in the reports. The issue at hand arises when a claimant does not accept the judgment in one or more medical reports, or when a respondent party does not accept the conclusion in a claimant's medical reports.

¶ 198. As the majority recognizes, many claimants in proceedings before the Board are not attorneys. See majority op., ¶ 90. Non-attorneys might understandably be suspicious of their adversaries in such administrative proceedings and probably would not be willing to stipulate. When claimants are represented by attorneys, the point is more pronounced: what attorney worth her salt will stipulate to a fact against the interest of her client? Thus, both parties and attorneys will likely press the other side to bring in the doctors for presentation of live testimony, as this court in essence requires today.

¶ 199. The court's decision may even lead to the perverse result that a government agency might refuse to quickly dispose of a claim in which it knows the claimant's position has merit. For instance, the Department of Employee Trust Funds could decide to force the claimant to provide live testimony to corroborate her doctor's records when it knows that the claimant's financial resources are thin. Conversely, claimants in similar positions might decide not to contest termination of benefits because they know they cannot afford the live expert testimony that the majority today demands.

¶ 200. The Perales case does not authorize administrative agencies to make factual findings based solely on hearsay irrespective of the nature or reliability or probative value of the hearsay. The Perales case recognizes that some uncorroborated hearsay constitutes substantial evidence in an administrative proceeding because of its reliability and probative worth and because of the opportunity a party has to subpoena a witness for cross-examination. Medical records are widely regarded as reliable, probative, and worthy of acceptance. If uncorroborated medical records do not constitute substantial evidence, then, arguably, no uncorroborated hearsay records or statements constitute substantial evidence. This is the staggering consequence of the majority's decision.

¶ 201. In the future, participants in administrative hearings will be required to provide live, in-person testimony to corroborate reliable hearsay evidence. Wisconsin Stat. § 908.03(24) allows the admission of all hearsay statements having "comparable circumstantial guarantees of trustworthiness." "Comparable" presumably means "comparable" to the other 23 exceptions enumerated in Wis. Stat. § 908.03. Yet under the majority's rule, none of these trustworthy pieces of evidence may serve as the basis for an administrative agency's finding without corroboration. Business records, birth certificates, property deeds — none of these commonly-relied upon documents constitutes substantial evidence under the majority's approach without sufficient corroborating non-hearsay evidence.

¶ 202. Wisconsin Stat. § 908.03(6m) (b) specifically provides that in the case of medical records, an authentication witness is unnecessary as long as copies of the records have been served upon opposing parties at least 40 days before trial. This is another indication of our common-sense conviction of the inherent trustworthiness and integrity of medical records. The majority opinion is inconsistent with this conviction.

II

¶ 203. The majority admits that medical reports are "generally" reliable, but discounts the reliability of Dr. Whiffen's evaluation without explicitly explaining why. Majority op., ¶ 91. Presumably, the majority is referring to Dr. Whiffen's "Attending Physician's Statement" on which Dr. Whiffen initially checked both "yes" and "no" in response to Question 5(a) on the form, which inquires whether the patient is "totally disabled." See majority op., ¶ 74. The majority fails to note that question 5(a) is actually divided into two parts: first, inquiring whether the patient is totally disabled as that definition applies to the "Patient's Job," and, second, inquiring whether the patient is totally disabled as to "Any Other Work." Even if Dr. Whiffen's answer to the first part of the question is debatable, his response to the second part is not. Dr. Whiffen clearly checked the "no" box, indicating that in his professional opinion, Gehin was not "totally disabled" such that she could not undertake "Any Other Work." The clarity of Dr. Whiffen's response to the second part of the question undercuts the majority's conclusion that the allegedly questionable marking renders his report "not reliable as a basis for the [Board's] findings of fact . . . [or] conclusions of law." Majority op., ¶ 79.

III

¶ 204. The majority opinion disregards the established procedures of the Group Insurance Board. Gehin's case was reviewed first by the United Wisconsin Group, then by the Department of Employee Trust Funds. Gehin appealed to the Group Insurance Board, making the Department the opposing party. In that appeal, Gehin had the burden of proof to show that she was entitled to the previously denied benefit. Wis. Admin. Code § ETF 11.03(8). On appeal, Gehin did not object to the admission of the medical reports or to the Department's reliance on the reports. Before the Board issued its final decision, it issued a proposed decision, as it is required to do by rule. Wis. Admin. Code § ETF 11.09(1).

¶ 205. The majority admits that "Arguably the claimant had an opportunity to object to the Findings of Fact being based on uncorroborated hearsay evidence when the Proposed Findings of Fact and Conclusions of Law were released." Majority op., ¶ 107. Actually, Gehin's chance to object was more than "arguable." By rule, when the Board issues its proposed decision, the losing party (Gehin) has 20 days to file an objection to the proposed decision. Wis. Admin. Code § ETF 11.09(3). Gehin, represented by counsel, filed a 23-page written objection to the Board's proposed decision. However, Gehin's objection was not to the Board's reliance on the medical reports. On the contrary, Gehin relied on the reports to attempt to show that the Board's Proposed Decision that she was not "totally disabled" was factually incorrect. Gehin failed to object to the Board's reliance on the reports despite the ETF code provision that "The aggrieved party shall specify, in detail . . . each provision of the proposed decision to which the party objects and the basis for each objection . . . [including] each change the party requests the board to make in the proposed decision and the legal grounds for the change." Wis. Admin. Code § ETF 11.09(3)(a)-(b).

¶ 206. The majority skates over the Board's argument that Gehin waived any right to challenge the Board's reliance on the medical reports because she raised no objections on those grounds despite the noted multiple opportunities to do so. Perplexingly, the majority relies on the circuit court's ruling that Gehin "was not required to object and that the claimant therefore did not waive her objections," majority op., ¶ 107, despite its earlier correct statement that "This court reviews the decision of the Group Insurance Board, not the circuit court's order or court of appeals' decision." Majority op., ¶ 5. The majority concludes that it "need not decide whether the claimant waived her right in the present case to challenge the bases of the Findings of Fact." Majority op., ¶ 109. The majority cites no authority that allows it to completely fail to address the Board's argument. In fact, the majority provides no reason at all why Gehin has not waived her arguments as to the Board's reliance on the medical reports.

¶ 207. Instead, the majority simply asserts that the Board's Perales-based argument would constitute "abandon[ing] the rule long used in this state that uncorroborated hearsay evidence alone does not constitute substantial evidence." Majority op., ¶ 8. The majority terms its rule "long used," yet United Wisconsin Group, the Department of Employee Trust Funds, the Group Insurance Board, and the court of appeals all operated under the impression that the applicable "rules" allowed the Board to rely on the medical reports. It is the majority that is changing the rules. At a minimum, the majority should remand this case to the Board to allow it to reconsider the case in light of the "residuum rule" standard the majority resurrects.

CONCLUSION

¶ 208. Professor Kenneth Davis has written that the reasons supporting abandonment of the residuum rule are "overwhelming — so overwhelming as to give rise to the question whether courts that have given lip service to the residuum rule have done so on the basis of misunderstanding instead of through an exercise of informed judgment." Kenneth Davis, 3 Administrative Law Treatise, § 16.6 at 239 (2d ed. 1980). Apparently the majority is not "overwhelmed" by the courts' and scholars' criticisms of the residuum rule. I am persuaded and would affirm the decision of the court of appeals relying on the reasoning of Perales. I would adopt the rule that hearsay evidence may constitute substantial evidence in administrative proceedings if the hearsay evidence bears inherent guarantees of reliability and trustworthiness and the opposing party has full notice of the evidence and the opportunity to challenge it by subpoenaing a witness. In addition, I believe this court should be more attentive to the waiver issue and the procedures employed by administrative agencies in general, and the Board in particular. For the foregoing reasons, I respectfully dissent.

¶ 209. I am authorized to state that Justice JON P. WILCOX joins this dissent.

¶ 210. PATIENCE DRAKE ROGGENSACK, J. (dissenting).

The court reviews whether the Wisconsin Group Insurance Board (Board) erred in making a decision that was dependent on a finding of fact supported by written hearsay evidence, namely, reports made by medical doctors. My colleagues' majority and dissenting opinions debate whether such hearsay, if uncorroborated, constitutes "substantial evidence" under Wis. Stat. § 227.57(6). I write separately in dissent because I would not reach the question of whether uncorroborated hearsay constitutes substantial evidence as the hearsay evidence here was corroborated and constituted "substantial evidence" under § 227.57(6). Accordingly, I would affirm the court of appeals.

I. BACKGROUND

¶ 211. On May 15, 1992, LuAnn Gehin (Gehin) injured her back while working for the University of Wisconsin Hospital. She qualified for Income Continuation Insurance (ICI) benefits, effective June 2, 1993. In a letter dated May 5, 1997, United Wisconsin Group (UWG) informed Gehin that she was not eligible for benefits beyond April 30, 1997 because she no longer met the criteria for "Totally Disabled" under the ICI contract. Pursuant to 5.15-4.b. of the ICI contract, "Totally Disabled" means:

After the first 12 months, the EMPLOYE's complete inability by reason of any medically determinable, physical or mental impairment, to engage in any substantial gainful activity for which the EMPLOYE is reasonably qualified with due regard to the EMPLOYE's education, training, experience, and prior economic status. An activity is considered a substantial gainful activity if the earnings from that activity would be at least equal to the gross Income Continuation benefit for the same period of time.

At the time her benefits were terminated, Gehin was receiving $979.34 per month in gross ICI benefits.

¶ 212. Upon Gehin's request, UWG reconsidered and upheld its determination, and then the Department of Employee Trust Funds (DETF) reviewed and affirmed UWG. Gehin subsequently appealed to the Board.

¶ 213. The Board held an evidentiary hearing on October 2, 2001. Gehin, a physician expert retained by Gehin, and a DETF employee gave testimony. Gehin testified that she was not able to work due to pain. She also testified about her participation in a job-training program through the Department of Health and Family Services that included unpaid, on-the-job work experience at Mendota Mental Health Institute (MMHI) from the fall of 1994 until the spring of 1997.

¶ 214. The hearing officer also admitted a number of exhibits, including documents created by health care professionals who did not testify at the hearing, some of which were favorable to Gehin's position and others which were favorable to UWG's determination. Among these exhibits were medical opinions and evaluations prepared by Dr. John Whiffen, Gehin's treating physician, and by Dr. Richard Lemon, an independent medical consultant retained by UWG, neither of whom testified at the hearing.

¶ 215. On April 16, 2002, the Board issued its final decision and order, concluding, "[T]he appellant was not disabled within the requirements of the ICI contract after April 30, 1997." In its Findings of Fact, the Board included statements made by Dr. Whiffen and Dr. Lemon that concluded that Gehin could work with restrictions. The Board relied on these written medical opinions in reaching its conclusion. The Board explained that "UWG and the DETF reasonably accepted the opinions of appellant's treating physician and of UWG's expert" over evidence presented that was favorable to Gehin.

II. CORROBORATION OF HEARSAY EVIDENCE

¶ 216. Pursuant to Wis. Stat. § 227.57(6), which governs the scope of review of this agency decision, a court "shall . . . set aside agency action or remand the case to the agency if it finds that the agency's action depends on any finding of fact that is not supported by substantial evidence in the record." Section 227.57(6) (emphasis added). "The test for substantial evidence is whether reasonable minds could reach the same conclusion as the agency, given the evidence in the record." Hutchinson Tech., Inc. v. LIRC, 2004 WI 90, ¶ 21, 273 Wis. 2d 394, 682 N.W.2d 343.

¶ 217. Some of our cases have called into question whether hearsay evidence that is uncorroborated may, by itself, constitute "substantial evidence" under Wis. Stat. § 227.57(6). See Folding Furniture Works, Inc. v. WLRB, 232 Wis. 170, 189, 285 N.W. 851 (1939); Village of Menomonee Falls v. DNR, 140 Wis. 2d 579, 610, 412 N.W.2d 505 (Ct.App. 1987); see also Wis. Admin. Code § ETF 11.12(2)(b) (providing that in a final decision of the Board, "No finding of fact may be based upon hearsay.") As a general matter, hearsay evidence is considered suspect because of concern regarding its reliability. See 29 Am. Jur. 2d Evidence § 658. As the very definition of hearsay makes clear, the problem with relying on a hearsay statement is that the hearsay statement may not be true. See Wis. Stat. § 908.01(3) (defining hearsay as "a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted").

¶ 218. The use of hearsay evidence often requires corroboration to insure its reliability. See Florida v. J.L., 529 U.S. 266, 270 (2000). In determining how much and what type of evidence is sufficient for corroboration, we have held evidence is sufficient to corroborate if it "permit[s] a reasonable person to conclude, in light of all the facts and circumstances, that the statement could be true." State v. Guerard, 2004 WI 85, ¶ 5, 273 Wis. 2d 250, 682 N.W.2d 12 (citation omitted). This is the appropriate corroboration standard to apply here because if the hearsay statement could be true, reasonable minds could rely on it as substantial evidence. See Hutchinson Tech., 273 Wis. 2d 394, ¶ 21.

¶ 219. This test for corroboration is flexible, as it "neither prescribes nor limits the type or source of acceptable corroboration." See Guerard, 273 Wis. 2d 250, ¶ 32. Corroboration is sufficient if it makes a fact reasonably "debatable." See id., ¶ 33. Additionally, there may be a "conflict between two distinct points of view" or the relevant evidence may "point in different directions," neither of which defeats corroboration. See id. And finally, corroboration does not have to be made by an independent source. See id., ¶ 34. Certain evidence can be self-corroborating. See id.

¶ 220. In the present case, the majority asserts that the written report of Dr. Whiffen, who has treated Gehin since 1993, and the written report of an independent medical evaluation performed by Dr. Lemon in 1997 are uncorroborated hearsay statements. Statements from these reports, which the Board relied upon in reaching its conclusion, were included in the Board's Findings of Fact:

10. . . . . On January 30, 1997, UWG asked Dr. Whiffen to provide an update as to Gehin's condition. Dr. Whiffen opined on February 7, 1997, that Gehin could work up to full-time with restrictions, including a need to change position every 45-60 minutes for five minutes. On March 11, 1997, Dr. Whiffen stated that Gehin could return to her former job, with restrictions.

11. Dr. Lemon examined Gehin on December 3, 1997. UWG provided him with the contractual definition for long-term benefits. Dr. Lemon concluded that Gehin did not meet the contractual long-term benefit definition stating:

Because of [low back pain] symptoms I believe that Ms. Gehin needs to be under permanent work restrictions. I believe that she is capable of working 8 hours a day where she can alternate between sitting and standing every 30 minutes. I believe that she needs to be lifting no more than 5 pounds. She also needs to avoid any stooping, bending or twisting. I believe that Ms. Gehin could easily be employed in a position such as a receptionist where she is able to stand or sit using a telephone headset for comfort. Certainly, Ms. Gehin could also do some light paperwork or computer work. I find it hard to believe that Ms. Gehin at only 53 years of age is totally unemployable.

¶ 221. While both doctors' reports are hearsay, they are not uncorroborated. First, Dr. Whiffen had reported that Gehin was able to work prior to the January 30, 1997 and February 7, 1997 reports relied upon by the Board. In a report dated December 9, 1994, Dr. Whiffen first opined that Gehin was able to return to work as of "3/24/94," with no hourly restrictions but with weight, lifting and bending restrictions. He repeated that opinion in a report dated November 27, 1996.

¶ 222. Further, the record is replete with medical records in addition to the reports of Drs. Whiffen and Lemon. One such report is that of Dr. Kenneth Redlin, dated September 17, 1997. Dr. Redlin related that an August 12, 1997 Functional Capacity Evaluation (FCE) indicated Gehin has an "inability to squat, lift, stand, walk or carry anything but negligible loads," but he noted that Gehin had just returned from a camping trip where she traveled by camper. He opined that the FCE's "spinal evaluation was NOT VALID." (Emphasis in original.) He further noted that an independent medical exam done in 1994 did not indicate employment limitations. From this, he concluded that the FCE done on August 12, 1997 may not be reliable, and he recommended a new independent medical examination.

¶ 223. The reports of Dr. Whiffen, Dr. Lemon and Dr. Redlin corroborate one another under the standards we set in Guerard because they show that the opinions in each report "could be true." Guerard, 273 Wis. 2d 250, ¶ 5. First, the records from Dr. Whiffen date back to 1992; he was her treating physician. Second, all three doctors focus on Gehin's complaints about back pain and conclude that she could work, notwithstanding her complaints. Third, Dr. Lemon's report is written in response to a request that he render his opinion of Gehin's condition in light of the definition of "totally disabled" in the ICI contract, which definition is given to him and forms the framework for his opinion. And fourth, the reports of Drs. Whiffen and Lemon are self-corroborating, as well as corroborating each other. They were prepared independently, but they repeat the same medical facts and draw the same conclusion about Gehin's claimed total disability. See id., ¶ 34.

¶ 224. Furthermore, Gehin, herself, testified sufficient to show that the opinions of Drs. Whiffen and Lemon could be true, in that she testified about her on-the-job training program at MMHI. She said that she was able to perform clerical tasks, such as typing, working on a computer, sorting mail, filing, and running errands, as well as receptionist duties, using a headset that allowed to her stand and walk while she answered the phone. She testified that she regularly took rests while doing these tasks.

¶ 225. Gehin explained that she missed a certain number of days of this on-the-job training or left early, in part due to pain, but also because she was attending classes at a local technical college, had foot surgery and a hysterectomy, and had "allergenic" episodes. A letter from Gehin's supervisor stated that she generally worked 24-30 hours a week. However, the record also includes a handwritten statement signed by Gehin relating that she "leave[s] for on the job training at 7:15 a.m. till 4:30 Monday thru Friday at MMHI rest when I get home." That is a full-time work schedule.

¶ 226. The majority opinion does not evaluate the facts of record in regard to the question of corroboration, nor does it apply any standard for determining whether the reports that the Board relied on were corroborated. It simply ducks the issue by assuming that the reports were uncorroborated. Majority op., ¶ 3. It also makes multiple conclusory statements that the reports of Drs. Whiffen and Lemon were not corroborated. See e.g., majority op., ¶¶ 8, 45, 47, 48. However, a lack of corroboration cannot be assumed because corroboration is an issue in this case.

¶ 227. Additionally, the reports at issue are opinions of expert witnesses, which we have recognized as being different from other types of hearsay, in regard to their reliability. As we explained in Folding Furniture,

Hearsay may doubtless be received, if corroborative of other evidence or otherwise of such nature as to have some reasonable bearing on a fact for determination. . . . [N]on-legal evidence to be admissible must have some substantial probative force and not be a mere opinion except in fields where the opinion of experts is proper for consideration and the person giving it is shown to have some special knowledge reasonably entitling his opinion to some weight.

Folding Furniture, 232 Wis. at 188 (emphasis added). Accordingly, for the reasons I have set out above, I conclude that reasonable minds could reach the conclusion that Gehin was not "totally disabled" as defined in the ICI contract in reliance on the opinions and evaluations of Dr. Whiffen and Dr. Lemon. In my view, those opinions and evaluations constitute "substantial evidence" under Wis. Stat. § 227.57(6) because they are corroborated and are reliable evidence in their own right.

III. CONCLUSION

¶ 228. In sum, I would not reach the question of whether uncorroborated hearsay constitutes substantial evidence because the hearsay evidence here was corroborated and constituted "substantial evidence" under Wis. Stat. § 227.57(6).

¶ 229. Therefore, I would affirm the court of appeals, and I respectfully dissent from the majority opinion.

¶ 230. I am authorized to state that Justices JON P. WILCOX and DAVID T. PROSSER join this dissent.