Financial stress is the number one reason residential dwellings are intentionally torched, but proving the act of arson is not that easy. In fact, Federal Bureau of Investigation statistics for 2007 show only around 6 percent of arson offenses of all kinds resulted in convictions.
Still, often there are red flags in advance of a residential burn that insurance agents may be able to recognize and claims adjusters can look to when investigating a suspicious fire, say two insurance professionals whose job it is to sort out the difference between accidental and intentionally set fires.
The levels of proof needed by law enforcement and insurance interests are ultimately different, says James H. Cole, an attorney with the law firm of Marshall, Dennehey, Warner, Coleman & Goggin, whose practice includes investigation and litigation of property damage claims.
The difficulty of proving intentional acts has led to what is called the arson defense, or arson triangle, the elements of which are motive, opportunity and incendiary fire, Cole said during a presentation at a PLRB/LIRB Claims Conference in Seattle in 2009. While “the arson defense is not a reason to deny a claim,” Cole says, it can be used as an affirmative defense to support a denial. In fact, in 90 percent of the claims he handles the reason for denial is material misrepresentation, not an intentional act.
“We have a material misrepresentation standard where if I can establish there was a knowing misrepresentation, and that knowing misrepresentation was material to the claim, that’s sufficient to deny the claim without actual proof of someone setting a match to a car or a house,” Cole explained.
A Reliance on Circumstantial Evidence
Circumstantial evidence – including phone records, financial records – is critical when it comes to investigating a claim, said John Davies, a senior special investigator for Farmers Insurance Group, who joined Cole at the conference.
The actions of the insured before and after the fire are also important factors in an investigation, he said.
Establishing financial stress, the primary motive for setting one’s home on fire, may involve getting access to credit reports, bank records and business records. It may be necessary to include the involvement of a forensic accountant to trace a claimant’s earnings, especially if that person is self-employed, Davies said.
Davies cautioned that an indicator does not prove potential fraud but it needs to be investigated. Some indicators or possible red flags include:
The property’s insurance coverage history. Did the insured place a policy on the property just before it burned down? Were there increases or decreases in coverage, decreases in deductibles just prior to the loss, an increase in coverage just prior to the loss?
A previously uninsured home that catches on fire just days after it gets insured definitely raises suspicions, Davies said.
“I handled a loss in Philadelphia, Penn., where the insured was in the business of flipping houses. He would go out and buy a house. He would then put insurance on it so he could rehab the house,” Davies said. In one particular case, the man “purchased a home, two days later the house burns down. The coverage had just been added to the policy.”
Loss history and prior claims. “A lot of these people start off small. They may file an injury claim. They may file a stolen vehicle claim,” Davies said. Once they feel as though they know how the insurance company is going proceed in evaluating their claim, then they move on to an arson loss.
Extensive debt or pending bankruptcy. While not evidence of fraud, they are reasons to ask additional questions, Davies said. “Just because somebody files for bankruptcy doesn’t mean it’s fraud. We need to ask more qualifying questions, we need to find out a little more about what’s going on.”
An insured is unusually calm after a fire loss at his or her home. Most people are not like that, Davies said. “I’m a volunteer fireman. I go to fires, help put the house fires out. Usually the owner is sitting on their hands and knees crying. Even the macho guys are doing it, because their whole world just went up in flames.”
Willingness to accept a small settlement rather than document all the claims losses. “This is a person who doesn’t want to go through the process of filling out an inventory,” Davies said. They are willing to take any settlement offered by the insurer.
Radical changes in an insured’s demeanor during the claims process. If “somebody starts out calm and then they get really upset and then they get calm again, these are just some issues that we need to take a closer look at,” Davies said.
No one is home at the time of loss, including the family pet. If there’s usually a family pet in the home and it’s not there when the house fire occurs, there could be an issue. “Pets are like family members,” Davies said. “The majority of arsons wouldn’t leave their kids in the house and the same thing with a pet.”
Items being moved items in and out of the house just prior to the loss. “I’ve seen a lot of fires where they move out all their good personal items and then they go down to the Salvation Army and for a hundred and fifty bucks they get themselves a couple of chairs, sofa, dining room table, mattress, things along those lines,” Davies said. They “throw them in the house and set them on fire,” and claim their good, original items as part of the loss.
The content list includes high-value, recently purchased items. “Can they explain their recent purchases or were they just trying to inflate the claim?”
The content list includes serial numbers that owners don’t normally record. How many times have you gone out to a homeowner and say do you have a serial number? No. on the flip side if they do, that shows – is that just how they are? Most people don’t record those.
The content value inconsistent with income and the insured refuses replacement items, they just want to get paid for them.
Handwritten or typewritten receipts that look alike but are from different stores. Davies explained there are a lot of sources on the Internet to obtain fraudulent invoices. “If you want an invoice from Louis Vuitton for a $5,000 purse, they will get that to you. … You can get a receipt that looks completely legitimate. It used to be if someone sends in a bogus receipt, they’ll get the address wrong, the phone number wrong, the columns don’t add up,” he said.
Receipts are in whole dollars. Because of taxes and pricing practices, items purchased don’t typically end up being in whole dollar amounts.
The property is part of a divorce settlement, argument or disagreement.
The property is in disrepair, condemned, vacant or about to be demolished. These are situations where an insured is going to have to put considerable dollars into that in order to bring it up to code, get it from being condemned, take care of it before it gets demolished. They’re going to have to invest a lot of money and not everybody has that money …
Property normally close to the premises is moved prior to the loss. If a boat or a recreational vehicle is usually parked near the house but is not there at the time of the fire it may indicate a problem.
The fire department determines the fire cause is incendiary, suspicious or unknown. If it’s obviously incendiary the fire department will know it’s a set fire. If it’s is deemed undetermined, it means they can’t rule anything out but can’t say for certain how or where the fire started. With a suspicious fire, they are able to rules things out but are still not sure what happened. “You get this a lot with [fires that are] intentionally set with normal combustibles in the home,” Davies said. “The insured goes and piles up a bunch of clothes in the living room, adds some paper, lights it with a match and walks out the door. … The fire can take a long time to develop and there’s no accelerant, there’s no gas. They just used what was available to them and left.”
Fires with multiple points of origin. A normal fire loss will not have three or four or multiple points of origin, such as one in the bedroom, one in the bathroom, one in the garage, Davies said. “Fire behavior just doesn’t work that way.”
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