Some Red Flags in Residential Arsons Fly Before the Fire

Financial stress is the No. 1 reason residential dwellings are intentionally torched, but proving arson is not that easy. Only around 6 percent of arson offenses in 2007 resulted in convictions, according to the Federal Bureau of Investigation.

Still, there often 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.

The levels of proof needed by law enforcement and insurance interests are different, said James H. Cole, an attorney with Marshall, Dennehey, Warner, Coleman & Goggin, whose practice includes investigating and litigating property damage claims.

The difficulty of proving intentional acts has led to the arson defense, or arson triangle, Cole said, the elements of which are motive, opportunity and incendiary fire. While “the arson defense is not a reason to deny a claim,” Cole said, 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 and financial records, is critical when it comes to investigating a claim, said John Davies, a senior special investigator for Farmers Insurance Group. The actions of the insured before and after the fire are also important factors in an investigation.

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 involve a forensic accountant to trace a claimant’s earnings, especially if that person is self-employed, Davies said.

An indicator of a potential problem does not prove fraud, but it needs to be investigated, Davies stressed. 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, or an increase in coverage just prior to the loss? A previously uninsured home that catches fire days after it is insured raises suspicions, Davies said.
• 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 they know what the insurance company is going to do as part of evaluating their claim, they move on to an arson loss.
• Extensive debt or pending bankruptcy. These are reasons to ask 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. “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,” Davies said.
• 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 gets really upset and then gets 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 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 with a pet.”
• Items moved 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 $150 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 said do you have a serial number? On the flip side if they do, that shows – is that just how they are? Most people don’t record those.
• The content value is inconsistent with income, and the insured refuses replacement items, they just want to get paid.
• Handwritten or typewritten receipts that look alike but are from different stores.There are a lot of sources on the Internet from which 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 typically are not 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. The insured is going to have to put considerable dollars into bringing the property up to code. They’re going to have to invest a lot of money that not everybody has.
• 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 during the fire, it may indicate a problem.
• The fire department determines the fire cause is incendiary, suspicious or unknown. If it’s incendiary, the fire department will know it’s a set fire. If it’s undetermined, the fire department can’t rule anything out but can’t say for certain how or where the fire started. With a suspicious fire, they can rule things out but are still not sure what happened.
• Fires with multiple points of origin. A normal fire loss will not have multiple points of origin, such as one in the bedroom, one in the bathroom, one in the garage. “Fire behavior just doesn’t work that way,” Davies said