Arson-for-Profit

ARSON-FOR-PROFIT CASES

Arson-for-Profit fires, a/k/a Insurance Fraud fires, are not the most common type of arson fires. They are the most widely recognized type of arson fires, however. In the public's eye, arson fires are equated with insurance fraud schemes. In truth, juvenile fire setters are the largest group of arsonists by a wide margin. Yet while Arson-for-Profit fires occur less frequently, they are the number one category of arson fires when measuring the damages and dollar losses resulting from incendiary fire losses. No other type of arson fire even approximates the level of destruction caused by these premeditated criminal schemes.

Arson-for-Profit fires run the gamut from the true professional torch job to the ill-planned amateur attempt at fire setting. The particular method used to start the fire can include virtually anything imaginable. The common characteristics found in all Arson-for-Profit schemes are the elements of planning and profit. These fires are premeditated and they are motivated--usually by insurance money. For that very reason, these schemes can usually be uncovered and brought to justice.

The key to successfully investigating these fires is a systematic and comprehensive approach by the fire scene investigator and claims handler. It requires a commitment of investigative resources, especially manpower. It is a complex process, to be sure. But for the insurer willing and able to face the challenge of investigating an Arson-for-Profit fire, it can yield the results every company strives to achieve: identification of the responsible party and a proper decision on the claim.

I. Recognizing Arson-for-Profit Schemes

Unless the investigator and the company recognize the signs of an Arson-for-Profit fire, the investigation will never be pointed in the right direction. Recognition begins at the fire scene. The indicators are there in the fire debris, the burn patterns of the fire and other physical evidence inevitably found at the fire--if you know what to look for and how to find it. Next, the indicators are there in the observations of the responding firefighters, bystanders and witnesses to the discovery of the fire--if you know who to speak with and what to ask them. Finally, the indicators are there at the courthouse, the bank, the databases and various other sources that must be contacted--if you know where to go and how to find them.

The recognition of Arson-for-Profit schemes requires an awareness of the "red flags". They are the "indicators" of a potential Arson-for-Profit fire. But before we even start to discuss these "red flags", understand that by themselves they mean nothing. Basing the decision to deny a claim and accuse an insured of arson based solely upon a series of "red flags" is wrong, legally and factually. They should never be the only basis of a claim decision. They are nothing more than "indicators" which may or may not lead to the proof of an Arson-for-Profit scheme. The presence of a hundred "red flags" is not proof of arson, only an indication that a fire needs to be fully investigated to determine if, in fact, it is a case of Arson-for-Profit. At the same time, a proven case of Arson-for-Profit may have few--or even none--of the classic "red flags" of an Arson-for-Profit case, yet it may be just such a case. In the end, it must always be remembered that these are simply factors to look for in a case, to guide the direction of the investigation and not its outcome. With that disclaimer, here are some of the classic "red flags" of an Arson-for-Profit fire that the investigator and the claims handler should learn to recognize.

1. The Fire:

(A) Total fire loss indicating wide-spread use of accelerants.

(B) Discovery of incendiary devices or elaborate set-ups.

(C) Multiple points of origin.

(D) No apparent evidence of forcible entry.

(E) Fire debris does not contain the remains of furnishings, personal

property and other items which should have been present at the

time of the fire (photographs and mementos, clothing, jewelry, paintings

and pictures, trophies and awards, diplomas and degrees,

family bible, food in cabinets and refrigerator, kitchen utensils, family

pets, important papers, etc.).

(F) Presence of out-of-place items brought in for the fire, such as junk

furniture, discarded clothing, inoperable appliances and other

items intended to replace the normal furnishings and property.

(G) Disabled or failed alarm/sprinkler systems.

2. The Property Site:

(A) Building was vacant or unoccupied at time of fire.

(B) Building was under condemnation order, "red tagged" or under court-

ordered seizure.

(C) Property or business in foreclosure or other litigation affecting the site

(zoning, eminent domain, environmental issues, etc.).

(D) Property recently remodeled/renovated or in the process.

(E) Commercial operation at loss site going out of business or changing its

business use.

(F) Deteriorating neighborhood area, change in neighborhood conditions,

zoning changes, traffic access problems.

(G) Building and premises in disrepair, deteriorating condition or with poor

upkeep and maintenance.

(H) Property recently purchased or up for sale at time of fire.

(I) Property under long-term lease, recently leased or in process of

negotiating/renegotiating lease.

(J) New business in area adversely impacting the property, such as adult

bookstores or nightclubs, new competition, etc.

3. The Property or Business Owner/Occupant:

There are a number of factors which can implicate a property or business owner in the fire. An Arson-for-Profit scheme can be uncovered when these factors are identified. Some of the "red flags" directed to a specific individual include the following:

(A) An evasive, unavailable or uncooperative owner.

(B) An owner involved in civil or criminal litigation such as business

disputes, creditor or supplier collections matters, tax audits,

forfeiture proceedings, bankruptcy, divorce or criminal charges

unrelated to the fire itself.

(C) An owner recently fired, laid-off or unable to work due to a disability or

injury.

(D) An owner with an extensive prior insurance claims history, especially a

history of fires.

(E) An owner with an alibi too good to be true or conveniently away from

the area at the time of the fire.

(F) Multiple mortgages or loans taken out by the owner against the property

or recently refinanced loans to raise money.

4. Insurance Issues:

Information about insurance on the property may identify the potential for an Arson-for-Profit case. Make note of any of the following circumstances:

(A) A business or home insured for an amount in excess of the current

market value of the building and furnishings/equipment or its

current listing price, exclusive of the land value. Commercial property or

waterfront residential property may have more value in the land than the

building—and may even be worth more without the building.

(B) An owner unusually knowledgeable about insurance matters or with a

history of prior insurance claims.

(C) An owner pushing to settle the claim quickly, even at a low settlement

value.

(D) Items claimed to be in a home or a business which are inconsistent with

the income and financial status of the owner or the

operations of the business.

(E) Outdated equipment or accumulated inventory in a business at the time

of the fire.

(F) Personal property or equipment claimed to be in the building which

cannot be verified and documented by the owner.

(G) Insurance coverage recently obtained after a period of time with no

insurance on the property.

(H) Insurance coverage about to be cancelled or lapse.

(I) Insurance coverage recently changed or "confirmed" shortly before the

fire.

(J) Duplicate insurance coverage taken out by the owner or by others which

the owner knows about.

II. Investigating the Arson-for-Profit Scheme: The Paper Chase

As noted above, the recognition of "red flags" in a fire investigation is a call for further investigation, to find the real proof of an Arson-for-Profit fire. The investigation of an Arson-for-Profit scheme is a complex undertaking. It is a tedious process of digging through records that is often described as a "paper chase". Although it often seems like a search for the proverbial needle in a haystack, in a true Arson-for-Profit case there is almost always a needle or two at the bottom of the haystack. It takes a concerted effort to pursue a paper chase. It must begin at the right place and continue in the right direction to reach a successful conclusion. These are the beginning points and the directions most commonly taken in the "paper chase" of an Arson-for-Profit scheme.

1. The Property Owner (Individual):

(A) Criminal history by national databases. (Note: law enforcement

databases such as the NCIC are off-limits to an insurer)

(B) Courthouse records search, including:

(1) Criminal records of prior arrests, convictions and pending cases.

(2) Civil litigation records of past lawsuits, judgments and pending cases.

(3) Traffic citations bureau.

(4) UCC secured transactions filings.

(5) Domestic relations (divorce) filings, past and pending.

(6) Property ownership/tax roll records.

(7) Bankruptcy court filings, past and pending (United States Bankruptcy

Court).

(C) City Directories/Chamber of Commerce/Better Business

Bureau/Occupational Licensing Bureau records.

(D) Workers compensation/unemployment/welfare/child support agency

records.

(E) Intelligence records of local and federal law enforcement agencies (if

inactive and available as "public records").

(F) State fire marshal records and database.

(G) Division of Insurance Fraud records and database.

(H) Insurance industry sources: All Claims Database, NICB and Claims

Index Bureaus.

2. The Property:

(A) Ten year ownership history of the property (deeds and titles).

(B) Ten year history of mortgages/liens on the property.

(C) Ten year history of permits/zoning requests/ inspections on the

property.

(D) Ten year history of property tax assessments and payments.

(E) Ten year history of sales or sales listings of the property with realtors

and others.

(F) Use and occupancy of the property at the time of the fire through

Building Department/Occupational Licensing records.

(G) Utilities, electrical, gas and telephone service accounts for the property.

(H) Postal service deliveries/change of address forwarding requests.

3. The Business/Corporation:

(A) Secretary of State incorporation records and annual reports.

(B) Department of Revenue sales tax filings.

(C) Courthouse records of other property ownership by the same business

or corporation within the past ten years.

(D) Courthouse records of civil litigation, judgments and pending lawsuits

involving the business or corporation.

(E) UCC filings.

(F) Fictitious name or d/b/a filings.

(G) Chamber of Commerce/Better Business Bureau records of complaints.

(H) Dun & Bradstreet reports.

(I) Identification and interviews of business competition in the area.

(J) Identification and interviews of vendors and suppliers of the business.

(K) Determination of seasonal fluctuations in business sales.

4. Insurance Records:

(A) Complete agency file records:

(1) Application from insured.

(2) Agency application/underwriting submission records.

(3) Binder.

(4) Premium finance agreement.

(5) Inspection reports.

(6) Photographs of risk.

(7) Change endorsement requests and forms.

(8) Cancellation/reinstatement notices.

(9) ACCORD form loss report and notes.

(B) Company Underwriting Records:

(1) Application from insured.

(2) Agency application submissions.

(3) Inspection/risk survey reports.

(4) Photographs.

(5) Loss Control inspection reports.

(6) Change endorsement requests and forms.

(7) Cancellation notices.

(8) Renewal/nonrenewal notices.

(9) Credit references and credit reports.

(C) Claim File Records:

(1) Loss report.

(2) Proof of Loss and claim documents.

(3) Origin and Cause fire report.

(4) Laboratory analysis report.

(5) Witness statements.

(6) Background investigative reports.

(7) Financial records/financial analysis.

(8) Examination Under Oath transcript and summary.

5. Contact Sources:

There are a number of witnesses and contact sources who must be interviewed in the course of a paper chase. This list is by no means complete, but includes most of the witnesses who need to be interviewed.

(A) Building occupant(s).

(B) Building owner(s).

(C) All insured parties.

(D) Lien holders/mortgagees.

(E) Creditors, suppliers and vendors.

(F) Fire reporter/discoverer.

(G) Fire scene witnesses.

(H) Neighbors and adjoining property owners/ businesses.

(I) Responding firefighters.

(J) Investigating law enforcement personnel.

(K) Prior owner of the property.

(L) Realtors and sales agents involved in the most recent sale or listing of

the property.

(M) Insurance claim personnel: agent, adjuster, underwriter, in-house

investigator, cause and origin investigator, private investigator

and claims attorney.

III. Bringing It All Together

As can be seen, the "paper chase" in the investigation of an Arson-for-Profit scheme can be complex and far reaching. It requires a significant commitment of resources and effort. However, the results of a successful investigation will always justify the effort. In almost every Arson-for-Profit case, there is a trail of evidence that can be uncovered by the investigator and insurer. If you are willing to look long enough and hard enough, you can find a needle at the bottom of the haystack.