11/24/2014

Eight Ways to Win a Circumstantial Arson Case

Practical and proven strategies that give carriers the best possible chance to beat out fraudsters in these tough cases.

By Cynthia L. Bernstiel

In the complex world of fraud investigations, claims professionals, fraud investigators, and attorneys will all agree on one thing: the circumstantial arson case is one of the toughest cases you will ever win. Long before this kind of case reaches the courtroom, the insured surreptitiously plans his crime, taking every possible precaution to avoid detection. Add into the mix the ever-evolving nature of fire and explosion investigations and the circumstantial arson case is every bit the uphill battle. Employing the following practical, proven strategies will give the carrier the best possible chance of winning these challenging cases.

Prove that the arsonist is a liar. Trained fraud professionals know what juries don’t: under most policies, the insured will not recover if the carrier proves he set the fire or that he intentionally misrepresented or concealed relevant and material information. The insured’s alibi often is a particularly fertile ground for potential misrepresentations. Therefore, all details regarding the alibi should be explored in painstaking detail, including where the insured was during the fire, whom he saw or talked to, what he purchased, and so on. The SIU investigator should then interview all potential witnesses to the alibi using all the tools at his disposal—such as social media within permissible legal boundaries—to uncover any possible misrepresentations.

Document everything. The carrier’s chances of winning a circumstantial arson case skyrocket with a well-documented claims file. Such documentation memorializes the carrier’s good faith claims handling, documents any lies or inconsistent statements by the insured, and constitutes concrete proof of those lies during litigation. Documenting all of the insured’s’ statements from the outset is key, particularly since the focus of an arson investigation can change as new information becomes available. The devil is in the details, and what may initially seem like an irrelevant fact can end up being a key piece of inculpatory evidence down the road. The carrier’s claims notes and investigative reports are its representatives’ deposition preparation years in advance, and they can expect their memories to be attacked and their veracity to be seriously questioned at trial if key facts are not documented.

Don’t miss golden opportunities to obtain evidence. Key evidence-collecting opportunities often are overlooked during the early stages of an arson investigation. The adjuster’s initial call with the insured is a critical time to ask probing, detailed questions, especially since insureds often are more forthcoming at this stage than they are down the road once the police, SIU investigators, and attorneys become involved. The SIU investigator’s recorded statement also is critically important and should be as detailed as the circumstances will allow, especially since there is typically a period of several weeks or even months before the insured’s’ examination under oath (EUO) during which the carrier has precious time to perform any necessary follow-up investigation.

Always keep the ball in the insured’s court. To avoid arguments of bad faith delay, a carrier should set a firm deadline before the insured’s EUO for the insured’s production of all records requested in the EUO letter. The carrier should make clear that the insured’s delay or an incomplete document production will delay the EUO process. If the insured submits only a partial document production, the carrier’s attorney should send immediately a letter specifying which records remain outstanding. If the EUO date arrives and the insured still has failed to produce certain supporting claims documents, the carrier should reserve its right to reconvene the EUO once the insured produces the remaining records. The carrier’s attorney should continue the process of meticulously documenting the insured’s cooperation (or lack thereof) until she is satisfied that the insured has fully cooperated as required by the policy and the law in the state in which the case is venued.

Vet your experts. Without experts whose qualifications pass muster under NFPA 1033, and whose expert opinions satisfy NFPA 921, the carrier’s circumstantial arson case will fail. NFPA 1033 is a standard with which compliance is mandatory, and courts will not hesitate to exclude an unqualified expert. Many courts also are becoming increasingly intolerant of arguments that NFPA 921 is just a “guide” with which compliance is discretionary. Some courts have even gone so far as to call 921 the definitive treatise for applicable scientific standards of reliability and have referred to its universally accepted methodology, the scientific method. In this climate, an expert’s report must outline his systematic approach/methodology, not just state his conclusions.

Motive is a must. The insured’s motive in setting the fire will be the theme of the case that will capture the minds of the jury. The better the carrier knows the insured—including his financial condition, work situation, health status, potential refinances or sales of property, lawsuits, and all other relevant details of his life—the better positioned it will be to successfully prove motive. During periods of economic downturn, an insured who is having financial problems but who is not on the brink of financial ruin often will try to argue that he had no financial motive to commit arson for profit since he was not in foreclosure and had not declared bankruptcy. In such cases, forensic accountants are critical to educate the jury about the insured’s “burn rate” and how long he would have been able to stay afloat financially.

Expand the investigative net. Time is a precious commodity for the SIU investigator, and decisions about how best to expend resources must be made carefully. While technological advances in fraud investigations abound, juries remain persuaded by credible lay witness testimony, which only requires them to apply their common sense and good judgment to evaluate. SIU investigators should, therefore, think outside the box and consider widening their investigative nets to include all witnesses who may be able to provide relevant and material evidence. The insured’s neighbors, coworkers, business partners, real estate agents, prospective purchasers of the property, and anyone who saw the insured before or after the fire often can provide critical inculpatory evidence (often unwittingly) to the carrier’s arson investigation.

Believe in your case. In the end, proving the circumstantial arson case to a jury is like putting together a puzzle. Once all of the pieces are in place, the picture of the insured’s crime will be clear to them. If the carrier’s team does not believe in its case, a jury is unlikely to believe it, either. While the insured may not have been arrested criminally, and while no direct evidence of his involvement in the arson fire may exist, if the carrier has developed strong evidence of a financial motive, opportunity, and an incendiary fire—and if the carrier presents its case with strength and conviction—it will have the best chance of winning the circumstantial arson case.  



Cynthia L. Bernstiel is a founder of CLM Member Firm Stewart, Bernstiel, Rebar & Smith and specializes her practice in arson and fraud investigation and litigation and bad faith coverage matters. She also is a member of CLM’s Insurance Fraud committee. She can be reached at (484) 344-5342, cbernstiel@sbrslaw.com, www.sbrslaw.com.

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