It was a New Year's Eve weekend many residents of Los Angeles,Calif. and West Hollywood will not likely forget. Over the courseof 3 days, a single suspect was tied to as many as 50 car fires,causing an estimated $2 million in damages.

This case is an example of the staggering toll arson takes onboth people and property. It is a serious crime. As shown by therecent Southern California fires, fires can often spread tosurrounding homes or commercial properties, with devastatingresults.

According to the U.S. Fire Administration, in 2010, arson fireskilled 260 people and caused nearly $500 million in damages. [2011,U.S. Fire Administration] This includes arson-for-profit, acriminal method of obtaining money from a fire loss policy.According to a study by Insurance Research Council (IRC), 14percent of arson suspects are motivated by a desire to defraud aninsurance company. [2009, U.S. Fire Administration]

Insurers have an interest in preventing and detecting arsonfires that cause loss of life and property, as well as increaseinsurance costs. When investigating suspected arson fraud,investigators are charged with fully examining the matter, lookingto pinpoint the fire's origin and cause, as well as thecircumstances surrounding the insurance claim. Claims professionalsuse a variety of tools and techniques, including examinations underoath (EUOs), which play a key role by obtaining information thathelps make informed coverage decisions.

The impact of arson is significant. Click“next” to the right below to viewrecent statistics.

An Overview of Arson

According to the Unites States Fire Administration, in 2010 (themost recent year for which data are available), there were 16,200intentionally set residential fires nationwide that killed 260people and injured 750. These fires caused nearly $500million in damage. Approximately 8,500 nonresidential fireswere intentionally set, causing nearly $370 million indamages. [2011, United States Fire Administration]

• Arson is the second leading cause of fire losses innon-residential commercial buildings and is the fourth largestcause of residential fires. According to insurance industry expertsand national fire incident data, one in every 10 fires in theUnited States today is intentionally set. [2011, United States FireAdministration]
• The average dollar loss for all types of arson was $17,289.Arson damages average $32,364 and $7,890 for motor vehicles. Arsons of industrial and manufacturing structures resulted inthe highest average dollar losses—$114,699 per arson. [2009. U.S.Fire Administration]
• Offenders are hard to apprehend and convict. According toFederal Bureau of Investigation (FBI) 2008 statistics, only 18percent of arson offenses were cleared by arrest or exceptionalmeans; 47 percent of arrestees were under the age of 18; 3 percentof arrestees were under the age of 10. [2010, NFPA]

Common Motives

People intentionally start fires for many reasons, includingfinancial difficulties, anger/revenge, or mental illness. Theissue of fraud comes into play when property owners deliberatelydestroy or damage their home, business, or automobile by fire forthe purpose of collecting from their insurance companies. Arson fraud is typically committed by individuals (mostly male)facing financial hardship such as foreclosure, divorce, orbankruptcy. In some instances, homeowners use arson as a wayto remodel or rebuild their home.

Business owners also commit arson fraud for similarreasons. However, business owners are often more savvy thanindividuals when it comes to arson fraud, and the monetary impactis greater (fraudulent inventory claims for items that didn't existor were removed from the building before the fire wasset.)

Insurance Investigations & Examinations UnderOath

If arson fraud is suspected, then claims professionals conductthorough investigations separate from the fire department and lookat a variety of factors, including origin and cause of the fire,coverage and subrogation issues, witness interviews, and possiblemotives.

Typically, an attorney is hired to conduct an examination underoath (EUO)—one of the most important parts of an insuranceinvestigation—to obtain information from the insured and addressspecific questions and concerns about a claim. The namedinsured (or others as dictated by the policy) is required to submitto an examination under oath upon request pursuant to the lossconditions of the policy under which the claim is beingpresented. This policy language is standard across the nationand exists in almost all homeowner and commercial policies, and inmany automobile policies. For example, in California, the EUOis included in the California Standard Fire Insurance Policy, whichis set forth in Insurance Code Section 2071(a). Note that ifan insured attends an EUO, but fails to answer material questions,the carrier can deny the claim. The insured also must attendthe EUO even if they have previously provided a recordedstatement.

EUO Fundamentals

What is covered?

A: The EUO is a statement under oath (a court reporter ispresent to record the statement), and provides an opportunity togather information significant to the investigation andcross-examine the insured. The scope of questioning in an EUOis very broad and may include all aspects that are material to theinsured's claim. The critical questions tend to focus onwhere the insured was at the time of the fire. Additionally,the insured's financial condition prior to the loss is explored ingreat detail. This information is useful in establishingwhether or not the insured had a motive to cause the fire andfraudulently overstate or completely falsify a claim. Ifcriminal information is uncovered, the attorney should followinsurance code sections that allow him or her to share informationwith authorities. The EUO (or portions thereof) also can beread as testimony during a criminal court trial.

The Timing

The timing of an EUO is based on the initial results of theinsurance investigation. If the findings raise concerns aboutthe claim, the next step is to schedule an EUO. A follow-upEUO also could be scheduled, as most policies allow statements fromthe insured to be requested as often as reasonably necessary. If criminal proceedings are underway, the insured can ask theinsurance carrier to delay the EUO until the end of the criminalproceedings. The insurance company also has a right to waituntil the end of criminal proceedings to make a decision about theclaim.

The Location

The EUO is formally requested by the insurance company andmay only be conducted upon reasonable notice, at a reasonablyconvenient place, and for a reasonable length oftime. California Insurance Code Section 2071.1 sets forth someof an insured's rights regarding EUOs. This law codifiesexisting good practices and could be followed by insurancecompanies in states without similar statutes. Select alocation that is convenient for the insured—I have conducted EUOsin a variety of unusual locations, such as jails, truck stops, andthe loss site itself (a burned out house), which allowed theinsured to explain and show the burned contents underdiscussion.

Production of Records

Part of the insurance code is a provision requiring theproduction of records—one of the most important aspects of anexamination under oath. The insured has a duty to cooperateand provide what is reasonably requested. The documentationrequested could include mortgage information, outstanding creditobligations, bank statements, phone records, and records pertainingto civil litigation and criminal histories. These recordswill help the insurance company:

• Explore any concerns it may have about the insured's financialstatus
• Confirm where the insured was at the time of the fire
• Confirm the insured's testimony

My work on a recent insurance fraud investigation following asuspicious residential fire provides an example of the vital rolerecords play in corroborating or dispelling testimony from theinsureds. This case was complicated by the fact that thehomeowner's handyman died as a result of being burned in the homefire. During the examinations under oath, the homeownersmisrepresented and concealed information about the condition of thehome, their financial situation, and their relationship and recentcontact with the handyman. However, the homeowners changedtheir testimony when asked to produce cell phone bills but stilldid not provide accurate dates about the phone calls. Phonerecords later indicated a number of recent calls to and from thehandyman to the insureds' cell phones, including calls to thehomeowner husband on the day of the fire. The facts showedthat the husband had hired the handyman to set the fire, and basedon all the information, the claim was denied. Additionally,the police used information from the insurance inquiry tosupplement their criminal investigation, which ended withsignificant prison sentences for the homeowners.

Who Conducts the EUO?

Though there is no requirement that an attorney conduct anexamination under oath, in practice, attorneys conduct the majorityof examinations because they are trained in the examination andcross-examination of witnesses. Importantly, the attorneyselected to conduct the EUO should be experienced and familiar witharson claims. A familiarity with basic fire principles isessential in order to understand the responses given about thecircumstances of the fire. The insured has a right torepresentation by counsel at his or her own expense. A publicadjuster has no specified right to attend but often is allowed todo so.

Selecting the Right Attorney

An attorney with experience taking EUOs in fire cases andproperty claims is an invaluable asset to theinvestigation. Ask for referrals and meet with the attorney todetermine if he or she is the best possible representative of yourcompany. Based on their expertise, a knowledgeable attorneycan identify the issues early and then focus the examination underoath on issues pertinent to the arson fraudinvestigation.