(Editor's Note: The following article has been contributedby Everette LeeHerndon, Jr., a claims consultant and expert witness.)

Arson is a crime. The American Heritage Dictionary defines arsonas “the crime of maliciously, voluntarily, and willfully settingfire to the building, buildings, or other property of another or ofburning one's own property for an improper purpose, as to collectinsurance.”

Proving that an insured has committed arson has generally beendifficult and is becoming more difficult. An insurance company canand should investigate a suspicious fire to determine if theinsured burned, or had someone else burn, a property for thepurpose of collecting insurance benefits. When investigating asuspicious fire, the insurer should also determine if there issubrogation potential.

There is no question that arson is a serious crime. Findingaccurate figures on the number of arson fires in the U.S. is noteasy; however, both the Coalition Against Insurance Fraud (CAIF)and the National Fire Protection Association (NFPA) have releasedinformation in recent years. Other industry organizations have alsotaken a keen interest in gathering relevant, useful data aboutsuspicious fire activity. The Insurance Information Institute(I.I.I.), for example, indicates that more than 56,000 cases ofarson were reported to the FBI in 2009, with property damageestimated at nearly $800 million. According to the FBI CriminalJustice Information Services Division, in 2010, 15,475 lawenforcement agencies provided between one and 12 months ofarson-related data and reported 56,825 incidents.

For the P&C insurer handling a suspicious fire claim, aproblem arises in trying to determine if the insured committedarson and is trying to defraud the company for a payout. The burdenof proof is on the insurer when it seeks to deny coverage based onthe defense of arson by the insured. Generally, the insurer mustprove three things:

1. Evidence of arson.
2. The motive of the insured.
3. Evidence implicating the insured.

Investigating the Fire for Arson

Evidence of arson is generally provided by either the firedepartment investigators or other independent investigators whoqualify as experts on origin and cause (O&C). Directevidence would be proof of such things as the use of accelerants,intentional ignition or the reports of eye witnesses. Thephysical evidence of arson may be consumed by the fire itselfleaving the insurance company and the O&C expert with nophysical or scientific proof of arson. Absence of direct physicalproof of accidental or natural causation has led and may continueto lead some experts and insurance companies to claim they haveruled out any accidental or natural cause and, by their logic, leadthem to conclude the fire must be from an incendiary cause and thusarson.

The NFPA publishes NFPA 921, Guide for Fire and ExplosionInvestigations. After the 1992 edition of the Guide for Fireand Explosion Investigations, a number of fire investigators andinsurers accepted as valid the concept and rationale of “negativecorpus.” Using the process of elimination to infer the cause of afire is often referred to as negative corpus, essentially a fireinvestigator's shorthand for “negative corpus delicti,”which ofcourse means “a body of the crime.”

After 1992, the use of negative corpus methodology became morewidespread. In other words, there was no scientific evidence of thecrime of arson, just a failure to find any evidence of anaccidental or natural cause or anything to conclusively rule outarson. This was seen by many to be a flawedmethodology.

The NFPA 921, Guide for Fire and ExplosionInvestigations (2008 Ed.) discusses using the process ofelimination, and sets forth some essentialcriteria:

Section 18.2.5 -“[T]he elimination of allaccidental causes to reach a conclusion that a fire was incendiaryis a finding that can rarely be justified scientifically, usingonly physical data; however, the elimination of all causes otherthan the application of an open flame is a finding that may bejustified in limited circumstances, where the area of origin isclearly defined and all other potential heat sources at the area oforigin can be examined and credibly eliminated.”

Attention must be paid to the caveats noted in Section 18.2.5;namely 1. the area of origin is clearly defined and 2. all otherpotential heat sources at the area of origin can be examined andcredibly eliminated

NegativeCorpus

In an origin and cause fire investigation, negative corpus isgenerally recognized as the methodology of concluding the cause wasarson, based primarily on the absence of any finding of accidentalor natural causation.

A detailed list of issues surrounding the improper use ofnegative corpus to obtain a finding of arson is contained in thearticle titled, “Arson: The Process of Elimination,” by the lawfirm of Tedford & Pond, LLP, where some specifics are citedconcerning the negative corpus methodology and the use of theprocess of elimination. Here's an excerpt:

There are four essential criteria for the permitted use of theprocess of elimination in determining the cause of thefire.

1. The area of origin must be clearly defined and knownconclusively to the exclusion of all other potential origins.
2. All accidental causes in the clearly defined area of originmust be examined and credibly eliminated.
3. The scientific method must be used in the analysis whicheliminated all accidental causes and the remaining ignition sourcemust be consistent with all known facts.
4. Whenever an investigator proposes the elimination of aparticular system or appliance as the ignition source on the basisof appearance or visual observation, the investigator should beable to explain how the appearance or condition of that system orappliance would be different from what is observed, if that systemor appliance were the ignition source for the fire.

In other words, if the fire investigator is unable to 1.)conclusively determine the area of origin and 2.) scientificallyexamine and eliminate all accidental causes, then the methodologyof negative corpus becomes highly suspect and is thus not areasonable or sound basis for denying the claim on the coveragedefense of arson by the insured.

Absence of Evidence

There is an old saying in science and logic that “absence ofevidence is not evidence of absence.” Absence of evidence of anaccidental or natural cause is not evidence of the absence of anaccidental or natural cause. Just because the investigator did notfind an accidental cause does not prove there was not an accidentalcause. Neither does the absence of evidence of an accidental causeallow one to scientifically or logically conclude or prove thepresence of incendiary/arson causation. If an expert fails to findthe origin and cause of a fire and concludes arson or an incendiarysource based solely on not finding an accidental or natural cause,then the adjuster should immediately review the expertise andthoroughness of the expert before relying on his opinion.

Logically, if one is to infer (1) no proof of accident =arson, then one must acknowledge (2) no proof of arson =accident as an equally valid argument. To accept theformer argument and reject the latter argument is to presume(without proof) that the insured is guilty. Without proof oneway or the other, the best an adjuster can do is call itundetermined.

To accept the former argument and reject the latter argument isto presume (without proof) that the insured is guilty. Withoutproof one way or the other, the best an adjuster can do is call itundetermined.

One can speculate that lack of proof of an accidental causemay be a possible indicator of arson or incendiary cause,but it has always been very questionable whether an insurancecompany should act on speculation alone as a sufficient basis forclaiming arson and then denying coverage to aninsured.

The primary duty of the claims representative is to deliver thepromise to pay. Therefore, the claim representative=s chieftask is to seek and find coverage, not to seek and find coveragecontroversies or to deny or dispute claims.

A simple conclusion by the fire investigatorconcerning origin and cause is not sufficient. Inlight of the duty of good faith and fair dealing the adjuster owesto the insured, the investigation and the report must clearlyprovide information to support the finding of arson. Thisinformation should be clearly and easily understood by theadjuster. If the adjuster does not clearly understand thefacts, the report, and the conclusions, then he orshe has a duty and responsibility to contact the investigatorand obtain more information. The report and evidence shouldclearly reflect adequate proof to backup the opinion. It is tothe insured that the insurance company owes the contractualobligation of utmost good faith and fair dealing.

Case Law and Recent Changes

Over the years some courts have accepted whileothers have rejected negative corpus as a basis for allegingarson. In 2006, a federal court in Ohio, in Smith vAllstate Insurance Company, dismissed Smith's claim of badfaith arising out of Allstate's denial of his fire claim. Allstate had denied the claim based on their expert's finding ofincendiary origin. The expert had ruled out all causes otherthan intentional human acts. The court did not endorse theexpert's findings but did conclude there was other sufficientevidence to support the conclusions and dismissed the bad-faithclaim.

Recent Changes to NFPA 921

The 2011 version of NFPA 921, Guide for Fire and ExplosionInvestigations, finally rejected the negative corpusmethodology as being inconsistent with the scientific method, based on the finding that the methodology generated unprovable anduntestable hypotheses. It was determined the methodologymay result in incorrect determinations of the ignition source andfirst fuel ignited. Where all hypothesized fire causes have beeneliminated and no facts point to a cause the investigator=s onlyremaining choice is to opine that the cause is undetermined.

In 2012, the U.S. District Court, District of Minnesota, inJeremy Somnis v Country Mutual Insurance Company, foundCountry Mutual's expert's opinion was the absence of an accidentalexplanation suggests the fire was incendiary. Yet,the court perceives no reason why an expert is necessary to drawthat inference for the jury.The court held that once the expertcould not identify an accidental cause, the jury could draw its ownconclusion concerning accident or arson. Such an inference ofarson by the expert is not helpful to the jury and is excluded inthat aspect. The expert is also not allowed to testify thefire was intentional because all he can scientifically testify tois he did not find an accidental cause.

The adjuster is left with only the scientifically and logicallyprovable facts, if there are any facts, and with the cause of thefire being listed as undetermined since there is no concrete proofof arson. Without proof of arson, there can be no experttestimony of arson by the insured or anyone else, based on negativecorpus methodology.

If the adjuster can build a strong and valid circumstantial caseof motive and a strong enough linkage to the insured, thesefactors, combined with an undetermined causation, might leavethe adjuster with a chance of convincing a jury to arrive at aconclusion of arson, but the expert cannot provide the adjusterwith that conclusion.

Today's Reality

Presently the adjuster's job has become more difficult andfraught with peril. Fire investigation has changed over thelast 40 years.

The adjuster has a duty to the insured to give at least as muchconsideration to the insured as he does to the insurancecompany. The adjuster cannot and should not just simply acceptan opinion of arson without exploring the other options fully andobjectively. Skepticism about an expert's negative corpusconjecture of arson, with at least equal consideration given to thefindings of opposing experts, is another way of giving at leastequal consideration to the interests of theinsured.

Without scientific evidence and sound logic, the adjuster cannotrely on expert testimony based on the negative corpus methodologyto conclude a fire was arson or of incendiary origin, by theinsured or anyone else. While the insurance company can andshould provide law enforcement with factual and scientificevidence uncovered during the claims investigation that objectivelypoints to fraud and arson, the adjuster and the expert mustconsider how strongly he or she may safely suggest any pursuit ofcriminal charges against the insured. In the past someadjusters have pushed, urged or suggested to law enforcement thatit should proceed with criminal charges based on the expert'snegative corpus theory of arson, presumably in order toreinforce the insurance company's denial of coverage. Today, such actions by the adjuster or the insurancecompany, in the light of recent case law and the revision of NFPA921, might be found to be lacking in the good faith and fairdealing inherent in every insurance policy.

“Each company, no matter how large or small, is accountablefor the actions of its claims representatives and supervisors.Without proper training, insurance companies cannot be confidentthat their claim representatives and supervisors are handlingclaims responsibly. ”

Adjuster Duties

Arguably there has never been any scientific or logical basisfor the use of the negative corpus methodology. The negative corpusmethodology has been controversial since its inception because theconclusions and findings were generally based on an absence ofevidence, rather than the presence of evidence. The argumentagainst this methodology was that it was both unscientific andillogical. For a while segments of the insurance industry didaccept and use this flawed methodology. However, the ruleshave changed.

Denial of a first party fire claim based solely on negativecorpus may be grounds for bad faith.

The insurance policy is a contract covering the insured forperils, such as fire. The adjuster has a duty to look for andprovide coverage for the perils insured against and make known andavailable to the insured the benefits the insured is entitled tounder the policy. If the adjuster has a reasonable basis forquestioning coverage, the adjuster has a duty to promptly andthoroughly investigate the claim. The adjuster can deny orwithhold coverage and benefits if and only if the adjuster hasdetermined there is no coverage and no benefits are due under thepolicy.

“When an insurance company fails to pay claims it owes orengages in other wrongful practices, contractual damages areinadequate. It is hardly a penalty to require an insurer to pay theinsured what it owed all along.”

When the area of origin is reasonably disputed or inconclusive,any findings of arson become suspect. If the expert did notscientifically examine and eliminate all accidental and naturalcauses, the findings are suspect. The expert merely pointing to aspot he calls the point of origin is not enough. The expert mustexplain how the fire started, i.e. the fuel source, the heatsource, the combustion elements. He or she must clearly define thepoint of origin and the act or activity that started the fire tomake it obvious to the adjuster that this is in fact a case ofarson.

If, after reading the expert's report the logical and factualproof of arson is not obvious to the adjuster, the adjuster shouldnot accept the expert's conclusion. The adjuster owes a duty ofgood faith and fair dealing to the insured. If the expert'sconclusion of incendiary cause or arson is not convincing to theadjuster, then his conclusion concerning the cause of the fireshould probably be undetermined. It is important to note that“undetermined” does not also mean suspicious and is not areasonable basis for denial of a claim.

Without proof of arson or incendiary origin, the adjuster willhave considerable difficulty in denying coverage to the insured.The insurance company is left with only two of the three elementsneeded to sustain the denial: the insured's motive (if any), andcircumstantial evidence implicating the insured or connecting himor her to the fire's cause. Without the crucial elements of proofof arson or incendiary origin, an adjuster must be extremelycautious in attempting to build a strong circumstantial case. He orshe must be sure the issues of motive and connection to the insuredare more than sufficient to convince a reasonable person (or juror)by a preponderance of the evidence. (This is difficult toaccomplish with an unknown cause.) To do otherwise is to invitewhat has become a common result: a lawsuit for bad faith.

Everette Lee Herndon Jr. is a claim consultant and expertwitness who works primarily with insurance claimshandling, coverage, and bad-faith cases. Herndon was an adjusterfor more than 25 years and is a member of the CaliforniaBar. He may be reached at www.leeherndon.com; [email protected].