(Editor’s Note: The following article has been contributed by Everette Lee Herndon, Jr., a claims consultant and expert witness.)
Arson is a crime. The American Heritage Dictionary defines arson as “the crime of maliciously, voluntarily, and willfully setting fire to the building, buildings, or other property of another or of burning one’s own property for an improper purpose, as to collect insurance.”
Proving that an insured has committed arson has generally been difficult and is becoming more difficult. An insurance company can and should investigate a suspicious fire to determine if the insured burned, or had someone else burn, a property for the purpose of collecting insurance benefits. When investigating a suspicious fire, the insurer should also determine if there is subrogation potential.
There is no question that arson is a serious crime. Finding accurate figures on the number of arson fires in the U.S. is not easy; however, both the Coalition Against Insurance Fraud (CAIF) and the National Fire Protection Association (NFPA) have released information in recent years. Other industry organizations have also taken a keen interest in gathering relevant, useful data about suspicious fire activity. The Insurance Information Institute (I.I.I.), for example, indicates that more than 56,000 cases of arson were reported to the FBI in 2009, with property damage estimated at nearly $800 million. According to the FBI Criminal Justice Information Services Division, in 2010, 15,475 law enforcement agencies provided between one and 12 months of arson-related data and reported 56,825 incidents.
For the P&C insurer handling a suspicious fire claim, a problem arises in trying to determine if the insured committed arson and is trying to defraud the company for a payout. The burden of proof is on the insurer when it seeks to deny coverage based on the defense of arson by the insured. Generally, the insurer must prove three things:
- Evidence of arson.
- The motive of the insured.
- Evidence implicating the insured.
Investigating the Fire for Arson
Evidence of arson is generally provided by either the fire department investigators or other independent investigators who qualify as experts on origin and cause (O&C). Direct evidence would be proof of such things as the use of accelerants, intentional ignition or the reports of eye witnesses. The physical evidence of arson may be consumed by the fire itself leaving the insurance company and the O&C expert with no physical or scientific proof of arson. Absence of direct physical proof of accidental or natural causation has led and may continue to lead some experts and insurance companies to claim they have ruled out any accidental or natural cause and, by their logic, lead them to conclude the fire must be from an incendiary cause and thus arson.
The NFPA publishes NFPA 921, Guide for Fire and Explosion Investigations. After the 1992 edition of the Guide for Fire and Explosion Investigations, a number of fire investigators and insurers accepted as valid the concept and rationale of “negative corpus.” Using the process of elimination to infer the cause of a fire is often referred to as negative corpus, essentially a fire investigator’s shorthand for “negative corpus delicti,”which of course means “a body of the crime.”
After 1992, the use of negative corpus methodology became more widespread. In other words, there was no scientific evidence of the crime of arson, just a failure to find any evidence of an accidental or natural cause or anything to conclusively rule out arson. This was seen by many to be a flawed methodology.
The NFPA 921, Guide for Fire and Explosion Investigations (2008 Ed.) discusses using the process of elimination, and sets forth some essential criteria:
Section 18.2.5 -“[T]he elimination of all accidental causes to reach a conclusion that a fire was incendiary is a finding that can rarely be justified scientifically, using only physical data; however, the elimination of all causes other than the application of an open flame is a finding that may be justified in limited circumstances, where the area of origin is clearly defined and all other potential heat sources at the area of origin 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 other potential heat sources at the area of origin can be examined and credibly eliminated
In an origin and cause fire investigation, negative corpus is generally recognized as the methodology of concluding the cause was arson, based primarily on the absence of any finding of accidental or natural causation.
A detailed list of issues surrounding the improper use of negative corpus to obtain a finding of arson is contained in the article titled, “Arson: The Process of Elimination,” by the law firm of Tedford & Pond, LLP, where some specifics are cited concerning the negative corpus methodology and the use of the process of elimination. Here’s an excerpt:
There are four essential criteria for the permitted use of the process of elimination in determining the cause of the fire.
- The area of origin must be clearly defined and known conclusively to the exclusion of all other potential origins.
- All accidental causes in the clearly defined area of origin must be examined and credibly eliminated.
- The scientific method must be used in the analysis which eliminated all accidental causes and the remaining ignition source must be consistent with all known facts.
- Whenever an investigator proposes the elimination of a particular system or appliance as the ignition source on the basis of appearance or visual observation, the investigator should be able to explain how the appearance or condition of that system or appliance would be different from what is observed, if that system or 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.) scientifically examine and eliminate all accidental causes, then the methodology of negative corpus becomes highly suspect and is thus not a reasonable or sound basis for denying the claim on the coverage defense of arson by the insured.
Absence of Evidence
There is an old saying in science and logic that “absence of evidence is not evidence of absence.” Absence of evidence of an accidental or natural cause is not evidence of the absence of an accidental or natural cause. Just because the investigator did not find an accidental cause does not prove there was not an accidental cause. Neither does the absence of evidence of an accidental cause allow one to scientifically or logically conclude or prove the presence of incendiary/arson causation. If an expert fails to find the origin and cause of a fire and concludes arson or an incendiary source based solely on not finding an accidental or natural cause, then the adjuster should immediately review the expertise and thoroughness 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 the former argument and reject the latter argument is to presume (without proof) that the insured is guilty. Without proof one way or the other, the best an adjuster can do is call it undetermined.
To accept the former argument and reject the latter argument is to presume (without proof) that the insured is guilty. Without proof one way or the other, the best an adjuster can do is call it undetermined.
One can speculate that lack of proof of an accidental cause may be a possible indicator of arson or incendiary cause, but it has always been very questionable whether an insurance company should act on speculation alone as a sufficient basis for claiming arson and then denying coverage to an insured.
The primary duty of the claims representative is to deliver the promise to pay. Therefore, the claim representative=s chief task is to seek and find coverage, not to seek and find coverage controversies or to deny or dispute claims.
A simple conclusion by the fire investigator concerning origin and cause is not sufficient. In light of the duty of good faith and fair dealing the adjuster owes to the insured, the investigation and the report must clearly provide information to support the finding of arson. This information should be clearly and easily understood by the adjuster. If the adjuster does not clearly understand the facts, the report, and the conclusions, then he or she has a duty and responsibility to contact the investigator and obtain more information. The report and evidence should clearly reflect adequate proof to backup the opinion. It is to the insured that the insurance company owes the contractual obligation of utmost good faith and fair dealing.
Case Law and Recent Changes
Over the years some courts have accepted while others have rejected negative corpus as a basis for alleging arson. In 2006, a federal court in Ohio, in Smith v Allstate Insurance Company, dismissed Smith’s claim of bad faith arising out of Allstate’s denial of his fire claim. Allstate had denied the claim based on their expert’s finding of incendiary origin. The expert had ruled out all causes other than intentional human acts. The court did not endorse the expert’s findings but did conclude there was other sufficient evidence to support the conclusions and dismissed the bad-faith claim.
Recent Changes to NFPA 921
The 2011 version of NFPA 921, Guide for Fire and Explosion Investigations, finally rejected the negative corpus methodology as being inconsistent with the scientific method, based on the finding that the methodology generated unprovable and untestable hypotheses. It was determined the methodology may result in incorrect determinations of the ignition source and first fuel ignited. Where all hypothesized fire causes have been eliminated and no facts point to a cause the investigator=s only remaining choice is to opine that the cause is undetermined.
In 2012, the U.S. District Court, District of Minnesota, in Jeremy Somnis v Country Mutual Insurance Company, found Country Mutual’s expert’s opinion was the absence of an accidental explanation suggests the fire was incendiary. Yet, the court perceives no reason why an expert is necessary to draw that inference for the jury.The court held that once the expert could not identify an accidental cause, the jury could draw its own conclusion concerning accident or arson. Such an inference of arson by the expert is not helpful to the jury and is excluded in that aspect. The expert is also not allowed to testify the fire was intentional because all he can scientifically testify to is he did not find an accidental cause.
The adjuster is left with only the scientifically and logically provable facts, if there are any facts, and with the cause of the fire being listed as undetermined since there is no concrete proof of arson. Without proof of arson, there can be no expert testimony of arson by the insured or anyone else, based on negative corpus methodology.
If the adjuster can build a strong and valid circumstantial case of motive and a strong enough linkage to the insured, these factors, combined with an undetermined causation, might leave the adjuster with a chance of convincing a jury to arrive at a conclusion of arson, but the expert cannot provide the adjuster with that conclusion.
Presently the adjuster’s job has become more difficult and fraught with peril. Fire investigation has changed over the last 40 years.
The adjuster has a duty to the insured to give at least as much consideration to the insured as he does to the insurance company. The adjuster cannot and should not just simply accept an opinion of arson without exploring the other options fully and objectively. Skepticism about an expert’s negative corpus conjecture of arson, with at least equal consideration given to the findings of opposing experts, is another way of giving at least equal consideration to the interests of the insured.
Without scientific evidence and sound logic, the adjuster cannot rely on expert testimony based on the negative corpus methodology to conclude a fire was arson or of incendiary origin, by the insured or anyone else. While the insurance company can and should provide law enforcement with factual and scientific evidence uncovered during the claims investigation that objectively points to fraud and arson, the adjuster and the expert must consider how strongly he or she may safely suggest any pursuit of criminal charges against the insured. In the past some adjusters have pushed, urged or suggested to law enforcement that it should proceed with criminal charges based on the expert’s negative corpus theory of arson, presumably in order to reinforce the insurance company’s denial of coverage. Today, such actions by the adjuster or the insurance company, in the light of recent case law and the revision of NFPA 921, might be found to be lacking in the good faith and fair dealing inherent in every insurance policy.
“Each company, no matter how large or small, is accountable for the actions of its claims representatives and supervisors. Without proper training, insurance companies cannot be confident that their claim representatives and supervisors are handling claims responsibly. ”
Arguably there has never been any scientific or logical basis for the use of the negative corpus methodology. The negative corpus methodology has been controversial since its inception because the conclusions and findings were generally based on an absence of evidence, rather than the presence of evidence. The argument against this methodology was that it was both unscientific and illogical. For a while segments of the insurance industry did accept and use this flawed methodology. However, the rules have changed.
Denial of a first party fire claim based solely on negative corpus may be grounds for bad faith.
The insurance policy is a contract covering the insured for perils, such as fire. The adjuster has a duty to look for and provide coverage for the perils insured against and make known and available to the insured the benefits the insured is entitled to under the policy. If the adjuster has a reasonable basis for questioning coverage, the adjuster has a duty to promptly and thoroughly investigate the claim. The adjuster can deny or withhold coverage and benefits if and only if the adjuster has determined there is no coverage and no benefits are due under the policy.
“When an insurance company fails to pay claims it owes or engages in other wrongful practices, contractual damages are inadequate. It is hardly a penalty to require an insurer to pay the insured 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 not scientifically examine and eliminate all accidental and natural causes, the findings are suspect. The expert merely pointing to a spot he calls the point of origin is not enough. The expert must explain how the fire started, i.e. the fuel source, the heat source, the combustion elements. He or she must clearly define the point of origin and the act or activity that started the fire to make it obvious to the adjuster that this is in fact a case of arson.
If, after reading the expert’s report the logical and factual proof of arson is not obvious to the adjuster, the adjuster should not accept the expert’s conclusion. The adjuster owes a duty of good faith and fair dealing to the insured. If the expert’s conclusion of incendiary cause or arson is not convincing to the adjuster, then his conclusion concerning the cause of the fire should probably be undetermined. It is important to note that “undetermined” does not also mean suspicious and is not a reasonable basis for denial of a claim.
Without proof of arson or incendiary origin, the adjuster will have considerable difficulty in denying coverage to the insured. The insurance company is left with only two of the three elements needed to sustain the denial: the insured’s motive (if any), and circumstantial evidence implicating the insured or connecting him or her to the fire’s cause. Without the crucial elements of proof of arson or incendiary origin, an adjuster must be extremely cautious in attempting to build a strong circumstantial case. He or she must be sure the issues of motive and connection to the insured are more than sufficient to convince a reasonable person (or juror) by a preponderance of the evidence. (This is difficult to accomplish with an unknown cause.) To do otherwise is to invite what has become a common result: a lawsuit for bad faith.
Everette Lee Herndon Jr. is a claim consultant and expert witness who works primarily with insurance claims handling, coverage, and bad-faith cases. Herndon was an adjuster for more than 25 years and is a member of the California Bar. He may be reached at www.leeherndon.com; firstname.lastname@example.org.