Study 7: Property Claims

Question 1

Define Arson (1)

Answer 1

An actual or attempted malicious and deliberate burning of physical property by its owner or another person.

Question 2

Fire Scene Investigation: What is the first step adjusters should take related to a fire scene investigation? (2)

Answer 2

• Before approaching a fire scene, adjusters should do their homework. They should check the insurance coverage, the underwriting history (recent increases or decreases in coverage), as well as gather as much background info on the insured as possible.
• If it is determined that a fire is deliberate, it then becomes classified as arson. Therefore, coverage would be denied.

Question 3

What are some insurance and personal indicators that an adjuster should consider while investigating a fire scene? (13)

(Full table 7.1 on pg 151)

Answer 3

Insurance coverage related indicators:

1) Coverage was arranged shortly before loss.
2) Coverage was increased shortly before loss.
3) Property is heavily over insured.
4) Loss occurred shortly before policy expired.
5) Facts were misrepresented in application.
6) Info provided to UW’s was misleading.
7) Insured had extensive claims record.
8) Insured called broker to check coverage shortly before loss.

Personal Indicators:

1) Insured was recently divorced and disputes have arisen over property.
2) Insured has onerous alimony or child support obligations.
3) Insured has gambling problem.
4) Insured has massive debt.
5) Bank has threatened to foreclose on insured property.

Question 4

Fires and Burning - Keys to Arson: How can adjusters determine if arson has occurred at a fire scene? (3)

Answer 4

• A visual inspection is the first way to determine if a fire is fraud. Trained investigators will walk through the damage and look for burn patterns and evidence of accelerants, such as lighter fluid, empty gas containers, etc.
• In addition to trained investigators, trained dogs can be used to detect if accelerants were used.
• The investigator will determine the point of origin, which is likely to be the most heavily damaged area. If the point or origin appears to be in an area where the start of a fire is unlikely, then the suspicion of arson is justified.

Question 5

Define the following:
Burn Pattern (1)
Accelerants (1)
Spall (1)
Trailers (1)

Answer 5

Burn Pattern - The path of travel and the shape of the charred areas from the point of origin of a fire. A Vee burn pattern usually indicates a normal burn, where as an inverted Vee suggests that chemicals were used to accelerate the fire.

Accelerants - A material that is used to start or spread a fire. Its usually a flammable or combustible liquid. (gas)

Spall - A fragment, chip, or splinter of stone. Usually happens over time. (Erosion)

Trailers - Fast burning materials used by arsonists as fuses to rapidly spread a fire throughout an area. Are called trailers because they leave trails of their burn pattern.

Question 6

What parties may be involved in a fire scene investigation? (8)

Answer 6

• When arson is suspected by fire department, The office of the Fire Marshal (OFM) will be called to investigate.
• Other key players include members of the Canadian Association of Fire Investigators (CAFI) whose members include:
• -Police
• -Fire Marshals
• -Engineers
• -Adjusters
• -Fire services personnel
• -Insurance industry professionals

Question 7

What does the Canadian Association of Fire investigators (CAFI) Code of Ethics state? (6)

Answer 7

CAFI members are required:

• To be loyal to organization they represent.
• To conduct all matters in way that inspires public.
• To act fairly and impartially to all people.
• Not to use their position for personal advantage.
• Not to claim qualifications they do not have
• To seek the truth at all times in investigating occurrences.

Question 8

Are Adjusters allowed to access the premises when investigating a fire claim? (2)

Answer 8

• Yes, Policy conditions provide for access to the property, but do not allow the insurer to exercise any control over it.
• The fire investigation team needs a warrant to access the premises once it is determined to be an arson. (Regina v Ouida)

Question 9

Define Fire Marshal. (1)

Answer 9

A public official involved in fire prevention and in the investigation of fires, particularly where arson is suspected.

Question 10

Defending Against Arson: What type of evidence can be used in arson claims? (1) and what are the key elements in defending against arson? (3)

Answer 10

-Since arson is usually planned to take place without any eyewitnesses, the only evidence that can be developed is circumstantial.

The key elements that the insurer must prove are:

• The fire was set.
• Insured had motive to set fire.
• Insured had opportunity to set fire.

Question 11

Set Fire: How can adjusters/insurers determine whether or not a fire was deliberately set? (1)

Answer 11

-Evidence that a fire was set is reinforced when other potential causes are eliminated. (Ex: Electrical engineer confirms that electrical system in area was not defective, therefore eliminating electrical fire as potential cause)

Question 12

Motive: What is the primary reason why someone may commit arson? (1) other potential reasons? (1)

Answer 12

• Primary reason often relates to an insureds financial problems.
• Competition, jealousy, personal life problems, destruction of evidence to cover a crime, etc. are other potential reasons to commit arson.

Question 13

What are some deceptive financial practices (6) and sales indicators for arson fraud (4) that adjusters should be aware of?

(Table 7.2 on pg 158)

Answer 13

Deceptive Financial Practices:

1. Cannot produce financial statements.
2. Fictitious invoices submitted.
3. Sales were actually made after period cut-off, but were shown before to show stronger financial position.
4. Understated expenses.
5. Unpaid creditors.
6. Suppressed purchase invoices.

Sales Indicators:

1. Sales decrease but insured claims going up.
2. Fake sales are being recorded.
3. Huge increase in sales over previous period
4. Alterations to purchase or sales invoices.

Question 14

What are some inventory (6) and business related indicators (8) that adjusters should be aware of related to arson fraud?

(Table 7.3 on pg 159)

Answer 14

Inventory Related Indicators:

1. Obsolete inventory.
2. Overvalued Inventory.
3. Large stock purchases for cash just before the claim.
4. New and improved products available for the same price.
5. Inventory turnover rate should be determined to measure performance.
6. Stock quantities purchased draining company cash.

Business Related Indicators:

1. Economic recession.
2. New highway reduced traffic to insureds business.
3. Ruthless competition.
4. Non-competitive product.
5. Insured wants out of the business. (Labor problems, health problems, disputes with partners.)
6. Cannot fulfill contracts.
7. Seasonal business has been affected.
8. Zoning (Loss occurs at end of unsuccessful selling season)

Question 15

Opportunity: How can insurers/adjusters prove that claimants had the opportunity to set the fire? (3)

Answer 15

• You must ask questions and investigate thoroughly.
• It must be remembered that arson cases are established on the balance of probabilities so evidence must be serious and convincing.
• Must also prove that it is unlikely that anyone else had the opportunity to set the fire.

Question 16

Theft Claims: What proof must be submitted by the insured when a theft claim occurs? (3)

Answer 16

In a theft claim the object is gone. With these items unavailable, proof must be submitted that establishes the:

• Value of the items
• Existence of items
• ownership of items.

*Theft claims are more easily arranged, and with less risk to perpetrator.

Question 17

What are some theft analysis indicators that adjusters should be aware of? (13) (Receipt and personal theft indicators)

(Table 7.4 pg 161-162)

Answer 17

Analysis of Receipts:

1. Insured has no receipts.
2. Photocopied, written with same hand, from same store, consecutively numbered, showing no tax are all characteristics of suspicious receipts.
3. Receipts presented neatly arranged right after loss.
4. Store has no record to match receipt submitted.
5. Store does not carry item shown on receipt.
6. Item sells for less than whats on receipt.
7. Items stolen were just purchased.

Personal Theft Indicators:

1. Aggressively pushing for settlement.
2. Unusually knowledgeable about claims process.
3. Eager to settle quickly.
4. Anxious to receive cash settlement.
5. Has significant loss record.

Question 18

What are some theft analysis indicators that adjusters should be aware of?(7) (General Theft loss related indicators)

Answer 18

General Theft loss related indicators:

1. Insured has not reported loss to police.
2. Items reported stolen do not match items claimed under policy.
3. Insured reports claim to insurer before notifying police.
4. No signs of forcible entry.
5. Expensive items paid for in cash.
6. Burglar alarm is defective.
7. Items normally kept in safe are reported stolen.

Question 19

Damage Claims: Are insurers responsible for to pay for all damage done as a result of a claim submitted by the insured? (2)

Answer 19

• No, Damage that is not within the policy terms should not be paid, or the insurer should be able to decide whether they are going to pay or not.
• Physical damage to property may motivate an insured to commit insurance fraud.

Question 20

Estimates of damage: How can preparing estimates help reduce insurance fraud? (4)

Answer 20

• Its difficult to identify fraud without viewing the damage or having an expert view the damage.
• Experts can help confirm the extent of the damage and its cause.
• To prevent fraud, all estimates must be well organized and detailed.
• Adjusters must review all invoices and check all reports from contractors, and they must make sure they do not pay for anything that they didn’t approve. (Some service providers may collude with insureds to commit fraud)

Question 21

Define collusion. (1)

Answer 21

An illegal agreement between two or more parties to defraud or deceive another.

Question 22

Assessment of claims: How are claims payments established? (5)

Answer 22

1. Establish the actual cash value of the repair.
2. Ensure the material to be used is equivalent to the original.
3. Create a detailed itemization of the claim. Do not make lump sum payments.
4. Determine who must authorize the repairs.
5. Check to see if there is other insurance available. Pay only the portion required.

*Value of claim should be established whether it is suspected of being fraudulent or not