INVESTIGATING FIRE INSURANCE FRAUD CASES !

“Because I could”

carried an image

“Oh ! I too, should have”

Of late numerous incidents of fraudulent fire claims have been reported and many insurers all over the world have lost millions of dollars to this account.  Unfortunately, investigations of fraudulent fire insurance claims are often inadequate or not performed at all.  

The reasons are simple.  (i) shortage of investigators who have been trained in the techniques of fire insurance fraud cases (ii) evidence of the crime is likely to have been destroyed by the fire or by the suppression of the fire. The result is that many fire frauds are declared to have innocent origins when in fact they are deliberately set.

Willful and malicious intent is an essential element in proving the offense of fraud.  The establishment of a motive adds weight to evidence tending to prove intent. Common motives are crime concealment, revenge, jealousy, spite, sabotage, intimidation, suicide, excitement and pyromania.

Proving the element of intent in building fire can be advanced when the following questions are answered through the inquiries of the investigator :

• Were alarms or communication systems tampered with?
• Was property removed prior to the fire?
• Were interior and exterior doors and windows open or closed?
• Was the ventilating system tampered with?
• Was the fire department called immediately?
• Were flammable materials in the building?
• Was internal fire fighting equipment in working condition?
• Was there any evidence of tampering?
• Were payments being made regularly?
• Was the finance company about to repossess the property?
• Was the property the subject of an in-house  problem such as an industrial dispute with the employees?
• Was the owner dissatisfied with the business?
• Were stocks removed from the premises prior to the fire?
• Did the owner or prior owner have an insurable interest?

Checklist : 

The Investigator has to establish that a Fire occurred by one or more of the following facts:

• The date and time of the burning
• The address or location where burning occurred (official designation)
• A brief, accurate description of the building structure or premises, including the kind of construction material, the age or approximate age; the dimensions or approximate dimensions.
• The fire station that received the alarm
• The time that the fire station received the alarm.
• The fire apparatus, if any, that attended the fire, and the time that the fire apparatus was officially in operation.
• The time that the fire apparatus was withdrawn from the burning, or the time that the fire department declared the burning extinguished.
• The official designation of the incident by fire department records.

To Establish Value and Ownership : 

The Investigator has to ascertain and establish:

• The approximate value of the property.
• The insurance coverage on the property, or of items and articles of particular value, data as to mortgages, lines, loans and the financial status of the suspect and any action, pending or past, against the suspect or against any member of the suspect’s family.
• The inventory of stock, fixtures, equipment, and other items of value within the premises, and the damage as a result of the fire.
• The name of the occupant at the time of the fire, and if the dwelling was vacant, the length of time that the premises had remained unoccupied.
• Alterations or changes made in the building while it was occupied by the last tenant, such as the addition of partitions, electric wiring, or stoves.
• Evidence that any articles were removed from the premises or were recently repaired, altered, or adjusted in any way.
• Evidence indicating who was responsible for the security of the building, who possessed the keys to the building, and who could have had additional keys made.
• Information as to whether windows or doors were normally closed and locked, whether some windows were of necessity, left unlocked although they were closed, or whether some, or all of the windows were normally left open.
• The name of the owner of the property, including all aliases.
• The name of the insured.

To Collect Information and Evidence. 

The Investigator has to collect the following information and evidences : 

• The name of the person who discovered the fire, and the person’s observations concerning the locations in the building where burning or smoke were observed.
• The time that fire was discovered.
• The circumstances under which the fire was first discovered.
• The name of the person who turned in the alarm.
• The means by which the fire was reported.
• The time interval between the discovery of the fire and the report to the fire department.
• Weather data, such as the atmospheric temperature and the direction of the wind at the time of the burning, and information concerning any electrical storms that may have occurred at that time.
• How the burning occurred, if known.
• The type of burning e.g., flash fire, explosion, smoldering fire, or rapidly spreading fire, the approximate intensity of the burning, and whether there were separate fires.
• The presence, color and odor of smoke during the fire.
• The color, height and intensity of the flames
• The direction of the air currents within the building during the burning as deduced from partially burned wallpaper, depth of charring or soot deposits.
• The quantity of air within the building during the fire as revealed by the heaviest concentrations of smoke and soot.
• The direction in which the burning spread.
• Significant noises that were noticed before or during the burning.
• The name of the person who was in the building at the time of burning or who was in the building last.
• The area that suffered the greatest damage.
• The physical evidence was discovered.
• Evidence of possible devices or means by which the burning was started e.g., candle, match, timing device, or flammable material (mechanical, electrical, chemical or combination of the three).
• Blistered paint, charred wood, melted metal, glass or other material that may be found at the suspected or known point of origin.
• The presence among the debris of peculiarly colored ashes and clinkers, or traces of paraffin, saturated rags, waster, excelsior, or other fire spreaders.
• The identification of the material burned e.g., oils of chemicals (Laboratory examination of samples of soot may supply this information).
• If a death occurred, all the pertinent data and facts revealed by the autopsy.
• Photographs or sketches of the scene, interior and exterior, during the burning and after the burning was extinguished, supplemented with notes and evidence.
• Photographs and impressions of evidence of forced entry at any of the doors, windows, hatches, skylights or other points of entry.
• The condition and location of fire fighting equipment, such as hoses, extinguishes (full or empty), damaged alarm mechanisms and sprinkler systems.
• Information from inspections of the premises that may have been made prior to the fire.
• Evidence of the careless storing or placing of flammable materials such as gasoline, paint, oils, chemicals, lighter fluid and cleaning fluid.
• The location and condition of all electric light drops, extensions, appliances, and fuses.
• The condition of electric wiring, including exposed wiring, evidence of recent repairs, inside and outside, evidence of splices, connection or alterations and when, if known, such alteration were made and by whom, load carried by the wires, prescribed load of the fuses through which the lines were fed and testimony as to whether or not heat was ever noticed in the wires or terminals before the fire.
• The number and type of machines, if any, in the room or building, when they were last used, the amount of power they consumed, and when they were last tasted and serviced.
• The number of electric motors in the room of building, how they were safeguarded against dust, debris and tempering their horsepower, voltage and purpose, whether they were of the open or sealed type, the length of time they were generally in operation and their defects, if any.
• The condition of gas pipes, bottled gas pipes, steam pipes, air pipes and water pipes.
• The number and the type of stoves within the room or building, whether fires were in the stoves, the kind of fuel used, the location of the sources of fuel in relation to the stoves, whether the stoves were self insulated, when the ashes were last removed, where removed ashes were placed, when the stoves were last cleaned or serviced and whether they had pilot lights or similar continually burning flame.
• Glass objects that may have accidentally caused the fire by concentrating the rays of the sun.
• The facts pertaining to any suspicious item or devices that may have been found among the debris. The method used to extinguish the burning e.g., water, foam and carbon dioxide.

Investigation :

Investigator has to decide as to  what should be the line of action. Line of action can be of two kinds only :

1. If proper information is available first hand, then investigation work should be started without touching the insured. Information should be collected from concerned persons directly or indirectly excluding the insured. The insured should be contacted in the end after ensuring that he is fixed in such a position that any material information/documents could not be altered or damaged.

2. In cases where the first hand information is not sufficient then the insured should be contacted in a manner that he will not get an idea about the gravity of the matter.

The questionnaire given to the insured should be designed in a manner that all-important information is in hand and insured is fixed i.e.,

• One question should be repeated at least twice, if not thrice in a manner that correct answer from the insured comes out (could be concluded)
• It should be so comprehensive that after receiving the reply from the insured, he should not be left in a position to change and or alter the version or tamper with important documents, books of accounts, log books, cheque book and bank accounts. Photocopies must be obtained of the above documents.

Thereafter each and every document/paper as well as the contents of the insured’s version should be thoroughly investigated for ascertaining the correctness of the documents/version from different sources, without disturbing the insured.

It is preferable that in this job, some time gap is given so that insured could feel that the storm is over.

In case it is not possible to give a time gap then some queries must be raised from the insured in writing. These should be designed in such a manner that the insured is exclusively engaged in the completion of the requirements of the letter. This time must be utilized in verifying the documents from other concerned persons.

What the Investigation Report should contain :

A comprehensive Investigation report must be comprised of the following :

• Introduction
• Basic information
• Case if brief
• Investigation procedure adopted (to be decided on the merits of the case)
• Investigation and Remarks
• Special mention
• Conclusion

Introduction : 

Introduction must contain all details of the authorities who have assigned the job and details of the job which has been asked to be performed.

Basic Information : 

• The Insurance Policy
• Its details from the schedule, subject matter of insurance, Sum assured, date of loss, time of loss, date of FIR, fire brigade report, name of person who first noticed the loss, estimated loss as claimed by the insured.

Case if brief : 

An investigator must explain the “case in brief” including therein :

• About the insured
• The premises
• The occurrence
• Sum Assured and its adequacy
• Anomalies observed by the underwriters

Line of Action : 

The line of action step by step must be jotted down by the Investigator.

Investigation and Remarks : 

The investigator must mention the details of visits with date regarding the place and persons he has inspected/contacted and details of outcome/observations/inferences drawn by him in chronological order.

Special Mention : 

Without giving the details of the place and persons the inferences/conclusions which are of importance in the light of the insurance policy, its exclusions, conditions and warranties must be highlighted.

Conclusion : 

On the basis of special mention, net out come should be reduced properly in a concise manner and there should be no ambiguity in conclusion drawn.

Special care to be taken by an Investigator :

• The conclusion drawn by an investigator must be properly substantiated with documents/evidences as a proof thereof.
• Documents which are going to decide the fate of the case must bear the signatures of a competent authority/person with designation or should in a form of an affidavit.
• In case an investigator finds it difficult then he must mention about all necessary details of the documents along with the place and person where from these documents could be called for perusal in the court of law as and when desired.
• Special care should be taken that circumstantial evidences alone should not be the basis of the conclusion, because at present, only the circumstantial evidences are insufficient in the eyes of the law to decide the case against the insured.
• Therefore, one must insure that circumstantial evidences must be in addition to the concrete evidence/documents.
• To facilitate the job, it is desirable that small independent circles should be prepared by working at different places with different persons and findings thereof must be prepared in a form of number of rings i.e., circles. 

On the completion of the assignment the investigator should prepare a “chain of events” from the rings i.e., circles he has prepared during the course of investigation in a manner that continuity of the events must appear and to a reader of a report, it should give a correct picture and the chain of events should make one story without any break. If this procedure is properly followed then it can also be used as “Check Method” i.e., whether assignment has been completed true or not, obviously it is an art indeed.