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Arson-for-profit, with its many faces, is a dangerous and sometimes deadly form of insurance fraud.
By Michael Diegel
In 560 cases in 1993, someone’s world ended just as biblical writers predicted—in a blaze of fire. The dead were the victims not of apocryphal wrath, but of arson.
For at least 80 other people living in apartments above a New York warehouse, salvation came in the form of investigators who unearthed a plot to burn the warehouse for the insurance money.
There’s no way to know how many of the 560 were killed in cases of arson for profit, but experts believe at least 15 percent of reported fires are deliberately set for profit-seeking reasons, including insurance fraud.
“It’s as difficult, or perhaps even more so, as determining the level of (other types of) insurance fraud,” said Rick Gilman of the Insurance Committee for Arson Control. “It’s perhaps more difficult because arson covers a wide variety of motives where generally insurance fraud is strictly for profit.”
He defines arson for profit as “an intentionally set fire to recover some financial gain. Maybe it’s financial gain through insurance proceeds; maybe it’s financial gain through reducing the competition; maybe it’s financial gain through some other avenue.
“There isn’t any information as to how common it is,” Gilman continued. “The whole issue is one that’s very difficult to find out anything about because there hasn’t been an effective study of that aspect of arson for over a decade.”
A 1982 study of closed claims files from 1980 was conducted by the Insurance Research Council’s organizational predecessor, he said.
“In general, they found that in the voluntary (insurance) market, the percentage of arson cases was 15-17 percent; but when you got into the FAIR plan market, they found (arson cases were) upwards of 40-50 percent,” Gilman reported.
A VARIETY OF SCAMS
Here are some recent cases that illustrate the variety of arson-for-profit schemes:
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A seven-person ring operated in Florida for at least six years. Participants torched houses, usually under the guise of renovation or construction projects. The group also burned cars—and at least 15 insurance companies.
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A New Jersey couple was accused in February of setting fire to their home after it languished on the real estate market for more than a year.
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Three San Francisco men were arrested in March and accused of buying a house in 1990, enhancing its value by presenting a fictitious lease-to-purchase agreement and filing a claim after setting the house afire. Investigators said one of the men had been pursued since the late 1970s for suspected arson, but this was the first time they’d gotten enough evidence to charge him.
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A Prince George’s County (MD) man who owns a topless bar recently was accused of hiring others to set fire to the county’s only other topless bar.
WELFARE FRAUD
While large commercial arson cases and homeowner arson-related fraud are fairly common, arson-for-profit crosses all socio-economic groups. Investigators in Buffalo, NY, report a rash of arson fires in apartments occupied by people on public assistance. Officials cited one woman who had fires break out in five separate apartments over three years. Her relatives experienced at least three fires.
In these cases, burned-out welfare clients move into public housing. They refuse to pay any rent and eventually are evicted. Then the apartment is torched, usually after all belongings have been surreptitiously removed. The client moves into a hotel, which is paid for, and collects for the “destroyed” belongings.
Typically, the “victim” can collect around $3,000 and pocket what would have gone to rent. Fire investigators believe that more than a third of the city’s over 300 arson fires can be attributed to the scheme, which they say is increasingly popular.
HOME FIRES BURNING
Cases like these earn headlines or are part of the anecdotes told among arson investigators. So are tales of arson by juvenile or serial offenders, cases that usually aren’t fraud-motivated arson. Residential fires, too, are less likely to be suspected as arson for profit.
“It may be that the grease fire in the kitchen was intentionally set,” Gilman said, “but it’s the local fire department and the local homeowner that maybe they know, [so] I think there could be less of a tendency to investigate residential fires unless it’s glaringly evident—multiple ignition sites or other glaring evidence of arson.”
Gilman also suspects investigators are less likely to look closely at residential fires because there’s not as much money involved as in commercial arson fires. Again, he lamented, “There are all too few facts in this arena.”
Still, he added, companies are doing more investigating.
“The same intensity that is being addressed to insurance fraud is being found in the arson investigation arena,” Gilman said. Companies are creating and expanding special investigation units, using resources such as property loss databases and public records, trying to identify patterns and motives. They also go low-tech.
“Some companies train arson dogs and give them to local fire departments,” Gilman said. “Nationwide has its own arson dog that it uses for investigations, which I think is kind of neat.”
Passage of arson immunity laws have helped, too. All 50 states and the District of Columbia have some form of arson immunity to protect insurers who give information to law enforcement.
In some cases, the law’s scope is limited. For example, 14 states do not allow reciprocity; law enforcement cannot share information with insurers. Most insurers support full reciprocity in immunity laws and also would like to see legislation protecting the insurer-to-insurer information sharing.
There is good news. The number of suspected arson fires has dropped for three straight years, and there was a reported 11 percent drop in arson cases in cities with more than 1 million residents. However, the cost of those fires was up in 1993 by more than $350 million.
The National Arson Forum, a group of companies and organizations concerned about arson, developed Arson Awareness Week (the first week of May) to heighten awareness of this crime’s cost.
While the dollar costs are something that’s borne by all of us, it’s also a good time to remember that some of us pay with our lives.
Michael E. Diegel is the Director of Communications for the Coalition Against Insurance Fraud, an independent, nonprofit organization of consumers, government agencies and insurers dedicated to combating all forms of insurance fraud through public information and advocacy. This article appeared in the May/June Fraud Focus and has been reprinted with permission of the author.
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