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Interacting With Insurance Representatives

by Guy E. Burnette, Jr., Esquire

Insurance is always an issue to consider in the investigation of an incendiary fire. Arson-For-Profit remains a significant factor in the arson problem everywhere. Insurance may be the primary motive for a case of arson or it may only be a minor issue. But in any case where the motive for the fire is not immediately apparent, the possibility of an insurance fraud fire should always be considered.

There are a number of different persons involved in the insurance process who may become a part of the investigation. Some of the different individuals likely to be encountered include the following:


Insurance Agent - As most people know, the agent sells the insurance product. This is the first person who is involved in the insurance process and will have first-hand knowledge about the circumstances of obtaining insurance on the property. There are two types of insurance agents: company agents (or "captive" agents) and independent agents.

The company agent or "captive" agent is employed directly by the insurance company. The agent is only authorized to sell insurance products for that specific company. If the type policy or coverage being requested is not available through that company, the agent must refer the customer elsewhere.

The independent agent is truly "independent". The independent agent sells insurance products on behalf of many different insurance companies. When a customer comes to the independent agent for insurance, the agent can choose among the many different insurance companies for the best available coverage at the best price. The independent agent is usually not considered an employee of the insurance company and is paid on a straight commission basis for the products sold.

Broker - The insurance broker is in some ways like the independent agent. The broker is not directly employed by any insurance company and acts as an intermediary or "broker" of specialized insurance products. An insurance broker typically handles the more complex insurance products or the more difficult types of coverage to place. High risk properties or businesses may have to be insured through a broker. Most of the insurance business written through Lloyds of London is handled by a broker. Similarly, brokers obtain insurance with Surplus and Excess Lines insurers who handle the difficult to insure properties and businesses. The broker is strictly paid on a commission basis.

Underwriters - Insurance underwriters evaluate and make the decision to accept or reject prospective insurance business. They are the ones who must approve any insurance coverage, even if it has been temporarily issued under a "binder" by an authorized agent. Underwriters closely examine the insurance application and collect other relevant information in order to make the decision on accepting or rejecting a prospective insured. They may be involved in decisions to terminate, cancel or non-renew coverage after it has been in effect when information comes to their attention indicating the property or business is not a sound insurance risk.

Loss Control/Risk Inspectors - The persons who provide loss control or risk inspection services go to a particular property or business which is being considered for insurance or may already be covered under a policy. It is their responsibility to identify and evaluate safety issues and risk hazards which have the potential of causing a loss. They are usually part of the underwriting process in considering a property or business for coverage. Sometimes they are sent out after the insurance has been issued to confirm the suitability of the insured property or business. Typically, they prepare a report for the underwriter or insurance company on their findings and include recommendations to minimize the risk of loss. Many insurance companies share this report with their insureds as a service to help them recognize safety and fire hazard issues. They may be employed by the insurance company or may work independently for various insurance companies.

Claims Adjusters - Insurance adjusters or "claims adjusters" are responsible for handling and resolving insurance claims. When a loss is first reported, an adjuster is assigned to the case. In most cases, the adjuster will handle the claim from start to finish. The claims adjuster has direct contact with the insured and usually handles all communications on behalf of the insurance company with the insured. There are three different types of claims adjusters who may be involved in a particular case.

Company adjusters or "in-house" claims adjusters work directly for the insurance company and are employees of the company. They handle only insurance claims involving the insurance company they work with. Most company adjusters handle a specific type of claim such as automobile, homeowner's or commercial claims. They have "settlement authority" to resolve claims up to a specific dollar limit. Beyond that limit, settlement approval must come from a supervisor or claims manager. Certain company adjusters have responsibility for handling major losses and have very large settlement authority. They are known as General Adjusters. If the company does not have a General Adjuster to handle large losses, the final responsibility for resolving a major claim may rest with a Claim Superintendent or Claim Manager. This is the hierarchy of claims management.

An "independent adjuster" is much like an independent agent. The independent adjuster handles insurance claims for a multitude of insurance companies who may use the services of an independent adjuster. Many small insurance companies don't employ staff adjusters and rely upon independent adjusters to handle their routine claims. Larger insurance companies with staff adjusters may still use independent adjusters to handle claims when a company adjuster is not available at that time or is not located in the region where the loss occurred. Most independent adjusters have no settlement authority and must obtain approval directly from the insurance company.

The "public adjuster" is an insurance claims adjuster representing the insured. In some states, the practice of public insurance adjusting is prohibited. Most states allow the practice of public adjusting under specific statutory guidelines and licensing requirements. The public adjuster is on the other side of the insurance claims process from the company adjuster or independent adjuster. The public adjuster represents the insured or claimant in presenting the insurance claim and obtaining for his client the maximum possible insurance benefits. Most public adjusters work on a contingent fee basis for a percentage share of the ultimate claim settlement. A public adjuster must do everything possible to establish coverage and get the claim paid, to earn a fee. They are a direct agent of the insured or claimant.

SIU - The SIU or Special Investigations Unit is a relatively recent creation in the insurance field. The SIU representative is the designated investigator for the insurance company assigned to questionable or suspicious claims which may involve fraud. Most SIU representatives are directly employed by the insurance company, but some work as independent contractors for various insurance companies. In a number of states, insurance companies are required by law to employ Special Investigation Units. SIU representatives are trained investigators specializing in the investigation of insurance fraud. Many of them come from a law enforcement background. Some insurance companies assign an SIU representative to work with the claims adjuster, while others turn the claim over for exclusive handling by the SIU representative when fraud is suspected. In a case of suspected arson, the SIU representative will usually be directing the investigation for the insurance company.

Fire Investigator/Origin and Cause Expert - The fire investigator or origin and cause expert is assigned by the insurance company to determine the cause of the fire. When a fire loss is reported to the insurance company, this is one of the first persons to respond. In most cases, the fire investigator or origin and cause expert is an independent contractor. There are some insurance companies who utilize in-house fire investigators, if only to conduct a preliminary fire scene investigation before hiring an independent fire investigator, as well. The fire investigator examines the fire scene and makes a determination - if possible - of the fire's origin and cause. The fire investigator will collect physical evidence for analysis, usually sent to an independent laboratory facility. When the fire is determined to be accidental, the fire investigator may be utilized to pursue "subrogation" - a claim by the insurance company against the responsible party or the manufacturer of a product which caused the fire. In arson cases, the fire investigator is the one who has the insurance company's first-hand knowledge of the fire's origin and cause.

Contractor/Estimator - Even though the claim may be under investigation as an incendiary fire loss, the insurance company will hire a contractor or estimator to determine the extent of the damages should the claim later be paid. Some insurance companies have in-house estimators who are trained in building damage estimation. Most insurance companies use outside firms, some of which specialize in the business of fire damage estimation and reconstruction for insurance claims. Many times a local contractor is used to prepare an estimate of the damages and anticipated repair costs, generally the most reliable measure of the actual damages.

Inventory Specialist - In complex commercial fire losses, the insurance company may hire an inventory specialist to examine the damaged or destroyed inventory in the business. These are trained experts who will first count or "inventory" the personal property and equipment in the business, then provide a detailed valuation of the damaged property and the current replacement costs for similar property and equipment. The inventory specialist will usually prepare a detailed report for the insurance company showing the inventory and equipment on hand at the time of the fire, its condition and value at the time of the fire, and the current replacement costs.

Salvor - When inventory and equipment have not been completely destroyed in a fire or other casualty, the insurance company will often hire a salvor to "salvage" the property. A salvor will examine and collect the inventory and equipment at the fire scene, take steps to protect it or provide emergency restoration services to minimize further damage and then locate a buyer for the salvaged goods. Many times there can be significant salvage value in the property after a fire. This is used to minimize the insurance claim which may have to be paid, if the loss is covered.

Appraiser/Valuation Expert - In cases involving unique property or property with special value such as artwork or collectibles, an appraiser or valuation expert may be retained to establish the value of the property involved in the claim. They may also be used to confirm the authenticity of property such as artwork or antiques.

Forensic Accountant - A forensic accountant or C.P.A. may be retained to assist in the handling of the claim. The accountant may be used to calculate the value of the claim, particularly where there are claims for coverages such as "business interruption" involving complex accounting formulas. In suspected arson cases, the forensic accountant will conduct a comprehensive evaluation of the financial records and business books of the insured to discover if there is a financial motive. The analysis includes much more than a simple review of the bank records and tax returns. The forensic accountant will identify any significant trends in the financial picture during the time leading up to the fire, note any irregular events or practices of the business, verify the authenticity and legitimacy of the business books, evaluate the business using established accounting tests or standards and project the future picture the business was facing at the time the fire occurred. If there is a financial motive behind the fire, the forensic accountant will usually find it.

Other Experts - There may be a number of other experts involved in a case, depending upon the facts of the particular case. An engineer - structural, mechanical or chemical - may be needed to address an issue in the case. A fire protection engineer may be retained to assist with the origin and cause issues. A metallurgist may have been consulted in connection with the fire. A security expert may be used to evaluate the security issues of the property at the time of the fire and to determine issues of forcible entry into the building. An alarm system expert may be used to examine the alarm system in the building and determine its status at the time of the fire. A document examiner may analyze written records and documents to establish their authenticity or identify the author.

Attorney - In cases where there is suspected arson, an attorney will probably be retained on behalf of the insurance company. The attorney will assist in evaluating coverage issues and other legal questions. The attorney will provide legal guidance in how the claim should be handled during the investigation. When it is time to conduct an Examination Under Oath, the attorney will take charge of this responsibility. When the investigation is completed, the attorney will provide an evaluation of the case and the legal sufficiency of any coverage defenses, such as arson. While some insurance companies utilize in-house attorneys for these purposes, most insurance companies hire outside counsel specializing in the handling of fire cases.

Reprinted with permission from the author.

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