(Note: This Guest Blog is by Robert Reynolds, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the eleventh of a thirteen part series he is writing on examination under oath).

Back in the days of yore when, in true Gunga Din fashion, I hauled the man’s water defending insurance companies I was a fraud specialist. Every claim I handled had some indicia of fraud. And, believe me, if you or your client walked into the room for an examination under oath and I was conducting that day’s EUO, you were in for a long, difficult ordeal. I would move heaven and Earth to prove the fraud. But on the occasion when the facts bore out that there either was no fraud or there was no evidence to prove the fraud by clear and convincing evidence (the burden the carrier must establish in court to uphold a fraud denial, which is a higher standard than the normal preponderance of the evidence in civil court) I would actually tell the carrier to –please be seated before reading this next line— PAY THE CLAIM. Imagine that. Unfortunately, in today’s climate all too often when a claim comes across the inside examiner’s desk it seems the only tool provided by the carrier to evaluate the claim is a rubber stamp with the word “DENIED” and a red ink pad. With that being said, what should public adjusters expect when a claim is being investigated for fraud? Specifically, carriers love to shake the fraud stick at fire claims. What questions may be anticipated at an examination under oath of a suspicious fire claim?

First, the key element of fraud is the intent to deceive. Obviously, intentionally setting one’s property ablaze for the purposes of duping the insurance company demonstrates a clear intent to deceive. The problem is 999 times out of 1,000 there will be no Hollywood-film moment with the dastardly perpetuator of the fraud breaking down in an EUO, admitting the fraud, and begging forgiveness. It just rarely, if ever happens. In fact, out of all the fraudulent fires I investigated this happened once. And the woman did not admit the fraud, she merely asked for a break to use the rest room… never to return to the examination.

But I think it is very important for me to stress this next point to public adjusters and attorneys who handle first party property claims alike: look at your claims with a skeptical eye. If it looks like a duck and quacks like a duck, it’s probably a duck. That is, if you have a fire claim about which you have suspicions, you do not have to represent that person. In this industry the players on both sides of the ball need to weed out fraudulent claims. There are enough legitimate claims to go around, and advancing fraud just gives our industry a huge black eye. For example, raise your hand if you have seen this scenario: “Well, I was cooking fish with a huge pan of hot oil on the stove, when [insert weak excuse here: the doorbell rang, someone called, I fell asleep, I needed an ingredient and went to the store] and I forgot I was cooking and left the stove on.” Twenty minutes later the oil ignited and started a fire in the kitchen. But it was a controlled burn, with smoke damage throughout the house. Ever hear that before?

Well, a few years back there was such an epidemic of this type of claim in Dade County a task force was created. Am I saying this fact-pattern never happens legitimately? Of course not. Unattended cooking is covered under most policies. But I am saying these types of claims occur few and far between without fraud. Certainly attorneys and public adjusters who accept any claim that comes their way, all the while turning into the proverbial three monkeys, “I don’t want to see fraud, hear about fraud, or talk about fraud.” should be ashamed of themselves.

What public adjusters and attorneys should be doing is looking at these types of claims through a filter of skepticism. Ask your client the questions they would be asked at an EUO by defense counsel, not to prepare them for how to lie and get away with the fraud, but to ferret out the fraud before you sign and perpetuate it. First, discuss the facts and circumstances of the claim. For example, I once investigated a kitchen fire claim identical to the facts above where the policyholder stated in a recorded statement after the fire that she was cooking, suddenly remembered she had to pick up her daughter from school, and left the house in a rush, failing to turn off the stove. That could happen, right? Well… the problems were the date of loss was in July after school was out for the summer and further investigation showed that the daughter was not even in the country at the time. That’s pretty damning evidence. Second, you can bet dollars to doughnuts that the carrier is going to delve into the policyholder’s finances attempting to prove economic hardship facilitated a fraudulent fire claim, so ask the policyholder those hard questions during your assessment of the claim’s viability. Hence, perform your due diligence, investigate the facts of a suspicious fire and if the circumstances do not add up, walk away.

Additionally, pay close attention to the rest of the claim. That is, ALE (additional living expenses) and contents, specifically. Greed is inherent to all people. Even Ghandi probably had to fight off urges to take an extra spoonful of rice. This is important when regarding suspicious fire claims, as people who will commit fraud for money are all too often overcome by greed. They very often will make demand for additional living expenses (ALE) which are drastically over-inflated or outright phantom. I cringe when I am meeting a potential new client and I see those little paper receipt booklets for alleged rent payments. For example, I once investigated a claim where a young woman had a kitchen fire and stated under oath that the house was uninhabitable and she had to move in with her grandmother until repairs were made. How nice. Family helping family. Of course, she also produced a lease and little paper receipts claiming Granny was charging her $2000 per month. Unfortunately, she could provide no evidence as to where that money came from (re: cancelled checks, ATM receipt, etc.) and it was plainly obvious she was outright lying. In most jurisdictions if the policyholder is fraudulent with ALE the whole claim may be denied. In Florida, Wong Ken vs. State Farm, 685 so2d 1002 (3rd DCA 1997) holds that very premise.

The other area that must be scrutinized very closely is contents. Fraudulent policyholders will typically include every item they own –and then some—to their contents claim. Review that contents claim with a fine-tooth comb. Be reasonable, that is, if the policyholder is a working-class person making $40,000 per year chances are they do not own three gold Rolexes. And for that matter, how are three gold Rolexes allegedly located in a bedroom on the other side of the house from the kitchen damaged by fire? Much like fraudulent ALE, in most jurisdictions a fraudulent contents portion may lead to the entire claim’s denial. In Florida, see Schneer vs. Allstate, 767 so2d 485 (3rd DCA 2000).

So the moral to this blog: look hard at suspicious fire claims before agreeing to advance them. Ask your potential client the questions posed above, not to prepare them on how to commit fraud, but so potential fraud claims may be unmasked well in advance of EUO where, I promise, any competent defense counsel will unveil any ill intent.

Tune in next week insurance fans when we discuss Typical Questions Asked During an EUO of a Suspicious Theft Loss.