Litigation Defenders

Historically, arson-for-profit was the preferred method of fraudsters attempting to bilk their insurers. However, as the public and private sectors have developed new and improved methods for investigation, those who stage losses are evolving too.

The post-holiday period is prime fraud season for staged water losses as frozen pipes are not unusual and most gifts don’t come with receipts. When faced with a burst pipe, the temptation is to quickly adjust and move on to the next claim. However, a simple determination that the insured “reasonably” attempted to maintain the heat is what the fraudsters are counting on.

The old saying about ducks holds true. If it walks, sounds, and looks like a duck, it is likely a duck. With staged water and fire losses, they are birds of a feather. A disconnected water supply line in the second-floor bathroom and a book of matches in the basement can result in the same amount of property damage, without involving public sector investigators.  For this reason, claims professionals are the first responders and investigators for water losses.

The most fundamental task for a claim professional investigating a water loss claim is establishing a timeline. Unlike a fire where someone has called 911, and the fire department arrives on the scene, a water loss timeline is rarely independently verifiable. However, there are many red flags in water loss claims timelines that should give you pause.

While not all-encompassing, this includes the lack of tangible physical evidence such as the busted pipe or broken fixture, the inability to show a plumber fixed the issue, the reliance on friends or family to perform the initial repair, dark staining on wood for a loss occurring only recently, or significant and/or widely distributed mold after a recent event.

Those familiar with fire investigations know that controlling the scene of a loss is fundamental to preserving forensic evidence. In fire losses, scenes are often controlled by public officials and/or private origin and cause specialists. However, with water losses the claim professional as first responder and investigator can initially take control of the scene.

By instructing water remediation vendors to preserve tangible physical evidence and the claims professional performing thorough photo documentation of the scene before dry-out procedures, the evidence of fraud can be preserved. While this does not replace a forensic engineer examining the scene and the tangible evidence remaining, that expert will have a significantly better ability to support a claim denial.

Further, the tangible physical evidence preserved after a loss can support a denial where none other exists. For instance, was the failure at a joint in the pipe? Is the pipe PVC, copper, or Pex? As will be more thoroughly explained in my next article, each pipe type relies on specific joining systems which have, in turn, specific failure modes. Being able to eliminate that specific failure mode as a possibility makes the loss more likely to have been staged. 

While water loss claims might not be as shallow as many claims professionals first believe, basic fire investigation methodology will assist in detecting and combating this new form of fraud. Preserve the scene and as much tangible evidence as possible. Document, document, document everything you can. Establish a timeline early and attempt to verify it as often as possible. And lastly, retain a forensic engineer to inspect the scene with or before your water remediator begins their work.

Your natural curiosity and investigative mindset will help keep you one step ahead of the fraudsters.