Despite the nationwide decline in arson fires, many insurance companies and public officials suspect a rise in a specific type of arson: residential home fires that have been set by homeowners as a way to claim insurance benefits on a home and its contents. This type of arson fraud can lead to higher home insurance rates for all homeowners within the neighborhood or community where the arson occurred.
The spike in this type of arson comes as criminal cases of arson in the United States dropped by more than 14 percent from 2009 to 2010.
Uptick in residential arson
“We have experienced an increase over the past couple of years in arson-related homeowner's claims,” says Holly Anderson, a spokeswoman for State Farm Insurance. “And while we don’t have data that definitively proves it, we do attribute at least some of the increase to the proliferation of foreclosed-upon homes in the U.S.”
The home foreclosure mess has blanketed the country. For instance, one in every 119 homes in Nevada was in foreclosure in February 2011, according to RealtyTrac. In Arizona, it was one of every 178 homes; in California, one of every 239.
Some states -- particularly those hit hardest by the subprime mortgage crisis -- are revealing more telling data. Florida saw a 22 percent jump in annual “for profit” home and vehicle arson cases from 2007 to 2010. In Michigan, 22 of all fires reported in 2008 were deemed to be arson or suspicious. In 2004, that was the case for just 13 percent of fires. And for California, residential arson cases jumped 41 percent from 2003 to 2009.
Why homeowners set their own homes on fire
Arson and insurance fraud are both serious crimes with serious penalties. So what would drive a homeowner to commit such an act?
In a 2002 study, researchers at Baylor University studied the economics of residential arson, looking at trends in major U.S. cities between 1991 and 1995. They found that arson activity goes up when home prices fall; when homes are insured for large amounts; and when homeowners fall into financial distress, as evidenced by the local unemployment rate.
Jim Quiggle, a spokesman for the Coalition Against Insurance Fraud, agrees that financial desperation is a major factor in home arsons. “Some people are so anxious for an insurance payout that they are willing to burn down their homes," Quiggle says.
People with homes in foreclosure are especially likely to consider such a crime, Quiggle says. “Foreclosure is a sign that their finances are in dire straits. In some cases, it’s the final straw that inspired them to ignite a fraud scheme," he says.
Financially motivated arsonists often are misguided about how homeowner's policies work. If the homeowner has a mortgage, “the lender is the insured party when a structure is destroyed or damaged by fire, except for home contents,” says Frank Scafidi, a spokesman for the National Insurance Crime Bureau. “Not only do these arsonists still have to deal with the foreclosure, but they face prison time for the crime as well. Not too smart.”
In other cases, the arsonist is driven by a deluded sense of entitlement. One criminal informant reported hearing a homeowner facing foreclosure say, “If I can’t have this house, no one will.” The home burned to the ground shortly after that.
How arsonists are brought to justice
Fortunately, insurance investigators and local officials are frequently able to identify cases of arson and convict the guilty people.
“Investigators have quite a science when it comes to rooting out a fraud scheme from a pile of blackened rubble,” Quiggle says.
“They’ll look for an accelerant such as gasoline or lighter fluid. They’ll look into a homeowner’s alibi and finances, and interview witnesses. They might go to local stores to see if there are receipts for equipment that might have been used in the crime. If the suspect said he was in the Bahamas at the time of the fire, they’ll call the hotel he claimed to have stayed at to see if they have a record of the individual.”
In some cases, it’s all too easy to convict a home arsonist. “Some suspects don’t know enough to stay out of the fire’s path," Quiggle says, "and end up with singed eyebrows and burns on their arms."
For arsonists who are caught, penalties are severe.
“Penalties are bad enough if it’s just your own dwelling, but if it threatens other people, damages others’ homes or kills innocent bystanders, you’re looking at the full force of the law,” Quiggle says.
In addition to years behind bars, people convicted of arson and insurance fraud may be forced to pay hundreds of thousands of dollars in restitution to insurance companies, as well as investigative costs and legal fees.
In one case, Rhonda Kaye Brouwer of St. Augusta, Minn., was found guilty of arson and insurance fraud for setting four separate fires in her family’s home in 2008. She subsequently sought $380,000 in damages through her homeowner’s insurance policy.
"She started these four fires because of and in response to the financial situation that was closing in on her and her spouse," Assistant Stearns County Attorney Dennis Plahn said in court.
The Brouwers had missed two mortgage payments on their home and were about to lose their homeowner's insurance.
Rhonda Kaye Brouwer, whose husband was not implicated in the case, was sentenced to more than seven years in prison and was ordered to more than $215,000 in restitution for her crime. Not quite the easy money she was hoping for.