Desperate Homeowners May Be Turning To Arson And Insurance Fraud

As more and more Americans fall behind in payments on their mortgages or auto loans, the insurance industry has noted a "dramatic increase" in the number of suspicious home and auto fires, according to a report in the L.A. Times (here). Right now most of the indicators of the increase in arson are anectdotal -- whether a particular fire was arson is difficult and expensive to prove. However, the insurance industry is sufficiently alarmed that it is meeting with California insurance fraud investigators about the problem. The insurers believe there may have been as many as 2,000 homes burned intentionally by homeowners during last fall's wildfires.

In a previous post (here), we highlighted a recent Tennessee Appellate Court opinion where the court held that the insurance company was not required to pay an insurance claim on a house that burned down because the mortgage lender failed to give the insurer notice that it had initiated foreclosure proceedings against the homeowners. The court stated that foreclosure generally increases the risk that the homeowner will intentionally destroy the property for the insurance money; therefore, the foreclosure proceedings trigged the increase of hazard notice requirement in the insurance policy. Although we have not been able to locate other cases adopting the Tennessee court's reasoning (which broke new ground in this area of the law), it seems that the issue could be the subject of additional litigation between mortgage lenders and insurers of homes destroyed by fire while in foreclosure or the threat of foreclosure.