A small number of insurers have recently taken a creative approach to the fire scene investigation by not inviting product manufacturers to the fire scene. This approach has occurred frequently in cases valued under $100,000.00 and I suspect that the motivation for this approach is the perceived need by the insurer to remediate the fire scene as quickly as possible to reduce their exposure on additional living expense and business interruption coverages. The product manufacturer is placed on notice of a product inspection after the fire scene has been remediated and the insurer gambles that the manufacturer will respond to the invitation to examine its product and then negotiate a settlement for at least the cost of defense.
The frequency with which this approach occurs suggests that it is a profitable approach for the property carrier. There is also evidence that this approach is being expanded with the suggestion to manufacturers that they agree to attend “destructive testing” of their products recovered from several fire scenes at one joint testing. In these instances, the product manufacturers have not been invited to inspect any of the fire scenes. The strategy works if the manufacturer ultimately agrees to pay at least the “nuisance” value for each case. The property insurer readily agrees to provide the product manufacturer with their expert’s photographs of the fire scene and provide some basic facts concerning the fire.
The product manufacturer that is faced with this situation may not know how to respond. On the one hand, the product manufacturer could refuse to cooperate by not attending the product inspection but is left without a potential defense with respect to the issue of causation. On the other hand, attending an inspection of fire artifacts, without having been invited to the fire scene, could act as encouragement to the property insurer to continue this course of conduct.
It goes without saying that photographs of a fire scene taken by an opponent’s expert is not a viable alternative to a fire scene inspection by the product manufacturer’s origin expert. In fact, it has been our experience that in a significant percentage of cases, the product manufacturer’s origin expert is able to convince the property insurers’ expert that the origin of the fire is not at the location of the subject product. In those cases, the product manufacturer is exculpated from the potential claim at the fire scene. In a large percentage of cases that proceed beyond the investigation of the fire scene, the product manufacturer is exculpated at the time of the product inspection as a result of a combination of fire origin and product inspection arguments.
A recent example of a poor fire scene investigation by a property carrier’s expert, which resulted in litigation, is instructive. In that case a fire origin expert hired by a property carrier’s subrogation division, examined a fire scene in an attic space without actually entering the attic space where the fire occurred. Photographs were taken from a distance using a zoom lens. The fire investigator quickly concluded that the area of origin was at the product manufacturer’s product and sent the product to an electrical expert to determine the method of fire causation. The origin expert told the electrical cause expert that the product was in the area of origin and that all other potential causes had been eliminated as the cause of the fire. The electrical expert hypothesized that the product “must” have failed, causing the fire, based on the fact that all other causes had been eliminated and that through the process of elimination he could conclude that the product caused the fire.
If a product manufacturer responds to this situation by attending the product inspection, and then settles the claim, the question becomes whether that action, especially on a repeated basis, weakens a spoliation argument that it may wish to pursue when it is not invited to a fire scene inspection in a major loss situation. If the opponent could develop evidence that the product manufacturer has settled claims without having been to the fire scene, but instead relied on photographs taken by others and the collection of other background data, those facts could seriously weaken a spoliation claim being pursued for the failure to notify the product manufacturer of a subsequent fire scene inspection. Further, the settlement of claims where the product manufacturer has not been invited to a fire scene encourages further use of that tactic by the property insurer.
So what is a product manufacturer to do when it is not invited to inspect a fire scene but is asked to attend the destructive inspection / testing of its product taken from the fire scene? My approach would be to advise the product manufacturer that if this is a recurring problem, then I suggest that the product manufacturer attend the fire artifact inspection and unless there is clear and convincing evidence resulting from that inspection that the product caused the fire, that no payment be made to settle the potential claim. In most instances, without clear and convincing analysis of the origin of the fire, destructive testing of a product is not sufficient in and of itself to prove causation.
By not paying on a claim where the product manufacturer was not invited to the fire scene, you turn the tables on the property insurer. Now it is up to the subrogation interest to determine whether it makes economic sense to institute litigation against the product manufacturer in a case where the manufacturer has not been invited to the fire scene and risk discovery into their claim handling strategy as it relates to the issue of spoliation of evidence. I acknowledge that this approach, if taken by a product manufacturer, may result in an initial increase in cost if suits are ultimately brought by the subrogation interests, however, I seriously doubt that a property insurer will continue taking short cuts in the fire investigation process if the result is litigation.
– Frederick B. Tedford
