Dwelling Fire with Financial Motive but Undetermined Origin
A homeowner reports a fire at 2:14 a.m. that caused $480,000 in dwelling damage. The policy was issued five months earlier with $450,000 dwelling coverage and a $5,000 deductible. The insured had an $18,000 water loss paid 14 months before this policy. Bank records in the claim file show three overdrafts in the prior 60 days and a $22,000 credit card balance. A neighbor statement says the family's car was packed the evening before. The fire marshal report says origin is undetermined near a utility room with old knob-and-tube wiring and a space heater; no accelerant was detected. The insured missed a scheduled recorded statement and has retained counsel. The claim examiner asks you to run the data and confirm arson so the claim can be denied.
1. Develop at least three competing hypotheses and list the evidence that would distinguish them.
Read the worked answer
At least three hypotheses compete. H1: accidental electrical fire from the knob-and-tube wiring or space heater. H2: intentional fire set for financial gain. H3: negligent but non-intentional fire, for example from an appliance or heating misuse. Each makes different predictions. H1 predicts evidence of electrical failure at the origin, a heater placed near combustibles, no separate ignition source, and ordinary family behavior. H2 predicts an ignition source, removed valuables, a vehicle packed with belongings, financial pressure, and inconsistent statements. H3 predicts careless use without planning. Distinguishing evidence includes the fire marshal's detailed origin diagram, electrical inspection, burn patterns, dog or lab results, utility usage, purchases of accelerants, phone location, bank records, vehicle contents, and witness timelines. An undetermined origin with no accelerant is not an arson finding; it means the evidence is insufficient to classify. I would analyze each hypothesis against the evidence rather than start with the examiner's conclusion.
2. Identify the cognitive and statistical traps in the examiner's request, and explain how you would correct them.
Read the worked answer
The request contains confirmation bias, base-rate neglect, and a role error. Most dwelling fires are accidental, so a financial motive alone does not make arson probable. 'Car packed' has innocent explanations such as a trip, school, or work. Overdrafts and credit card debt are common and do not prove intent. Missing a recorded statement after retaining counsel is a legal right, not evidence of guilt. The examiner is also asking the analyst to make a legal causation conclusion that belongs to the fire marshal and, ultimately, a court. I would correct this by restating the question as 'what does the data show about motive and opportunity, and what remains unknown?' I would list disconfirming evidence, use explicit confidence levels, and require an independent origin expert before any denial recommendation.
3. What data-analysis steps would you perform, and what would you explicitly not conclude from them?
Read the worked answer
I would validate the policy dates and payment history first, because a five-month-old policy with $450,000 coverage is only meaningful if underwriting and payment records are accurate. Then build a timeline: policy inception, prior water loss, financial transactions, utility usage, purchases, neighbor observations, and fire department response. I would compare the financial indicators with the insured's own prior history and with ordinary delinquency rates, not just with zero. I would review contents claimed versus receipts and photos. I would not conclude arson from financial stress, a packed car, or an undetermined origin. The data can establish motive and opportunity and can highlight inconsistencies; it cannot establish who set the fire. The output should be a caveated analytical memo supporting further investigation or an origin expert, not a denial memo.