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Insurance Law

How to Defeat an Arson for Profit Attempt – Suspected Arsonist’s Bad Faith Suit Fails

Arson-for-profit is the most dangerous of all methods of attempting insurance fraud. When an insurer has sufficient evidence to suspect an arson for profit attempt and denies the claim it will expect that the insured will sue the insurer for fraud and bad faith. The best way to defeat such an action is one piece at a time by bringing motions for partial summary judgment removing the expensive part of the suit leaving the insured with a breach of contract action.

Allstate tried that method in Tran v. Allstate Ins. Co., Slip Copy, 2015 U.S. Dist. LEXIS 95981 (S.D.Ala., 7/23/2015), [subscribers can access an enhanced version of this opinion: | Lexis Advance], after collecting sufficient evidence that led it to believe the insured attempted a fraudulent claim and arson-for profit.

Factual Background

On August 18, 2012, the VIP Nail Salon (“the salon”), located in Daphne, Alabama was intentionally set ablaze and sustained damages. Plaintiff Hau the Tran (“Tran”) owned the salon. At the time of the fire, Tran’s Toyota Avalon (“the vehicle”) was parked behind the salon. The vehicle was also set on fire, resulting in damages.

Tran had insurance coverage on both the salon and the vehicle through Defendant Allstate Insurance Company (“Allstate”). After the fires, Tran made insurance claims on the salon and vehicle. The parties do not dispute that Tran was covered under Allstate policies at the time of the losses, the amount of the policies, the terms of the policies, or that Tran made a timely claim under the policies.

The state fire marshal investigated the fires and concluded that they had been intentionally set. During the course of the investigation, Allstate determined that Tran had been having trouble with the business and had recently significantly changed her insurance coverage. Additionally, Tran had rooms reserved at the Grand Casino in Biloxi, Mississippi in the days prior to the fires. Matches from the Grand Casino were recovered at the scene of the fires. Fire investigator Gary Jones determined that gasoline had been used as an accelerant and there were no signs of forced entry at the salon, indicating that the person who set the fires would require access to the salon via keys.

Tran’s salon insurance policy stated that Allstate would not cover intentional or criminal acts of or at the direction of any persons insured and that the policy is void if the insured intentionally conceal or misrepresent any material facts or circumstances, before or after loss.

As a result of its investigation, Allstate concluded that Tran had been involved in setting or causing the fires to be set. Allstate also determined that Tran had made material misrepresentations during the investigation regarding her whereabouts around the time of the fires, her financial status, and the value and contents lost in the fire. As a result, Allstate denied Tran’s insurance claims on both the salon and the vehicle.

Tran sued Allstate alleging breach of contract, fraudulent suppression, fraud, and bad faith. Allstate removed this action to the U.S. District Court for the Southern District of Alabama on September 10, 2014.


Summary Judgment

Allstate has moved for partial summary judgment on Counts Two and Four of the complaint. Count Two alleges fraud and suppression and Count Four alleges bad faith.

Count Two (fraud and suppression)

In Alabama, “[m]isrepresentations of a material fact made willfully to deceive, or recklessly without knowledge, and acted on by the opposite party, or if made by mistake and innocently and acted on by the opposite party, constitute legal fraud.” A claim of fraudulent misrepresentation comprises the following elements: “(1) a false representation (2) concerning a material fact (3) relied upon by the plaintiff (4) who was damaged as a proximate result.” Fisher v. Comer Plantation, 772 So.2d 455, 463 (Ala.2000), [subscribers can access an enhanced version of this opinion: | Lexis Advance], (quoting Baker v. Bennett, 603 So.2d 928, 935 (Ala.1992)), [subscribers can access an enhanced version of this opinion: | Lexis Advance].

Viewing the facts in the light most favorable to Tran, Allstate represented to Tran that she would be paid on her vehicle policy for the damages to the vehicle sustained as a result of the fire. At depositiion, Ms. Tran testified that even though the adjuster told her they were going to pay her $19,000 she did nothing based on that statement.

Tran’s own testimony specifically negates the reliance element of both a fraudulent suppression and a fraudulent misrepresentation claim, as she denies that she was induced to take any action as a result of Allstate’s representations concerning payment for the vehicle. Moreover, Tran failed to present any evidence of damage. Accordingly, these claims must fail and Allstate’s motion for summary judgment as to Tran’s fraudulent suppression/misrepresentation claim was granted.


When evaluating a fraud claim regarding the non-payment of an insurance claim, the Alabama Supreme Court has held: “To recover on a fraud claim, the plaintiff must show that the defendant (1) made a misrepresentation (2) concerning a material fact (3) that the plaintiff relied upon, and that (4) the plaintiff suffered damage that proximately resulted from that misrepresentation … Additionally, when the alleged misrepresentation concerns a future act, as this one does, the plaintiff has two additional things to prove: (1) that at the time the misrepresentation was made the offending party intended not to perform the promised act and (2) an intent to deceive.” Pugh v. S. Life & Health Ins. Co., 544 So.2d 143, 144 (Ala.1988), [subscribers can access an enhanced version of this opinion: | Lexis Advance], holding that a plaintiff alleging fraud in connection with refusal to pay an insurance claim constitutes fraud concerning the performance of a future act. Plaintiff failed to produce sufficient evidence of reliance or damages. Accordingly, Allstate’s motion for summary judgment as to Tran’s fraud claim was granted.

Count Four (bad faith)

Count Four alleges that Allstate acted in bad faith when it refused to pay Tran’s claim. Under Alabama law, there is one tort of bad faith refusal to pay a claim, but there are two methods of proof: failure to pay and failure to investigate.  To defeat a bad faith claim, the defendant does not have to show that its reason for denial was correct, only that it was arguable. Ordinarily, if the evidence produced by either side creates a fact issue with regard to the validity of the insurance claim and, thus, the legitimacy of the denial thereof, the bad faith tort claim must fail and should not be submitted to the jury.

What was known to Allstate at the time of its denial of the claim was: 1.) The fire was intentionally set and gasoline was employed as an accelerant;  2.) That Ms. Tran had not been present for a period of time prior to the fire; 3.) That neighboring tenants stated that Tran’s business appeared to be closed for several weeks before the fire;  4.) One tenant said that “Ms. Tran had told her that the business was not doing very well and she wanted to relocate to somewhere else;” 5.) Tran had rooms reserved at the Grand Casino during the week leading up to the fire and matches from the Grand Casino were found at the scene of the fire; 6.) There was no forced entry at the salon; 7.) Prior to the fire, Tran increased her insurance coverage from $15,000.000 to $100,000.00, and then decreased it to $75,000.000; and 8.) Tran was a guest at the IP Casino Resort and Spa in Biloxi from August 17–19, 2012.

The issue is whether the conclusion reached from the known facts is debatable. No reasonable person could say that the conclusion reached by Allstate, that plaintiff directed or participated in the arson, is not a debatable issue of fact. “Alabama law is clear: … regardless of the imperfections of [the insurer’s] investigation, the existence of a debatable reason for denying the claim at the time the claim was denied defeats a bad faith failure to pay the claim.” State Farm Fire & Cas. Co. v. Brechbill, 144 So.3d 248, 259 (Ala.2013), [subscribers can access an enhanced version of this opinion: | Lexis Advance].

Accordingly, Allstate’s motion for summary judgment as to Count Four (bad faith) was granted.


Ms. Tran showed a great deal of “chutzpah” by bringing suit against Allstate for fraud and bad faith after Allstate established eight major red flags of fraud and evidence that would establish that she caused an intentional fire to occur at her salon and car. Although red flags are merely indicators of fraud, the eight established to the trial court are damning. All that remains of her suit is breach of contract which she will lose, either by another motion for summary judgment or at trial, and any criminal proceedings the state of Alabama decides to bring.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2015, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at or, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

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