Arson for profit is a difficult crime to prove. The prosecution must both prove that the fire was intentionally set and that the owner and person insured caused the fire with the intent to defraud the insurer. Insurance fraud, on the other hand, is fairly easy to prove. The case below is evidence that prosecutors should never limit an arson prosecution to arson alone. If there is evidence of insurance fraud it should be charged as a back-up charge. Similarly, if there is no prosecution, the insurer faced with an apparent arson-for-profit should also include allegations of insurance fraud and voidance of the policy when denying the claim.
On April 16, 2009, defendant Akiva Abraham’s limited liability company, 1st Call, LLC, acquired a property in Colonie, New York on which stood an abandoned night club known as Saratoga Winners. The purchase price was only one dollar, apparently because the property was encumbered by a bank lien. On the same day, Parel Road, LLC, originated a mortgage in the amount of $475,000 to 1st Call for the purchase of the property. Parel Road never transferred any money to 1st Call. And at the time of the transaction, Parel Road had about $25.00 in its checking account. Also on the day of the purchase, defendant signed a property insurance contract with an insurance agent at Shank & Farley, securing coverage in the amount of $475,000. The policy became effective on April 20, 2009.
On April 30, 2009, ten days after the purchase, Saratoga Winners burned to the ground. Once fire crews had extinguished the flames, fire investigators searched for the origin of the blaze. A trained dog identified the presence of accelerants both outside and inside the destroyed building. Investigators took samples at the locations the dog identified and sent them to the New York State Police Forensic Investigations Center. They tested positive for strong concentrations of medium petroleum distillate of the kind that is used to light lamps, such as “Klean Heat” or “Tiki” torch fuel. The presence of the accelerants combined with the lack of any fire hazards in the building caused investigators to rule out all possible causes for the fire except arson.
Defendant reported the loss to his insurance company and caused a property loss notice to be filed. He told the company that he did not know the cause of the fire. Investigators discovered that on April 27, 2009, three days before the fire, defendant had purchased four gallons of Tiki torch fuel (a medium petroleum distillate) and two nine-pack boxes of Duraflame logs at Home Depot.
Police arrested defendant and conducted a search of his car and home. Tests on one of the floor mats in defendant’s car revealed an “abundance” of a medium petroleum distillate. A search of a shed behind defendant’s home revealed four empty one gallon bottles of Tiki torch fuel and two empty Duraflame boxes.
Defendant was charged with arson in the third degree, insurance fraud in the second degree, and reckless endangerment in the first degree. His first trial ended in a hung jury. At his second trial, it came out that on at least two occasions, 1st Call had been unable to meet its payroll obligations. After the fire, defendant told a 1st Call employee that the fire “could be big for us.”
The prosecution’s theory of the case was that defendant needed money, obtained a fake mortgage to make it appear as though he intended to improve the property, obtained insurance in the amount of that mortgage, burned down the building, and lied about the cause of the fire to the insurance company to collect on the insurance. During opening and closing, the prosecution repeatedly referred to the mortgage as “fake” and “bogus.” At closing, the defense objected, arguing that the prosecution had not proved that the mortgage was fake and thus was making false statements to the jury. The court overruled the objection.
Before the charge was read to the jury, defense counsel asked the court to include a line in the verdict form instructing the jury to stop deliberating if it found defendant not guilty of arson. Defense counsel maintained that the only theory of insurance fraud charged in the indictment was that defendant had burned down his building and lied to the insurance company about the cause of the fire. Counsel argued that the prosecution’s remarks about the “fake” mortgage made it possible that the jury could find defendant guilty of insurance fraud for lying about the mortgage, not the cause of the fire. The trial judge refused, saying that he knew of no authority in the Criminal Procedure Law that would permit such cessation of deliberations.
The jury found defendant guilty of insurance fraud in the second degree, but acquitted him of arson in the third degree and reckless endangerment in the first degree. The Appellate Division affirmed the judgment, holding that there was sufficient evidence to support a finding that defendant concealed the cause of the fire from the insurance company. In People v. Abraham, 2013-07825 (N.Y. 11/26/2013) [enhanced version available to lexis.com subscribers], Abraham appealed the conviction to New York’s highest court claiming that since the jury found him not guilty of arson they should have stopped deliberations and not considered the insurance fraud charges.
A person is guilty of insurance fraud in the second degree when he commits a fraudulent insurance act and thereby wrongfully takes, obtains or withholds, or attempts to wrongfully take, obtain or withhold property with a value in excess of fifty thousand dollars. As relevant here, a fraudulent insurance act is committed by any person who, knowingly and with intent to defraud presents or causes to be presented any written statement as part of, or in support of a claim for payment or other benefit containing materially false information or concealing information concerning a material fact.
Defendant claimed that the verdicts were factually inconsistent. The appellate court remarked that, where, in light of the evidence presented, an acquittal on one count is factually irreconcilable with a conviction on another count a conviction not supported by legally sufficient evidence should be overturned. However, a factual inconsistency in the verdict does not render the record evidence legally insufficient to support the conviction. An acquittal is not a preclusive finding of any fact, in the same trial, that could have underlain the jury’s determination.
The defendant’s company, 1st Call, had been unable to make payroll on at least two occasions. 1st Call acquired the Saratoga Winners property at almost no cost. It then insured the property for $475,000. The defendant explained in his interviews with investigators that he intended to improve and flip the property with the funding from the mortgage from Parel Road. But Parel Road never transferred any money to 1st Call. About ten days after purchasing the property, defendant bought four gallons of a medium petroleum distillate and eighteen Duraflame logs. Days later, Saratoga Winters burned to the ground. Two weeks after the fire, investigators found four empty gallon bottles of medium petroleum distillate at defendant’s home. They also found empty Duraflame boxes, but none of the eighteen Duraflame logs.
The appellate court concluded that the evidence was sufficient for a rational jury to conclude, beyond a reasonable doubt, that in order to solve his financial problems, defendant lied about the cause of the fire to his insurance company in the property loss notice in an effort to collect wrongfully on the policy, thereby committing insurance fraud in the second degree.
Considering the number of red flags of fraud in this case from purchasing a property for $1, insuring the worthless property for $450,000, an intentionally caused fire within ten days of the issuance of the property, and an insured in financial difficulty, the arrest and conviction should have been obvious. That the jury was not convinced, beyond a reasonable doubt, that Abraham set the fire does not eliminate the fact that he committed insurance fraud when he presented the claim knowing that the fire was caused with the intent to defraud.
Insurance fraud is a crime separate and apart from arson. The only similarity between the two are that they are crimes enunciated in the Penal Code.
By Barry Zalma, Attorney and Consultant
Reprinted with Permission from Zalma on Insurance, (c) 2013, 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 Barry Zalma or firstname.lastname@example.org, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.
For more information about LexisNexis products and solutions connect with us through our corporate site