What Does Arson Mean?
Arson refers to the criminal act of maliciously or deliberately setting property on fire. Legal penalties depend on the severity of the crime and range from fines and restitution to probation and imprisonment. In terms of insurance, policyholders may commit arson with the fraudulent intent of causing property damage so as to receive insurance compensation.
Arson is also known as incendiarism.
Insuranceopedia Explains Arson
When fire damages an insured property, the insurance company has to investigate whether it was intentional or accidental, as coverage always excludes intentional and criminal acts intended to produce fraudulent claims. Sometimes, an individual or business owner may decide to set their property on fire, especially if the remaining mortgage exceeds the property value. In this way, they can use the payout to pay off their debts or fund other pressing financial needs.
In insurance, damage or loss due to arson is often not covered by property insurance, even if the wrongdoer is a third party. This is because it might be exploited by policyholders themselves just to get money from insurance companies. However, two man-made risks, malicious mischief and vandalism, are covered risks in certain policies. The property owner may claim before the court that arson (caused by a third party) is an act of vandalism and malicious mischief.