Insurance companies are obligated to investigate and make claims decisions based on informed judgments. Claims adjusters rely on various experts and their investigations to make educated claims decisions and combat the prevalence of false or inflated claims. The insurance investigation process can be complex and challenging for both the insured and the insurer. Forensic investigations of property and construction-defect insurance claims are appropriate when questions arise that require technical knowledge to determine causation or scope beyond the competencies of a claims adjuster.
During the investigation, the forensic investigator often utilizes sophisticated tools and testing procedures to determine causation or if building system component assemblies have been installed or constructed in accord with design and industry-standard specifications and requirements. These tools and testing procedures vary tremendously and have the capacity to significantly aid to a forensic investigation.
On the other hand, the same tools and tests may prove unreliable if inappropriately performed. Understanding the benefits and detriments of these procedures helps the forensic investigator advise insurance claims professionals regarding a pathway to claim resolution.
The Forensic Investigative Process
Forensic investigations have a specific purpose and scope—the “who, what, and where” of the investigation—that dictate the methods used for the investigation. The purpose and scope of the investigation are the North Star of the investigation process guiding the forensic expert though the causation analysis and reporting phases. The purpose and scope of the investigation must be coherently articulated to produce relevant and responsive conclusions.
The general process of a forensic investigation proceeds in three phases: the research phase, the causation analysis phase, and the reporting phase. Each phase has a particular purpose within forensic investigations:
- Data is gathered, organized, and consolidated in the research phase. Relevant data includes the scope and purpose of the investigation and the subject property or material product being investigated.
- The causation analysis is where the expert analyzes the data obtained from the research phase. Using the scientific method, the expert develops and tests various hypotheses to determine potential results that fall within the possible degree of engineering or scientific certainty.
- The reporting phase is where the expert reports and summarizes results from the causation analysis and offers conclusions that support the purpose and scope of the investigation.
From the perspective of the contractor or insured, the research and causation phases are critical because the contractor needs to know what caused the issue, what work scope is implicated, if there is property damage or construction defects, and how it should be repaired. Once those factors are known, the contractor can begin repairs and determine if the loss is insured, who is responsible for repairs, and if any other means of risk transfer are available. The reporting phase is also a critical element to the insured—working in conjunction with outside counsel—to communicate the findings to all parties, protect privilege, and strategize about the timing of issuing the report.
From the perspective of insurance counsel, most policies contain various conditions designed to assist insurers in investigating claims, and with which an insured must comply to present a claim. As such, experts and insurers would do well to coordinate with counsel to enforce policy provisions, request relevant records or other data, and lock an insured into the scope of their claim by demanding proofs of loss and even compelling the insured to give testimony in an examination under oath. Not only is a thorough and proper investigation necessary to reach the correct claims decision—a worthy end in itself—but also it protects against extracontractual exposure. Most states have adopted some form of the Unfair Claims Settlement Practices Act (UCSPA), which, in tandem with a jurisdiction’s bad faith jurisprudence, effectively sets the standard for proper claims adjustment.
For purposes of this discussion, we focus only on property damage and construction-defect claims. Both claim types follow similar processes but differ in testing protocols used in the causation analysis.
Property damage is injury to real or personal property by a peril of some sort—whether it be another’s negligence, willful destruction, or by some act of nature (typically related with weather and/or fire events). A construction defect is a physical condition that reduces the value of a structure or endangers the health or safety of its occupants, resulting from a flaw in design, materials, or workmanship, not resulting from normal aging or wear and tear. Construction defects may be patent defects, which are easily observed upon inspection; or latent defects, which are present but concealed and not discovered until later. It is important to distinguish the two because a construction defect alone, with no resulting property damage, is unlikely to be covered under most insurance policies.
During the investigation, the forensic expert will opine as to observed property damage, and the cause and origin for the conditions identified. The expert will also opine as to deficiencies or perceived deficiencies identified in the real property or material product, and the cause and origin of the condition for each deficiency.
Tools and Testing Procedures
Below, we look at tools and testing procedures as they relate to both property and construction-defect claims, and examine the benefits and concerns when it come to using these tools and procedures.
Use of Technological Tools. Gathering data in the field can be time consuming, difficult, and carry a potential for human error such as mis-documenting and mis-noting field observations with the potential for losing data. Technological tools are available to improve data gathering capabilities in forensic investigations, improve the accuracy of data preservation, and reduce or even eliminate data loss. In addition, specialized cameras and artificial intelligence (AI) to prepare and formulate 3D models of inspected areas have been developed for the industry and should be utilized to obtain digital twin models of the project. Both property and construction-defect claims can benefit from using these tools.
The value of using these tools is that the investigation team can preserve the scene through the capture of 3D models that allow the team to review and analyze project areas in the future without worry-ing about losing information.
The concerns of such tools involve their learning curves: Requirements may include specialized training in the use of these tools, specialized software training, and to substantial fast-speed cloud-based system hardware to allow gathered data to be easily stored, preserved, and accessed for future use.
Testing Protocol Procedures. Testing protocols are typically referenced and performed during the analysis phase of the investigation. The purpose is to test hypotheses and support the causation theories that are being investigated. There are many different testing protocols available to forensic investigators—the utility of which will depend on the scope and purpose of the investigation.
Testing protocols can be categorized into material and building system component testing:
- Building Material Testing—Commonly used building testing procedures for cementitious materials include sounding, Swiss hammer, compressive strength break, and petrographic analysis. Commonly used material testing procedures for steel include hardness and tensile strength breaks.
- Building System Component Testing—Commonly used building system component testing of roofs includes water hose, area flood testing, infrared thermal imaging, nuclear moisture survey and mapping, membrane uplift and bell chamber testing, and rigid tile static uplift testing. Building system component testing procedures for cladding or envelope system assemblies include fenestration component testing, and stucco or plaster.
These protocols have benefits and detriments when applied to each claim type. In selecting the most appropriate testing protocols, the forensic expert should, at minimum, consider:
- The purpose of the testing procedure.
- The input requirements for the testing.
- The resulting factors from the testing.
- Would the testing cause damage to the component being tested (destructive or nondestructive)?
- Would the resulting factors from the testing answer questions that would assist the forensic investigator in determining causation and assist in the purpose of the investigation?
In general, the testing procedures that are nondestructive in nature tend to require less expertise, special skills, or tools; are simple to use; are less expensive; and tend to be more subjective. In contrast, procedures that are destructive in nature tend to require special skills or tools, are more expensive, and tend to be more accurate.
From the contractor and insured perspective, it is important to select the test means and methods that work best to determine the extent and cause of damages so they can make repairs, determine the availability of insurance coverage, and apportion responsibility. Nondestructive testing can be inconclusive and fail to sufficiently provide evidence to support downstream claims to subcontractors. On the other hand, destructive testing can be costly and cause more damage that may not be covered. Therefore, it is important to work in combination with outside counsel and the forensic investigator to select the most appropriate methods.
It is also important to consider that, as new and innovative means of forensic investigations come into vogue, that evidence must meet the rigorous admissibility standards in court. Most states have adopted the Daubert approach as the standard for admissibility of scientific evidence. The specific factors explicated by the Daubert court are:
Whether the expert’s technique or theory can be or has been tested—that is, whether the expert’s theory can be challenged in some objective sense, or whether it is instead simply a subjective, conclusory approach that cannot reasonably be assessed for reliability.
- Whether the technique or theory has been subject to peer review and publication.
- The known or potential rate of error of the technique or theory when applied.
- The existence and maintenance of standards and controls.
- Whether the technique or theory has been generally accepted in the scientific community.
Ideally, the forensic expert, the insurer, the policyholder, and counsel all maintain sufficient integrity and appetite for truth that will motivate them to keep their investigation from becoming subject to a Daubert challenge; but at bottom, as forensic experts utilize new and innovative tools to investigate property damage and construction-defect claims, they should be mindful of the necessity of ensuring the relevancy and reliability of the means they employ to investigate claims.
Investigating insurance claims can be complex and technically challenging during the forensic investigation process. Insurance companies often conduct claim investigations to evaluate the legitimacy of the claim and require forensic investigators with proper technical credentials to sift through the technical aspects of the forensic investigation.
Forensic investigations can be distinguished as either property damage or construction-defect claims. Investigations of these claims have similarities and differences. The processes of these investigations often follow similar pathways, but may have distinct differences as to the procedures utilized.
During the investigation, the forensic investigator may require utilizing tools and testing procedures to assist in the determination of the causation or to determine if building system component assemblies have been installed or have been constructed in accordance with design and industry standard specifications and requirements. The tools and testing procedures offered and available during a forensic investigation vary in their purpose, and their use is dependent on the purpose and scope of the investigation. A general understanding of the benefits and detriments of these procedures assists the forensic investigator and the insurance adjustment team in clarifying when such procedures provide responses that support the investigation purpose and scope, thus providing a pathway to an efficient and accurate claim resolution.