Kenny Allen helped launch one of the largest documented insurance-arson rings in U.S. history, according to the U.S. Attorney’s Office. Allen’s ties to this group were really not complex. He just knew a lot of people, and had many family and friends willing to set fires for potentially large insurance payouts.
This ring staged at least 73 fires and masterfully exploited gaps in how insurers investigate fire claims.
It is a miracle nobody died in the flames engulfing homes, cars and commercial buildings throughout the region. Fortunately, only one firefighter was injured.
Allen could have finished his criminal career bitter and unapologetic, tossed into prison after a double-life caught up with him. Yet he was a walking contradiction to those who knew him best. He attended church on Sunday, ran inner-city basketball programs, and received awards from the mayor for community involvement. Allen also set fires for money, arranged to have fires set for others, and dealt narcotics.
Arrest and redemption
I arrested Allen as a Special Agent with the Bureau of Alcohol, Tobacco and Firearms and Explosives (ATF). Since then, I have become his friend and supporter.
Allen spent nearly four years in federal prison. He often told me prison was the best thing that ever happened to him. He became an uplifting model of personal redemption. Allen now lives an honest life with a decent job. More importantly, he voluntarily gives workshops and speeches to public- and private-sector investigators around the U.S.
Allen tells how easily he and his cohorts gouged 22 insurers out of more than $4 million. Insurer arson investigations were spotty, hurried and piecemeal. Allen says he found systemic weaknesses in claim systems, and easily took advantage of the openings.
“Allen’s saga convincingly shows how the claim system broke down ...”
He personally set 15 fires and arranged others. Many observers still say his four-year sentence was too lenient, that his large-scale crime deserved a longer jail term.
Yet Allen made a wise tradeoff: He fully cooperated in a 2 1/2-year investigation that uncovered the 73 arsons. Investigators considered only two fires “incendiary” until Allen revealed the truth. His own sister Vanessa set 40 fires. She was among the arsonists he revealed. She was unapologetic, told the judge that insurance companies have a lot of money, and she was just “helping” people. She spent 10 years in federal prison, and should have done more.
Allen’s saga convincingly shows how the claim system broke down, and how insurance companies can strengthen their defenses against costly insurance arsons of all sizes.1
Arson ring broken up
Allen’s downfall and road to redemption began on the same date: Jan. 29, 2006. A Nationwide Insurance agent grew suspicious after seeing the same names appear in fire claims. She handed SIU investigator Princess Spencer a paper grocery sack with three claim files. Spencer soon grew certain she was onto a major case. She contacted the federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) in Indianapolis.
The ATF and Muncie Police Department soon launched an investigation.
Thousands of pages of insurance documents and hundreds of fire- department reports were reviewed over the next year. More than 100 criminal reports were run and analyzed. Dozens of interviews were conducted with witnesses and claimants. Federal and state prosecutors regularly met. They also maintained a close liaison with the insurance industry.
The first arrest was of public adjuster Douglas Haynes in 2007. His name appeared in many insurance claims being investigated. He also was a leading associate of Kenny Allen and his arson ring. Allen bribed Haynes to officially classify most of his own arsons as accidental home fires. Fingering Haynes would help investigators get to ringleader Allen.
Allen actually called the Indianapolis ATF office on his own, the day after Haynes was arrested. His conscience got the better of him. He wanted the fires to stop and to provide information, yet wasn’t ready to admit his involvement.
He gradually revealed the details of his massive scam — who set what fires, when, and how the fires were staged as accidental. He also identified other ring members and their roles. His arson scheme spread throughout Muncie, then to Indianapolis. Allen’s ring members thought insurance fires meant easy money, and for several years they were right.
The confession rate of ring members soon hit nearly 100 percent once suspects learned Allen was cooperating.
“His cooperation helped convict nearly 50 defendants.”
Allen helped identify the 73 insurance arsons — 62 involved homes and other buildings, and 11 were vehicles. Many more arsons likely were staged, and missed by investigators.
His cooperation helped convict nearly 50 defendants. The investigation also resulted in multiple narcotics arrests, and the arrest of two suspects in a home-invasion homicide. Vanessa Allen received 121 months and was ordered to repay nearly $2.3 million. She was released in late December 2015. Haynes was found dead in a homeless camp the week he was to be sentenced and jailed. 2
Kenny Allen is likable, animated and explicit about how easily his fraud ring exploited gaps in the insurer claim system.
As he saw it: Insurance fires were safer than what he called the “dope game,” which he also knew well. Nobody was likely to get shot committing “insurance fires,” he reasoned. Fire losses resembled easy lottery wins. Insurance checks with his name were his money — payments he believed insurance companies owed him.
Adjusting insurer adjusters
Frontline insurer claims adjusters were the biggest gaps, Allen says. Insurers considered their staff adjusters primarily an arm of the customer-service operation instead of rigorous scrutinizers of claims. Adjusters should be the insurer’s first line of anti-fraud defense. “Trust but verify” should be their motto.
Hurried. Allen often targeted larger insurers — they typically assigned too many claims to each adjuster. Allen was a master manipulator. He knew most insurer adjusters were over-worked, hurried and wanted to clear claims with maximum speed and ease. The adjusters thus avoided confrontation and digging into claims that would complicate their jobs.
Adjusters usually asked only the standard, cursory form questions to confirm Allen’s expensive claims.
Phones. Adjusters rarely asked about his telephone records. Those records could have verified who was speaking with whom before, during and after fires. The records also potentially could have verified his locations and provided other clues.
Allen began using inexpensive throw-away phones after an adjuster finally asked about his calls. Still, insurers never questioned Allen about his prolific use of throw-away phones, either. The devices were strong clues of potential fraud.
Bluster. Bluster was an important tactic that intimidated adjusters. Allen correctly gambled that adjusters did not want policyholders to accuse them of bad customer service. This tactic succeeded when he demanded more insurance money, or just wanted to speed the payout.
He routinely threatened to go over the head of adjusters who questioned him too closely. A typical threat: “I want the name and phone number of your boss. I want to speak to him or her about how badly you’re treating me.”
Public adjusters a red flag
Claimants using a public adjuster or attorney to push for large fire payouts is a big warning sign, Allen advises. Claimants with legitimate fire losses do not need a public adjuster or attorney.
Allen bribed public-adjuster Haynes to help maximize claim payouts by rubber-stamping arsons as accidental fires. That tactic succeeded. He also provided Haynes narcotic painkillers.
“Allen bribed public-adjuster Haynes to help maximize claim payouts ...”
Insurers routinely paid claims once fires were classified as accidental. This is a well-defined cause classification. It is hard for insurers to rebut once “accidental” is officially declared by a hired origin-and-cause investigator. This especially was an issue with the ensuing criminal investigations. Three levels of federal prosecutors repeatedly said they had no case because the fires were classified as such.
Stronger origin-and-cause needed
Insurer adjusters and others who worked Allen’s claims knew too little about arson investigations and fire science to see behind the ruses of a clever and manipulative crime ring. Too few questions thus were asked of the experts insurers hired to investigate.
Training needed. Adjusters should receive, at least, basic training in origin-and-cause fire investigations. The same holds true for insurer investigators and claims managers. All should be qualified to ask pertinent questions of their vendor investigators, especially if any doubt about the fire’s cause.
Grow assertive. Insurers should commit to more-assertive origin-and-cause investigations when troubling clues begin surfacing. Insurers routinely avoided this step in their desire to settle Allen’s fire claims quickly and keep policyholders happy. If not more-assertive, insurers at least should be more discreetly skeptical.
Among the schemes insurers might have discovered if staff adjusters were better trained — and assertive — in origin-and-cause investigations:
Electrical fires. Allen set “seasonal” fires. His ring members started electrical and cooking fires in summer and spring months. He placed space heaters next to combustibles such as a bed or a sofa during colder months. He also staged Christmas tree fires to look accidental.
Vanessa later said she simply plugged several appliances into a power strip, using a cheap extension cord. She then placed clothing and/or other readily available items around and over the cords — simulating sloppy housekeeping. She next slit the insulation of the power or appliance cord to expose bare conductors, then ignited the combustibles. She knew electrical arcing would occur.
Fire crews and investigators typically found evidence of electrical arcing on the conductors. They correctly determined a fire’s general area of origin. However, they inaccurately attributed the fires to electrical fault, or overloaded circuits and sloppy housekeeping. Thus, the fires were considered “accidental.”
Rented homes. Ring members often rented houses or apartments to exploit renter insurance policies. Vanessa Allen, for example, installed straw renters who never lived in the homes. She and the “renters” went out on garbage-collection day. They scavenged old furniture and personal belongings to spread inside the rentals, making the places appear lived-in. They also bought inexpensive things from the Salvation Army or Goodwill.
The “renters” made plausible — and inflated — claims for the junk possessions after staging the fires.
Receipts. Vanessa purchased receipts from friends and acquaintances for more-expensive items such as televisions. She convincingly presented the receipts to insurers after the setup fires. Insurers typically accepted and reimbursed them at face value, with little verification.
Grease fires. Kenny Allen preferred kitchen fires. He placed chicken wings in a pot on the kitchen counter. He put a pan of grease on the stove, then left after turning the burner onto a high setting. The grease eventually ignited, and flames spread to cabinets and other nearby combustibles.
Allen once again bullied adjusters and investigators during claims: “Who are you to say this wasn’t an accident? I was preparing to fry up some wings, got distracted and left the grease on stove too long.”
Keeping policyholders happy usually trumped detailed claim scrutiny. Origin and cause was easy to determine — grease on the stove. But how do you prove intent? Not knowing intent, how can a fire be classified as accidental or otherwise?
More gaps to close
Insurers are steadily improving their investigations, though have a long way to go. Many gaps when Allen’s ring reached peak productivity remain exploitable even today. Among other opportunities to tighten the claims system:
Vendor investigators. Insurer personnel should carefully vet fire investigators they hire for qualifications such as expertise, qualifications and previous expert witness testimony.3 4 An error caused by lack of training or proper understanding of fire science could cost the insurer considerable money in payouts. This also could cause great harm to the insured.
This is especially true when there is any question about a fire’s cause. If something seems wrong, then it probably is. Only two of Allen’s 73 fires were classified as intentionally set; 2.7 percent is an unacceptably low percentage. Just as important, what criteria do origin-and-cause investigators use to classify a fire?
Data analysis. Origin-and-cause investigations should go well beyond examining burned rubble. Data analysis is equally crucial. Carefully interviewing claimants and witnesses is integral to data analysis.
Does the story match the fire dynamics? Does the timing of events (as told by the insured or witnesses) line up with the damage? These kinds of questions rarely surfaced after fires.
Better communication. Adjusters and other insurer staff working his claims often didn’t communicate well or share clues up and down the claim assembly line. Insurers also were unlikely to compare fire claims and clues among each other. Insurers thus should better compare notes.
EUOs needed. Insurers rarely wanted to spend extra money to hire an attorney for examinations under oath, Allen successfully gambled. The information from EUOs could have taken Allen’s crime ring apart.
Insurance fraud is a crime of constantly shifting tactics. Fraudsters defraud, insurers adjust, and scammers try new approaches when insurers start catching old methods. Rarely has a master fraudster such as Kenny Allen been so forthcoming, prolific and public about how such an epic arson spree — and how insurers can shut down scams like his.
It is notable that — in my experience — many insurers still have similar soft spots in their claim systems a decade after Allen’s ring was shut down. It is equally notable that Allen’s workshops are standing-room-only. As arson science and investigative techniques advance, insurers are working to ensure more arson rings like this flame out before they burn through insurance money.
About the author: Mike Vergon is an IAAI-CFI, and owner of Vergon & Associates Fire Investigation LLC, in the Indianapolis area. Prior, he spent nearly 24 years with the ATF. Vergon also was a regular instructor at the ATF National Academy (teaching fire investigation), and has taught at the National Fire Academy. He also instructs a course called “Complex Fire Investigation for the Insurance Industry.” It is coordinated by the ATF and the International Association of Arson Investigators. Vergon has worked some of the largest and most-complex fire investigation cases in the U.S.