<p>This study presents a comprehensive analysis of a distinctive electrical fault scenario in which an arc generated during the interruption of a fault current by a circuit breaker leads to a short circuit between exposed busbars, resulting in a fire accident. Differing from previous studies that primarily focus on internal defects within distribution panels, this research investigates the interaction between external electrical shorts and internal panel components, specifically the circuit breaker and busbars. Through detailed fire site inspection, forensic analysis, and simulation experiments, the breakdown of air insulation due to the extinguishing arc was identified as the accident’s root cause. The study systematically analyzed the operational mechanisms of the circuit breaker under various fault conditions and derived the accident mechanism at the busbar short-circuit point. In addition, practical insulation reinforcement methods, such as the extension of barrier length and the application of insulation tubes, were proposed and validated through experiments. This paper elucidates the causal mechanisms between external faults and internal fires while proposing implementable strategies to enhance electrical system safety. Through the synthesis of forensic investigative techniques and experimental validation, the research presents a comprehensive approach to accident analysis and preventive intervention.</p>