It depends. If the convoy is represented on the map by a circle then it is being stalked by AI u-boats. If it's a square on the map then there are no u-boats nearby.
There are no AI boats in the stock game, and yet many burning ships are encountered. This always happens in bad weather and the cause is ships that can't deal with the waves, so they catch on fire because they are programmed to do that rather than just flood and sink.
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