Insurance fraud occurs when an individual deceives an insurance company to obtain an improper financial benefit. This deception can occur through the making of false statements. For example, a person may file a claim for damage to a car that was in an accident, and overestimates the amount of damage to obtain more money than they are entitled to receive.
Insurance companies can also commit insurance fraud when they intentionally deny a benefit that should be paid to an insured person or company.
Insurance fraud laws make it illegal to make false statements on an application for insurance. It is also illegal to present an insurance company with a false or fraudulent claim in order to obtain a payment to cover a loss. Both making a false application for insurance and filing a false claim for an insurance benefit are crimes.
The deception can also occur through acts. An example is when a store owner intentionally sets their store on fire to recover fire insurance proceeds. Insurance fraud is a crime. The penalties for committing criminal insurance fraud can include the payment of fines and/or a prison sentence. The sentence imposed depends on how severe the fraud is.
What Kinds of Insurance Can be Purchased?
People purchase insurance for a wide variety of reasons, but generally they expect to be compensated in the event they suffer some harm, loss or expense. Insurance is purchased from an insurance company, also often referred to as the “insurance carrier” or “insurer”.
When buying insurance, a person agrees to pay the insurance company a specific amount of money, called a “premium,” typically on a monthly, quarterly, or yearly basis. In return, the insurance company agrees to compensate that person for a specified harm or loss.
Common types of insurance include automobile insurance, homeowner’s insurance, health insurance and life insurance. Automobile insurance covers damage to or loss of a car, whether in an accident or by theft. It also usually covers the cost of compensating people who are injured in an accident. Homeowner’s insurance covers damage to or loss of a home and its contents.
Health insurance covers the costs of health care such as routine checkups, tests for adverse health conditions and treatments for ill health.
These are just a few of the common types of insurance that people have. There are many other kinds and most businesses have a variety of kinds of insurance coverage.
What are Specific Instances of Insurance Fraud?
Insurance fraud involves three methods of offering misleading information to an insurance company. A person might exaggerate information about a claimed loss. Or, the person might falsify important information about a claimed loss in order to obtain an improper financial benefit. Deliberate omission of information that the insurer requires can be considered insurance fraud also.
Insurance fraud committed by making false statements or omitting required information, occurs with the following types of events:
- Automobile Accidents: Individuals can exaggerate the amount of damage to a vehicle, or the extent of an injury sustained during an auto accident;
- Health Care: An individual can exaggerate the extent of their injuries or medical condition to improperly obtain health care benefits; or a doctor can claim that they provided one kind of treatment that results in a higher payment when in fact they provided a different treatment; sometimes one person obtains information about another person’s health insurance coverage and makes a claim for care they received to the other person’s insurance company;
- Workers’ Compensation: An employee can exaggerate the extent or the severity of an on-the-job injury to obtain workers’ compensation benefits to which they are not entitled.
Insurance fraud may consist of conduct as well as false or misleading statements. Insurance fraud of this type includes:
- Arson: Arson is intentionally setting fire to one’s home or business. The individual who commits the arson then submits a claim to their insurance company describing the arson as an “accident,” for the purpose of collecting insurance payment. An individual who commits arson to collect insurance proceeds runs the risk of being charged with both insurance fraud and arson;
- Staging an accident to claim injury or death: A person can stage an injury or even their own death to obtain insurance payouts. For example, a person can stage an auto accident, that serves as the basis for a claim of accidental injury or death. Or a person might deliberately cause an auto accident in order to exaggerate a claim of injury and collect money to which they really are not entitled.
How is Insurance Fraud Investigated?
Insurance fraud is a large-scale problem and has a significant impact on the nation’s economy. When an insurer is defrauded, the insurer generally seeks to recover the money lost to fraud by passing it on to other customers in the form of higher premiums.
Insurance companies are constantly on the look-out for fraudulent claims. They receive thousands of claims every day and they cannot have employees check every claim for evidence of fraud. So, many companies use computers and statistical analysis tools to identify suspicious claims that need to be investigated. The tools identify suspicious claims by comparing data about the value of a claim to the value it should be expected to have.
This is how insurance companies identify the most common kind of fraudulent claim — one in which an insured person has a legitimate claim for a loss, but exaggerates the value of it in order to profit from the claim.
Insurance companies also have fraud departments that have developed methods for detecting fraud. The employees of the special investigative units are trained to detect claims that might be fraudulent. They can then investigate to determine if in fact the claim is fraudulent.
Because of the high frequency of insurance fraud and its economic impact, most states have established fraud bureaus or departments also. These departments work to identify and investigate potential fraud. Many of these entities are part of law enforcement agencies that can refer suspected incidents of fraud for prosecution, because insurance fraud is a crime. These units may also investigate fraud in government-run insurance programs such as workers’ compensation, unemployment insurance or Medicare.
How is Insurance Fraud Prosecuted?
A prosecutor will pursue a case of criminal insurance fraud just as they would any other criminal case. There are generally two kinds of insurance fraud:
- Soft fraud: When a person makes a false or misleading statement, or material omission, to improperly obtain a financial benefit, it is considered soft fraud. Soft fraud is usually charged as a misdemeanor. Penalties for soft fraud include fines, jail time, community service, or probation;
- Hard fraud: Hard fraud is intentionally fabricating a loss, to obtain insurance payments. Types of hard fraud include staging a car accident or committing arson to collect from an insurance policy. Hard fraud is a felony that is punishable by substantial fines, as well as time in a state penitentiary of a year or more.
As in any criminal case, the prosecution must prove certain elements beyond a reasonable doubt in order to win a conviction. The exact elements in each state may vary, but the core elements often include:
- Knowingly making a false or misleading statement;
- Making the statement in connection with a claim or payment; and
- The statement is material; in other words, it could have an impact on the outcome of the claim.
Whether these elements are proven will depend on the evidence in each individual case.
What are the Legal Penalties for Insurance Fraud
The penalties for insurance fraud can include imprisonment in the state penitentiary or county jail, payment of a fine, or possibly probation or community service. The penalties will depend on the state in which the fraud was committed and the facts of each individual case, as well as the criminal history of the defendant.
For example, in Montana a fraud involving insurance benefits exceeding $1500 can be punishable by up to 10 years in prison and a fine of $50,000.
Can Insurance Fraud be Committed by Insurance Companies?
Insurance companies themselves can commit fraud. They can intentionally refuse to pay a claim that they know is legitimate and should be paid. Or, insurance companies can promise to provide a person with insurance, collect premiums and even issue insurance contracts. The person may discover, however, when a claim is made, that the insurance company is fraudulent and will never pay a claim.
On occasion, an insurance broker or agent will collect premiums for an insurance policy and never turn it over to the insurance company but rather keep it for themselves. The insured person may not discover the fraud until they make a claim and discover that they do not in fact have insurance coverage.
Do I Need an Insurance Fraud Attorney for Help with Insurance Fraud Charges?
If you are charged with a crime involving insurance fraud, you definitely want to consult with an experienced criminal lawyer. An attorney can explain the charge to you, the facts underlying it and what your defenses might be. The penalties for insurance fraud can be significant, including fines in the thousands of dollars and a prison sentence. You need to have an experienced criminal lawyer at your side when facing these charges.
Also, if you think you have been the victim of insurance fraud committed by an insurance company, you should consult an insurance bad faith lawyer who can review your options for making a claim against the insurance company.