Review of Federal Insurance Fraud Laws, Penalties, and Defenses - 18 U.S.C. § 1033
Insurance fraud usually involves using a fraudulent insurance claim to get benefits someone is not entitled to receive. This can include gaining a financial advantage from an insurance company or a state or federal governmental agency.
Insurance fraud occurs in different ways and typically involves someone making a false statement on a claim form, or it could be a complex conspiracy involving numerous people.
Some of the common types of insurance fraud include health care fraud, Medicare fraud, life insurance fraud, property insurance fraud, unemployment fraud, renter's insurance fraud, and auto insurance fraud.
However, the most common type of insurance fraud usually deals with health care insurance, such as fraud by the patient and the healthcare provider.
For instance, a doctor billing an insurance company services never performed on the patient. Another example includes staged auto accidents where a health care provider conspires with other people to defraud insurance carriers or health insurance companies.
Every state in the Union has laws criminalizing insurance fraud. But when the insurance practices involve interstate commerce, it becomes a serious federal crime.
As noted, federal insurance fraud can take many forms, but all forms come with severe penalties attached. If you are convicted of this crime, you could be facing stiff fines and up to 15 years in federal prison.
Our Los Angeles criminal defense attorneys will review the relevant federal laws below.
What Constitutes Insurance Fraud at the Federal Level?
The primary differentiator between insurance fraud at the state and federal levels is whether or not interstate commerce is involved.
Once transactions cross state lines (whether physically or by wire), the alleged fraud falls into the federal government's jurisdiction and will be prosecuted at the federal level.
The federal government's view of insurance fraud is encapsulated in Title 18 U.S. Code § 1033: Crimes by or affecting persons engaged in the business of insurance whose activities affect interstate commerce.
This law effectively breaks criminal insurance activity down into categories:
- Knowingly making material false statements regarding the value of land, property, or security for insurance purposes;
- Willfully embezzling or misappropriating premiums, credits, or other money or property of an insured;
- Knowingly falsifying information about the financial state of a business with the intent to deceive insurers, examiners, or regulatory agencies;
- Making threats or attempting to obstruct the efforts of insurance examiners or regulatory agencies from the "due and proper administration of the law;
- Conducting insurance business if you have been previously convicted of insurance fraud or felony offenses involving breach of financial trust.
Who Investigates Insurance Fraud?
Private insurance companies often investigate insurance fraud and involve local police detectives and federal law enforcement agencies.
Insurance companies have a financial motive to prevent insurance fraud and have vast experience recognizing fraudulent activity.
Common red flags are multiple insurance claims, claims for losses right after the coverage was initiated, or someone pushing for a quick settlement.
Most insurance companies have special investigative units responsible for identifying fraud, denying an insurance claim, and reporting the activity to law enforcement. The National Insurance Crime Bureau (NICB) works closely with law enforcement agencies to fight insurance fraud.
Several state and federal law enforcement agencies often investigate insurance fraud. This includes the Federal Bureau of Investigation (FBI) and the Internal Revenue Service (IRS).
Federal investigators only get involved in a case if there are alleged violations of federal or interstate fraud or in case of fraud against the government.
What Are Some Examples?
Technically speaking, insurance fraud can be committed by insured individuals and companies. The most common type of individual insurance fraud is to file a false claim.
However, federal insurance fraud primarily targets insurance businesses and their employees because this is where interstate transactions are most likely to take place. The states prosecute most instances of individual insurance fraud.
Here are just a few of many examples of how insurance companies, agents, or employees might commit federal insurance fraud:
- An insurance agent embezzles a portion or all of the premium payments instead of sending them to the underwriter, a scheme known as "premium diversion;
- A person previously convicted of financial crimes poses as an insurance agent. sells insurance without a license, collects the premiums, and doesn't pay the claims, which is another form of premium diversion;
- An insurance company, agent, or adjuster inflates the value of a lost asset when filing an insurance claim, pays the claim to the insured at the actual value, and pockets the difference;
- An insurance agent who is friends with his client purposefully overvalues the amount of his insurance claim to get more money for the client;
- An insurance agent colludes with an insured to file a false claim then splits the money with the insured;
- The practice of "fee churning"—a scheme involving multiple intermediaries who each take commissions on the premium until there is nothing left to pay the claim, leaving a shell company that is "set up to fail" to foot the bill.
What Are the Penalties for Insurance Fraud?
If you are convicted of federal insurance fraud, the severity of the penalty depends on the nature of your offense. Generally speaking:
- If you're convicted for conducting insurance business after being disqualified by a criminal conviction, the maximum is five years in prison;
- If you're convicted of obstructing or impeding an insurance examiner through threats or coercion, you're facing up to 10 years in prison;
- If you're convicted of embezzling insurance funds or making material false statements, the penalty is up to 10 or up to 15 years in prison.
Defending Against Charges of Federal Insurance Fraud
Many people in an insurance fraud investigation will receive a subpoena associated with an insurance claim. The moment you become aware you are the target of an investigation, you need to contact a federal criminal lawyer right away.
To convict you of insurance fraud at the federal level, prosecutors must demonstrate not only that you committed an illegal act but that you did so knowingly and willfully with intent to deceive.
Therefore, the most common and effective defenses against insurance fraud charges typically involve refuting the claim that you willfully committed the crime.
You acted unknowingly
You were an unwitting participant in a larger fraud scheme and were not aware you were filing fraudulent claims.
You made an honest mistake
Your over-inflation of the value of a property, for example, was unintentional. It was a typo or math error, not a deliberate attempt to deceive.
You unwittingly passed on false information
To the best of your knowledge at the time, the information you gave regarding the financial condition of a company or the value of the claim was accurate.
Insurance fraud cases can be complicated and involve multiple federal agencies. A conviction will carry severe penalties and substantial civil fines.
You will need a defense attorney with experience handling insurance fraud cases, including effective negotiating skills with a federal prosecutor.
Eisner Gorin LLP is based in Los Angeles, County and we serve people throughout Southern California. Contact our office for an initial consultation at (877) 781-1570, or fill out our contact form.