Insurance fraud occurs when people deceive an insurance company in order to collect money to which they are not entitled. This particular fraud is a crime in all fifty states, and the majority of the states have established fraud bureaus to identify and investigate fraud incidents. In most states, fraudulent claims can be either a felony or a misdemeanor, depending on the nature and extent of the fraud committed. Certain types of fraud, such as health care fraud, are also crimes under federal law.
Insurance companies can also commit fraud by improperly denying a policy holder or health care provider a benefit that is due.
Fraudulent insurance claims affect society as a whole, not just insurance companies, and for that reason, it is punished harshly. According to the Coalition Against Insurance Fraud, fraud schemes steal at least 80 billion dollars per year in the United States. The costs are ultimately borne by policyholders and consumers, because insurance companies charge higher premiums to cover their losses from fraud. Individual and business premium rates go up, and businesses often pass along the increased costs to their consumers.
This article will discuss the elements of the crime of insurance fraud, including common types, and the range of penalties imposed for fraudulent insurance convictions. To learn about other types of fraud and their consequences, see Laws on Fraud.
The Elements of Insurance Fraud
In order for the defendant to be found guilty of fraudulent activities, prosecutors must prove that each of the following "elements" was met. Unless the judge or jury finds that each of these elements was proven beyond a reasonable doubt, they must acquit the defendant.
Knowingly making a false or misleading statement
Like other forms of fraud, insurance fraud requires that the defendant knowingly make a false or misleading statement, or, in other words, tell a lie. Simply not telling the truth is not enough--the defendant must do so knowingly, which means he must intend to make the statement and be aware that the statement is false. For example, if a person filing an automobile insurance claim mistakenly but in good faith tells his insurance company that the mileage on his vehicle is 100,000 miles, but it is actually 112,000 miles, he has not committed any fraud. However, if a person later finds out that a statement he made to an insurer in the course of making a claim is false, when he did not know the statement was false at the time, he has a duty to inform his insurer of the mistake.
The statement is made in connection with a claim or payment made or to be made under the terms of an insurance policy
The false statement must have been made in support of, opposition to, or connection with a claim or payment made or to be made under an insurance policy. This can include a false or exaggerated claim made to an insurance company, a false statement made to a physician in connection with an insurance claim, or false statements made by medical providers to insurers about the services they performed.
The statement is material
In order for insurance fraud to exist, the false statement must be material, or important, to the insurance payment or claim. If a person tells a lie during the course of an insurance claim investigation, but it has no actual or potential bearing on the outcome of the investigation, he has not committed fraud. For example, a person making an insurance claim for a robbery at his business may claim to the insurer that his business received awards for excellent customer service, when in fact it has not. Although that person has told a lie to the insurer, he has not committed fraud because the statement about receiving awards is not material to his claim.
Common Types and Examples of Insurance Fraud
Insurance fraud occurs in many forms. Some common examples are explained below.
- Healthcare. This occurs when a person or business defrauds a health insurance provider. For example, a person might claim to have a false injury in order to obtain payments or prescription medication. This type of fraud also commonly occurs when health care providers, such as doctors or dentists, submit claims to a health insurance provider for procedures they did not actually perform. As well as being a crime in all fifty states, health care fraud is also illegal under federal law.
- Automobile claims. This occurs when someone either exaggerates or fabricates a claim made to their automobile insurance provider. For example, a person may claim that the extent of damage that occurred in an automobile accident was greater than it actually was, in order to obtain a larger payment from the insurer.
- Life. This happens when a person attempts to obtain life insurance payments by fabricating their own or another's death. For example, a person who forges a death certificate of a family member in to obtain his life insurance payment has committed fraud.
- Property. This is fraud concerning home, business, or other insurance policies covering real property (land or buildings) or personal property. A business owner who sets fire to his own business has committed this type of fraud. An owner of a valuable piece of jewelry may claim that the item was lost, in order to obtain a payment. Property insurance fraud may also include exaggerating the damages from a legitimate loss—for example, a person who had a pipe burst in his home might claim damages in excess of those that actually occurred in order to obtain a larger payment than otherwise would be awarded.
Insurance fraud can generally be divided into two categories, known in the industry as “soft fraud” and “hard fraud.”
- Soft fraud occurs when a person exaggerates an existing claim, such as overstating the damages caused by a car accident. Soft fraud is usually considered a misdemeanor, punishable by fines, jail time of up to one year, community service, and probation.
- Hard fraud, on the other hand, occurs when a person either causes or fabricates a loss for the deliberate purpose of obtaining insurance payments. Hard fraud is almost considered a felony, punishable by strict penalties including the possibility of incarceration in state prison for a number of years.
The penalties for insurance fraud vary widely depending on the state where the prosecution occurred, the amount of money fraudulently sought or obtained, and the criminal history of the defendant. For more information, see common crimes and their penalties by state.
If you are charged with insurance fraud, especially if you are facing felony charges, consider consulting a criminal defense attorney as early as possible in your case. An experienced attorney can help you understand the laws in your area, counsel you on defenses you may raise, explain your options, and inform you of your rights.