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. To learn more about his topic, see When Your Insurance Company Won't Cover You: Fraud and Bad Faith.
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.
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.
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 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.
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.
Insurance fraud occurs in many forms. Some common examples are explained below.
Insurance fraud can generally be divided into two categories, known in the industry as “soft fraud” and “hard fraud.”
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.