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 $300 billion 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.
This article will discuss the crime of insurance fraud, including common fraud schemes and potential penalties. To learn about other types of fraud and their consequences, see Laws on Fraud.
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 most states have established fraud bureaus to identify and investigate insurance fraud incidents. A person found guilty of insurance can face felony or misdemeanor penalties, 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.
Whether prosecuted in state or federal court, prosecutors ordinarily need to prove the following key elements of insurance fraud to secure a criminal conviction.
Like other forms of fraud, insurance fraud requires that the defendant knowingly make a false or misleading statement or claim. Simply not telling the truth is not enough—the defendant must do so knowingly, which means he intended to make the statement and be aware that the statement is false. For example, if a person filing a car insurance claim mistakenly, but in good faith, tells their insurance company that the mileage on his vehicle is 100,000 miles, but it is actually 112,000 miles, they've not committed fraud. However, if a person later learns that they made a mistake when filing the claim, they have a duty to inform the insurer of their mistake.
The prosecution must also prove the person acted with the intent of defrauding the insurance company. In other words, there must be proof that the person made the false statement, submitted fraudulent documentation, or committed some other act intending that the insurance company rely on it.
Insurance fraud comes in many forms. Some common examples are explained below.
Health care fraud 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 or use someone else's insurance card to obtain services. 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.
Car insurance fraud 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 a vehicle accident was greater than it actually was, in order to obtain a larger payment from the insurer. In some cases, people commit the damage themselves in order to claim insurance proceeds.
Those committing life insurance fraud are trying to collect on a hefty payout. A person might attempt 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 to obtain his life insurance payment has committed fraud.
Property insurance fraud involves 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 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.
The penalties for insurance fraud vary widely depending on the state where the prosecution occurred, the amount of money fraudulently sought or obtained, the extent of the fraud, and the criminal history of the defendant.
Certain insurance fraud crimes come with misdemeanor penalties that can include up to a year in jail. Felony penalties apply in more serious cases and may carry possible prison sentences of a year or more. Whether a person spends time behind bars will depend on numerous factors, such as their criminal history, the facts involved in the case, and the severity of the offense. No matter what penalty level applies, judges will typically order the offender to pay restitution (compensation to the insurance company for its losses) and hefty fines (paid to the state).
Some states base criminal penalties for insurance fraud on the amount involved in the fraud. Most often, a state will set an amount (called a threshold amount) that will tip the crime from a misdemeanor to a felony. For instance, if the defendant intended to bilk the company of less than $1,000, the crime might be a misdemeanor. A fraud crime involving $1,000 or more would be a felony.
A state might also impose penalties based on the extent of the fraud. Say a person makes a false statement on a claim that overstates the damages in a car accident. This offense might be a misdemeanor. But had the person created a fraudulent certificate or caused the loss by setting the vehicle on fire, the crime may carry tougher felony penalties.
As mentioned above, nearly all states have fraud investigation units. Most private insurance companies also have staff devoted to fraud detection. These agencies often work closely together to detect, investigate, and prosecute insurance fraud—sharing information and turning over evidence to law enforcement and government prosecutors for criminal prosecution.
New technologies and collaborative efforts among private companies, state agencies, and national organizations have led to increased fraud detection and recovery efforts. In particular, companies are using advanced computer algorithms to flag suspicious claims and identify fraudulent schemes.
If you're charged with insurance fraud, 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.