The Law Firm of Piacentile, Stefanowski & Malherbe LLP

Private Insurance Fraud in the United States

You may not realize it, but insurance fraud is a huge problem in the United States. Insurance fraud is a widespread and costly problem for Americans that results in higher insurance premiums. California and Illinois are the only two states in the country with a whistleblower or qui tam statute that addresses fraud committed against private insurers. The California Insurance Frauds Prevention Act (“IFPA”), located under Section 1871.7 of the California Insurance Code, allows members of the public to file private qui tam suits against anyone who commits insurance fraud in the state.

The Insurance Fraud Prevention Act helps combat this issue by making it illegal for individuals to knowingly file a false or misleading insurance claim. The IFPA covers all forms of commercial and personal insurance, including life, auto, home, and particularly fraud concerning health insurance. The IFPA provides for fines against fraudsters ranging from $5,000 to $10,000 per violation in addition to damages of three times the amount of money the fraud cost its victims.

Some of the violations of the Insurance Fraud Prevention Act include:

  • Making any false statement or knowingly reporting false information in connection with insurance.

  • Submitting multiple insurance claims for the same health care service.

  • Providing kickbacks to recruit patients or clients.

  • Receiving money or other valuables from an insured for services not rendered.

  • Knowingly producing or distributing documents containing false statements in connection with insurance.

  • Knowingly concealing information relating to an accident or injury for purposes of collecting benefits.

  • Staging auto collisions and submitting claims for damage.

Just like the False Claim Act, the IFPA an action can be brought by either the State or a private plaintiff suing on the State’s behalf. However, under the IFPA it is not necessary that the government suffer any harm as a consequence of the fraud. The reason for this is because insurance fraud usually harms a big number of people, due to the fact that insurance companies frequently cite insurance fraud losses in raising rates for policy holders. The Act's legislative record states that healthcare insurance fraud likely increases national healthcare costs by “billions of dollars annually.”

If a relator or insurer decides to file a civil suit in the name of the State of California in an IFPA qui tam action, this complaint and all the related evidence must be filed under seal to the superior court, served to the local district attorney and to the state insurance commissioner. The latter have 60 days to decide whether or not to intervene in the case. In case the district attorney or the commissioner decides to intervene, government attorneys may take over and lead the case, or allow the relator to continue to do so and they will help in a supportive role.

Under the IFPA, a relator is entitled to 30 to 40 percent of the proceeds of a successful action in an intervened case. In a case where the government decides not to intervene the relator would be entitled to between 40 to 50 percent of any recovery. The IFPA also protects the employees from retaliation not only for filing a claim but even for supporting an IFPA qui tam action. The Act also requires that the employee reinstate the employee with the same seniority the employee would have had if not for suffering the retaliation, pay the employee twice the amount of backpay he or she is due, plus interest, and compensate the employee “for any special damages sustained as a result of the discrimination,” including attorneys’ fees and reasonable litigation costs.

Besides California, Illinois is the only other state with a qui tam statute allowing a private relator to bring claims for commercial insurance fraud on behalf of the state. The Illinois Claims Fraud Prevention Act, 70 ILCS 92/1, et seq., imposes liability for paying unlawful remuneration to induce services under a contract of insurance and for violating certain criminal state antifraud provisions. Some of the possible examples under the Illinois Insurance Claims Fraud Prevention Act include:

Employing recruiters to procure clients or patients who will submit insurance claims

Using deception to obtain health care benefits, and

Like the California IFPA, submitting a false claim to an insurer to obtain compensation.

Both California, and Illinois have first to file rules, which means that once a person or government agency has brought an action under the Act, no person other than the State can intervene or bring a related action. As mentioned before, California and Illinois employees who act in furtherance of an insurance fraud prevention action are also protected against retaliation. Any anti-discrimination action as a result of their involvement with an IFPA action and their pursuit of damages must be done within three years or when they discover “the facts constituting the grounds” for the action or within eight years of the retaliatory act.

If you know of insurance fraud that occurred involving insurers in California or Illinois, contact Whistleblowers International. We at Whistleblowers International can help you use your information about insurance fraud to seek justice and to potentially earn you a reward.