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There are two basic types of insurance fraud: fraud committed by the customer and fraud committed by the insurer.
The first type involves making false insurance claims that inflate losses or injuries in an effort to collect a higher payout from the insurance company. The second involves the insurer either selling bogus coverage or diverting client premiums. Alternatively, the insurer may deny benefits due policyholders.
Insurance fraud is illegal in all 50 states, and may constitute a federal crime under certain circumstances (such as committing healthcare fraud). Laws and penalties differ across state lines. The severity of punishment depends on the circumstances of each case and whether the charges are a misdemeanor or a felony.
What are the Different Types of Insurance Fraud?
Since there are many different types of insurance, there are many different types of insurance fraud. The most common types are auto, health, life, and property.
Auto insurance fraud may involve fake accidents, arranging for your vehicle to be "stolen" or otherwise deemed a total loss (such as fire), or inflating claims after a legitimate accident. In some instances, the intent is to get out of a car payment the vehicle's owner can no longer afford.
Fake accidents are those engineered by a driver, such as braking suddenly in an attempt to force another driver to rear-end the fraudster's vehicle. There are also schemes where two drivers stage an accident together. Legitimate accidents also result in fraud, if the driver or any passengers make false claims regarding injuries or claim previous damage to the vehicle was caused by the accident.
Health insurance fraud may involve falsifying forms, concealing information such as preexisting conditions, and obtaining coverage fraudulently, such as adding someone to a policy illegally.
Healthcare providers also commit insurance fraud when they bill for services never performed, alter claims, bill for exams with a higher rating than the exam performed, and order unnecessary tests. Insurance providers commit fraud when they delete claims from their system, refuse to pay valid claims, or deny coverage to qualifying individuals.
Life insurance fraud occurs when someone fakes his or her death so that the beneficiary may receive payment from the insurer. The greater financial impact of life insurance fraud means that this is nearly always charged as a felony.
Property insurance fraud involves false claims regarding the theft or destruction of insured property. For example, after a home invasion, this may involve claiming items were stolen that the insured never owned, or simply inflating the value of items that were stolen.
What are the Penalties for Insurance Fraud?
Penalties vary widely depending on the state, whether the fraud was hard or soft, the amount involved, and whether the accused has any prior convictions.
Insurance Fraud Penalties in Maryland
Maryland may enact criminal, administrative, or civil penalties.
- Arson with the intent to commit insurance fraud: Maximum sentence 5 years; maximum fine $5,000; you may also face charges for arson, with sentencing for both convictions occurring either consecutively or concurrently
- Making false insurance claims: Maximum sentence of 15 years (felony) or 18 months (misdemeanor); fines total either three times the claim or $10,000, whichever is greater
- Making false statements: Maximum sentence of 15 years (felony) or 18 months (misdemeanor); $10,000 fine
- Insurance code violations: Possible fines of $25,000 for each act of fraud
- The insurance company may seek redress through court of any benefits paid on fraudulent claims
- Failure to pay administrative penalties may result in civil action to collect
Insurance Fraud Penalties in Texas
Texas bases penalties on the amount of the claim.
- $50 or less: Class C misdemeanor; $500 fine
- $200,000 or more: 1st Degree Felony; minimum sentence of 5 years; maximum sentence of 99 years; maximum fine of $10,000
- Falsifying information on an insurance application: State jail felony; minimum sentence of 180 days; maximum sentence of 2 years; maximum fine of $10,000
Insurance Fraud Penalties in California
California punishes insurance fraud based on the type of fraud and amount of damages.
- Prosecuted as a misdemeanor: Maximum sentence 12 months; maximum fine $10,000
- Prosecuted as felony: Maximum sentence 5 years; maximum fine $50,000 or double the amount involved
- Workers' compensation fraud: Fine may be double the defrauded amount or $150,000, whichever is greater
- Possible order to pay restitution
Schedule a Free Consultation
If you face insurance fraud charges, schedule a free consultation with a criminal defense attorney to discuss your case and determine your next steps.