Federal Insurance Fraud

If you or someone you love is under investigation for insurance fraud, or has been charged in federal court, here is what you need to know: when insurance fraud becomes a federal crime, what the main federal insurance fraud law covers, and what penalties are possible.

Federal prosecutors take insurance fraud seriously and want to discourage people from trying to profit illegally from insurance. Many people believe fraud is widespread in the insurance industry, and fraud makes insurance riskier and more expensive for both customers and insurance companies.

What counts as insurance fraud?

Insurance fraud usually means a policyholder tries to trick an insurance company into paying a claim the policyholder is not entitled to. For example, the policyholder may lie on an insurance application, or knowingly give false information on a claim to get paid.

The term is sometimes also used for the reverse situation: an insurance company refusing to pay a benefit that it knows the policyholder is entitled to. That kind of dispute is usually handled under state insurance law or in a civil lawsuit, not as a federal crime.

When does insurance fraud become a federal crime?

Most insurance fraud by policyholders, like a false claim after a car accident, is handled under state criminal law. It can become a federal case when federal law reaches it. That often happens when the conduct crosses state lines or uses the mail or interstate wires, which is common because so many financial transactions do. The main routes are:

• A false claim or application sent by mail, email, phone, or online can be charged as mail fraud (18 U.S.C. § 1341) or wire fraud (18 U.S.C. § 1343). Each carries up to 20 years.
• Fraud on a health insurer, public or private, can be charged as health care fraud (18 U.S.C. § 1347). Up to 10 years.
• Crimes by people who work in the insurance business can be charged under 18 U.S.C. § 1033.

Washington, D.C. is a special case. There, the U.S. Attorney's Office prosecutes local crimes as well as federal ones, so even insurance fraud that happens only inside D.C. is handled by federal prosecutors, often under the D.C. Code. Federal law also applies directly in U.S. territories and other places under federal jurisdiction.

What does the federal insurance-industry law, 18 U.S.C. § 1033, cover?

Section 1033 applies to people "engaged in the business of insurance whose activities affect interstate commerce." It makes it a crime to:

• Knowingly, with intent to deceive, make a false material statement or report, or willfully and materially overvalue any land, property, or security, in financial reports or documents given to insurance regulators or their examiners, in order to influence them.
• Willfully embezzle, abstract, purloin, or misappropriate (in plain terms, steal or misuse) any of the money, funds, premiums, credits, or other property of an insurance business.
• Knowingly make false entries in the books or records of an insurance business about its financial condition.
• Work in the insurance business after a felony conviction for dishonesty or breach of trust, without written consent from a regulator.

How do insurance fraud investigations start?

Insurance fraud can be reported by whistleblowers. It can also be investigated privately first, for example by an insurer's fraud unit, before it is brought to the federal government. If you think you are the subject of a federal investigation, speak with a lawyer right away. That gives you time to prepare a defense and helps you avoid doing anything that puts your freedom or career at further risk.

What is the punishment for federal insurance fraud?

Under 18 U.S.C. § 1033, the penalties are:

• False statements to regulators, embezzlement, or false entries: up to 10 years in federal prison, plus fines and restitution.
• Up to 15 years if the conduct put the insurer's financial health at risk and was a big cause of it being taken over by regulators.
• Embezzlement of $5,000 or less: up to 1 year.
• Working in insurance while barred: up to 5 years.

Charges under § 1033 can be brought up to 10 years after the offense (18 U.S.C. § 3293).

Most federal insurance fraud cases do not involve physical harm to anyone. Even so, a conviction can change your future. You may lose your insurance license or other professional licenses and be barred from the industry, which can sharply limit your ability to earn a living.

Read about federal wire fraud

Why address the charges early?

Federal insurance fraud charges can bring prison time, large fines, and a criminal record that affects your personal and work life for years. A lawyer can review the specifics of your case and talk with you about a defense or, after a conviction, an appeal.

What should you do next?

Book a consultation to talk it through with Brandon Sample.

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