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What You Can Do to Combat Insurance Fraud

What you can do to combat insurance fraud: Insurance Code, section 1871.7

In California, if you have personal knowledge of insurance fraud, the law lets you do something about it.

Insurance systems enable people and entities to spread their risk of loss to others, thereby helping control and alleviate financial or personal injury.  It’s a framework that has become ubiquitous in the modern world.  Common types of insurance include health insurance, which covers costs of medical treatment; auto and casualty insurance, which protects you against financial loss in the event of accidents; workers’ compensation, which compensates you for wages lost and medical expenses incurred because of a job-related injury; disability insurance, which provides financial help if you become unable to work because of a disabling injury or illness; life insurance, which provides a monetary benefit to your family or others whom you designate in the event of your death; and property insurance, which protects types of property against loss or damage.

Insurance systems are also prone to abuse and illegal exploitation.  The health insurance system can be scammed by submitting bogus claims, billing for services not rendered, rendering services and then billing for more extensive care than what was performed, or providing and billing for services performed without (or with a suspended) a license.  Workers’ compensation programs are gamed by underreporting numbers of employees or misrepresenting the work they do.  People fake their deaths to claim life insurance.  Staged accidents are set up to collect auto insurance.  Property that has depreciated or cannot be sold is intentionally destroyed for property insurance.  Multiple claims are submitted for the same loss. In short, there are many ways in which insurance fraud is attempted.

To combat insurance fraud, California enacted Insurance Code, section 1871.7, as part of the Insurance Frauds Prevention Act.  If you have personal knowledge of insurance fraud, section 1871.7 vests you with the authority to sue the perpetrator of the fraud on behalf of the State of California.  Notably, because you are bringing a claim in the name of the State of California as a whistleblower or ‘relator’—in what is known as a ‘qui tam’ suit—you do not have to have been personally victimized or injured.

Section 1871.7 suits are designed to remedy the submission of false or fraudulent claims, or the employment of “runners, cappers, steerers, or others” to obtain business that will be submitted to insurers.  Although anachronistically worded, the Office of the Legislative Counsel explained that the latter was designed to prohibit kickbacks—a form of negotiated bribery that involves collusion to provide business in exchange for illegal commissions.

A whistleblower’s cause of action under section 1871.7 is significantly broader than most other actions under similar qui tam statutes in one important aspect: the fraud need not be committed directly against the government.  What this means is that it doesn’t matter whether the government incurred a financial loss because of the fraud.  You can still bring a claim even if the only entity to have sustained a loss was a private insurer—such as a Health Maintenance Organization (“HMO”) or other insurance company.  Section 1871.7 cannot be used to remedy the flip-side of this situation, however, where an insurer commits fraud against a policyholder.  Section 1871.7 is applied in this manner because fraud committed against insurers also harms the people of California; when insurers incur fraud-related costs, they must re-appraise how risk is allocated, which translates into higher premiums and costs for everyone.

What do you as a whistleblower stand to benefit by bringing a claim under section 1871.7?  Qui tam suits are premised on rewarding you with a bounty when you come forward to help collect money owed.  Section 1871.7 can reward successful relators with some of the most generous bounties of any qui tam statute in the country.  A relator may be entitled to up to fifty percent of any recovery obtained, plus attorney’s fees and costs.  The statute provides for penalties against a fraudster that include between $5,000 and $10,000 for each proscribed act, and three times the amount of money paid under a false or fraudulent claim.

Evans Law Firm, Inc. handles cases that involve insurance and banking fraud, whistleblower and qui tam claims, consumer fraud class actions, annuity fraud, and financial and physical elder abuse.  If you believe you have personal knowledge of insurance fraud, contact Evans Law Firm, Inc. at (415) 441-8669 or info@evanslaw.com for a free and confidential consultation.

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