Detecting and Preventing Insurance Fraud: State of the Nation in Review

Abstract

The purpose of this Article is to review existing regulatory requirements and provide a document to guide insurance regulators in the development of insurance fraud regulations. This Article performs that purpose by engaging in a comprehensive examination of antifraud laws of general application. Consequently, anti-fraud laws applicable exclusively to a specific type of coverage, such as workers’ compensation insurance, viatical settlement contracts, health insurance, life insurance, or automobile insurance, are beyond the scope of this Article. By examining anti-fraud laws of general applicability, this Article attempts to provide a platform for encouraging standardization, which would narrow the range of disagreement between jurisdictions in the context of anti-fraud laws. It also ensures greater predictability, certainty, and uniformity in the interpretation and application of laws.

Section II examines the law of states that have legislatively declared insurance fraud to be a crime. This section details the nature of the conduct that establishes beyond a doubt that everyone, including consumers, licensed professionals such as attorneys and physicians, insureds, and insurers, will be held accountable for their conduct. Section II also surveys mandatory fraud warning statutes. It identifies important similarities as well as significant differences between the respective statutes.

Section II also discusses state insurance fraud laws that utilize monetary rewards and qui tam provisions as instruments for detecting and deterring insurance fraud. Interestingly, as explained in Section II, monetary reward programs are only offered in a handful of states. Section II concludes with a detailed examination of the laws of the two states which have incorporated qui tam provisions into their anti-fraud laws.

Section III examines the law in jurisdictions that use fraud bureaus as a means for detecting and preventing insurance fraud. Section III explores the powers, duties, and responsibilities of fraud bureaus. This section also explains how the department in which the bureau is located affects its ability to directly prosecute criminal insurance fraud cases.

Section IV evaluates the use of mandatory fraud reporting statutes as a means of combating insurance fraud. As detailed therein, all mandatory fraud reporting statutes are based on one of four models. As explained in Section IV, each model differs with regards to its use of one or a combination of three relevant criteria.

Section IV also discusses state statutes that provide immunity from civil liability for reporting suspected insurance fraud. The statutes by and large provide only qualified immunity, which is subject to forfeiture if not exercised in a proper manner. Section IV examines the causes of a forfeiture of immunity based on the characterization of the misconduct.

Section V explores state laws that require insurance companies to create, implement, and maintain anti-fraud initiatives and anti-fraud plans. Anti-fraud initiatives provide insurance companies the opportunity to be creative in addressing the problem of insurance fraud. However, anti-fraud plans must also comply with specific statutory mandates. Section V examines these requirements.

Section VI concludes by identifying the theme ommon to all statutory laws aimed at detecting and preventing insurance fraud. That common theme is cooperation. Each statutory provision—to varying degrees—is designed to encourage and motivate relevant stakeholders to cooperate in a uniform and unified manner toward a single goal—eradicating insurance fraud. Section V concludes that the degree to which a law achieves this goal—cooperation—corresponds to its overall effectiveness in achieving the desired outcome.