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Fraud against Private Insurers

What potential whistleblowers need to know about reporting fraud against private insurance companies.

Fraud against private insurance companies has negative consequences for all consumers, as those facing rising premium rates know. Insurance fraud is widespread and many states have taken steps to combat it.

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California and Illinois have gone further than other states  by enacting insurance fraud prevention acts that allow whistleblowers to bring civil suits against defendants who have defrauded (or attempted to defraud) private insurers. Whistleblowers can be any “interested party,” including – but are not limited to – the defrauded insurers themselves.

Following the pattern of the state and federal false claims acts, these insurance fraud prevention acts provide for treble damages as well as substantial penalties.  In addition, eligible whistleblowers can receive a share of the overall recovery and attorney’s fees.

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California Insurance Fraud Prevention Act

The California Insurance Fraud Prevention Act (California Insurance Code sections 1871-1871.9) has a broad reach. Examples violations include:

  • Inflating the amount of a claimed loss
  • Billing an insurance company for services that were not performed
  • Paying kickbacks to doctors to get them to prescribe certain drugs
  • Engaging “cappers” to recruit patients or clients
  • Presenting multiple claims for the same loss
  • Failing to disclose ineligibility for insurance
  • Staging auto collisions and submitting claims for damage

Those who violate the California Insurance Fraud Prevention Act are subject to penalties between $5,000 and $10,000 as well as three times the amount of each claim for compensation.

Recoveries can be substantial. In a 2015 whistleblower suit settlement, $23.2 million was recovered from a pharmaceutical company that allegedly paid kickbacks to physicians. In this case the whistleblowers were employees of the pharmaceutical company.

Whistleblowers bring suit under the California Insurance Frauds Prevention Act in the name of the state by filing their complaint under seal and serving the local district attorney and the insurance commissioner. If either or both elect to intervene, they will proceed with the action. In a successful intervened action, the whistleblower will receive between 30 and 40% of the proceeds. A successful plaintiff in a non-intervened action will receive between 40 and 50% of the proceeds.

The California statute also provides protections to employees who suffer retaliation because of lawful acts done in furtherance of a California Insurance Fraud Prevention Act action.

Illinois Insurance Claims Fraud Prevention Act

The Illinois Insurance Claims Fraud Prevention Act (740 ILCS 92/1 et seq) is quite similar to the California law. Examples of possible violations of the Act include:

  • submitting a false claim to an insurer to obtain compensation
  • using deception to obtain health care benefits, and
  • employing recruiters to procure clients or patients who will submit insurance claims.

Whistleblowers have successfully used the Illinois Insurance Claims Fraud Prevention Act, including against radiology clinics that allegedly paid kickbacks to physicians, resulting in a $1.2 million settlement. The operator of another radiology service brought the original suit.

Violators are subject to fines of between $5,000 and $10,000 and damages of three times the amount of each claim.

A whistleblower who knows of insurance fraud can file a complaint under seal, serving the State’s Attorney or Attorney General. If the state intervenes, a successful plaintiff will receive not less than 30% of the proceeds. If the state does not intervene, a successful plaintiff will receive not less than 40% .

As with California, Illinois employees who act in furtherance of an insurance fraud prevention action are protected against retaliation.

Both California and Illinois have a first to file rule, meaning that once a person or governmental agency has brought an action under the Act, no one other than the state can intervene or bring a related action. Both have public disclosure bars, prohibiting suits based on certain types of publicly available information unless the interested person is an original source.

Insurance fraud harms all of us and preventing this fraud is a shared responsibility. California and Illinois have seen the value of citizen watchdogs and incentivize whistleblowers to report insurance fraud.

To find out more about whether a particular type of insurance fraud is actionable under the California Insurance Fraud Prevention Act or the Illinois Insurance Claims Fraud Prevention Act, contact us today.

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