Insurance Code § 1871.1 – Insurance Fraud – Civil Penalties
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Insurance Code § 1871.1 – Insurance Fraud – Civil Penalties
California Law
Insurance Code – INS
DIVISION 1. GENERAL RULES GOVERNING INSURANCE [100 – 1879.8]
( Division 1 enacted by Stats. 1935, Ch. 145. )
PART 2. THE BUSINESS OF INSURANCE [680 – 1879.8]
( Part 2 enacted by Stats. 1935, Ch. 145. )
CHAPTER 12. The Insurance Frauds Prevention Act [1871 – 1879.8]
( Chapter 12 added by Stats. 1989, Ch. 1119, Sec. 3. )
ARTICLE 1. False and Fraudulent Claims [1871 – 1871.10]
( Article 1 added by Stats. 1989, Ch. 1119, Sec. 3. )
1871.1.
The Legislature finds and declares as follows:
(a) The business of insurance involves many transactions that have the potential for abuse and illegal activities. There are numerous law enforcement agencies on the state and local levels charged with the responsibility for investigating and prosecuting fraudulent activity. This chapter is intended to permit the full utilization of the expertise of the commissioner and the department so that they may more effectively investigate and discover insurance frauds, halt fraudulent activities, and assist and receive assistance from federal, state, local, and administrative law enforcement agencies in the prosecution of persons who are parties in insurance frauds.
(b) Insurance fraud is a particular problem for automobile policyholders; fraudulent activities account for 15 to 20 percent of all auto insurance payments. Automobile insurance fraud is the biggest and fastest growing segment of insurance fraud and contributes substantially to the high cost of automobile insurance with particular significance in urban areas.
(c) Prevention of automobile insurance fraud will significantly reduce the incidence of severity and automobile insurance claim payments and will therefore produce a commensurate reduction in automobile insurance premiums.
(d) Workers’ compensation fraud harms employers by contributing to the increasingly high cost of workers’ compensation insurance and self-insurance and harms employees by undermining the perceived legitimacy of all workers’ compensation claims.
(e) Prevention of workers’ compensation insurance fraud may reduce the number of workers’ compensation claims and claim payments thereby producing a commensurate reduction in workers’ compensation costs. Prevention of workers’ compensation insurance fraud will assist in restoring confidence and faith in the workers’ compensation system, and will facilitate expedient and full compensation for employees injured at the workplace.
(f) The actions of employers who fraudulently underreport payroll or fail to report payroll for all employees to their insurance company in order to pay a lower workers’ compensation premium result in significant additional premium costs and an unfair burden to honest employers and their employees.
(g) The actions of employers who fraudulently fail to secure the payment of workers’ compensation as required by Section 3700 of the Labor Code harm employees, cause unfair competition for honest employers, and increase costs to taxpayers.
(h) Health insurance fraud is a particular problem for health insurance policyholders. Although there are no precise figures, it is believed that fraudulent activities account for billions of dollars annually in added health care costs nationally. Health care fraud causes losses in premium dollars and increases health care costs unnecessarily.
(Amended by Stats. 2002, Ch. 6, Sec. 2.5. Effective January 1, 2003.)
California Law Summary
This statute establishes civil penalties for individuals or entities that engage in insurance fraud. It allows the state, through the Attorney General or local district attorneys, to bring civil actions against those who knowingly:
Present or cause to be presented false or fraudulent claims for payment or benefits under an insurance policy.
Prepare, make, or subscribe any writing with the intent to present or use it in support of such a claim.
Conceal or fail to disclose the occurrence of an event that affects any person’s initial or continued right to an insurance benefit or payment.
Penalties:
Civil penalties range from $5,000 to $10,000 for each fraudulent claim.
Additional assessments may be imposed, including three times the amount of each claim for compensation.
Purpose
To deter fraudulent activities related to insurance claims by imposing significant financial penalties and enabling the recovery of damages through civil litigation.
Application
In personal injury litigation, § 1871.1 serves as a tool to combat fraudulent claims, such as staged accidents or exaggerated injuries. It empowers prosecutors to seek civil remedies against perpetrators, thereby protecting the integrity of the insurance system and ensuring that legitimate claimants receive fair compensation.
