The Ultimate Guide to the Federal Insurance Fraud Statute

Insurance fraud is a serious federal crime. Entities and individuals accused of defrauding insurance companies and committing other insurance-related crimes can face substantial fines and terms of imprisonment under federal law. The federal insurance fraud laws apply to insurance companies, insurance company employees, claimants, and other outsiders.

The main federal insurance fraud statute is 18 U.S.C. Section 1033. This section of the U.S. Code applies specifically to entities and individuals engaged in the “business of insurance,” as well as insurance company officers, directors, and employees. Policyholders and third-party claimants can face prosecution under other sections of the U.S. Code, as we discuss in detail below.

Understanding the Federal Insurance Fraud Statute (18 U.S.C. Section 1033)

We’ll begin with an overview of 18 U.S.C. Section 1033. As noted above, this federal statute applies to entities and individuals engaged in the “business of insurance” and insurance company personnel. Subsection 1033(f)(1) defines the “business of insurance” as, “the writing of insurance, or . . . the reinsuring of risks, by an insurer, including all acts necessary or incidental to such writing or reinsuring and the activities of persons who act as, or are, officers, directors, agents, or employees of insurers or who are other persons authorized to act on behalf of such persons.” Subsection 1033(f)(2) goes on to define an “insurer” as, “any entity [engaged in the business of] writing of insurance or the reinsuring of risks, and . . . any person who acts as, or is, an officer, director, agent, or employee of that business.”

1. Insurance Fraud Committed By Those in the Business of Insurance

Subsection 1033(a) focuses specifically on entities and individuals engaged in the business of insurance. Under this provision of the federal insurance fraud statute, it is a criminal offense for any entity or individual engaged in the business of insurance in interstate commerce to:

“[K]nowingly, with the intent to deceive, make[] any false material statement or report or willfully and materially overvalue[] any land, property or security—(A) in connection with any financial reports or documents presented to any insurance regulatory official or agency or an agent or examiner appointed by such official or agency to examine the affairs of such person, and (B) for the purpose of influencing the actions of such official or agency or such an appointed agent or examiner.”

As you can see, this provision of the federal insurance fraud statute protects not insurance companies, but rather insurance industry regulators. It indirectly protects taxpayers as well. Violations of Subsection 1033(a) carry statutory fines and up to 10 years of federal imprisonment in most cases, although the maximum sentence can increase to 15 years if the fraud “jeopardized the safety and soundness of an insurer and was a significant cause of such insurer being placed in conservation, rehabilitation, or liquidation by an appropriate court.”

2. Embezzling or Misappropriating Assets from an Insurer

Subsection 1033(b) shifts focus and establishes criminal penalties for crimes committed against insurers and others engaged in the business of insurance. Importantly, however, this subsection of the insurance fraud statute still focuses on criminal acts committed by those within the insurance industry (not by insureds or other third parties). Under subsection 1033(b):

“Whoever— (A) acting as . . . an officer, director, agent, or employee of, any person engaged in the business of insurance whose activities affect interstate commerce, or (B) is engaged in the business of insurance whose activities affect interstate commerce or is involved (other than as an insured or beneficiary under a policy of insurance) in a transaction relating to the conduct of affairs of such a business, willfully embezzles, abstracts, purloins, or misappropriates any of the moneys, funds, premiums, credits, or other property of such person so engaged shall be punished as provided . . . .”

The penalties imposed under subsection 1033(b) are the same as those imposed under subsection 1033(a). However, subsection 1033(b) provides that if the amount embezzled or misappropriated is $5,000 or less, then the maximum prison term is one year.

3. Insurance Fraud Involving False Books or Records

Subsection 1033(c) addresses the use of false books and records in the insurance industry. It imposes the same penalties as subsection 1033(a) for any person engaged in the business of insurance in interstate commerce who “knowingly makes any false entry of material fact in any book, report, or statement . . . with intent to deceive any person, including any officer, employee, or agent of [a] person engaged in the business of insurance, any insurance regulatory official or agency, or any agent or examiner appointed by such official or agency to examine the affairs of such person.”

4. Insurance Fraud Involving Public Corruption

Subsection 1033(d) addresses efforts to impede the lawful administration of the nation’s insurance laws. It is not specific to efforts to impede lawful administration of the insurance fraud statute. Under subsection 1033(d), individuals can face statutory fines and up to 10 years of federal imprisonment if convicted of:

“[B]y threats or force or by any threatening letter or communication, corruptly influenc[ing], obstruct[ing], or imped[ing] or endeavor[ing] corruptly to influence, obstruct, or impede the due and proper administration of the law under which any proceeding involving the business of insurance whose activities affect interstate commerce is pending before any insurance regulatory official or agency or any agent or examiner appointed by such official or agency to examine the affairs of a person engaged in the business of insurance whose activities affect interstate commerce . . . .”

Similar to other federal public corruption laws, subsection 1033(d) is extremely broad and allows for prosecution of various individuals under a wide range of circumstances. In cases prosecuted under subsection 1033(d), it is not unusual for multiple individuals to be implicated—and for prosecutors to pursue charges for attempt, conspiracy, and other related crimes when they cannot prove an individual’s direct involvement in an overt act of corruption.

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Federal Statutes that Prohibit Insurance Fraud By Policy Holders and Third-Party Claimants

While Section 1033 does not address insurance fraud committed by those outside of the insurance industry, there are several other federal statutes under which the U.S. Department of Justice (DOJ) can pursue fraud charges against policyholders, applicants, third-party claimants, and other individuals. Some examples of these statutes include:

• Mail Fraud and Wire Fraud Statutes – The federal mail fraud and wire fraud statutes (18 U.S.C. Sections 1341 and 1343) make it a criminal offense to use the mail, phone, or Internet to commit any “scheme or artifice to defraud.” This includes any scheme or artifice to defraud a private insurance company or a public insurance program. Violations of Sections 1341 and 1343 carry up to a $1 million fine and 30 years of federal imprisonment.
• Healthcare Fraud Statute – The federal healthcare fraud statute (18 U.S.C. Section 1347), makes it a federal offense to defraud any healthcare benefit program. This includes public health insurance programs like Medicare, Medicaid, Tricare, and Veterans Affairs (VA) insurance. Violations of Section 1347 carry statutory fines and up to 20 years of federal imprisonment.

Although there is no federal statute that addresses insurance fraud committed by policyholders and others outside of the insurance industry directly, the DOJ regularly uses the federal mail fraud, wire fraud, and healthcare fraud statutes (among others) to prosecute individuals and businesses suspected of engaging in intentional insurance fraud. While the DOJ tends to focus on cases involving substantial dollar amounts and large-scale insurance fraud conspiracies, it has shown willingness to prosecute individuals in smaller cases as well. Of course, even if the DOJ declines to prosecute, allegations of insurance fraud could lead to prosecution at the state level, and insurers can (and do) pursue civil litigation to recover their fraudulent losses.

Defending Against Federal Allegations of Insurance Fraud

Whether prosecuted under Section 1033 or another federal statute, insurance fraud charges carry severe consequences. As a result, those charged with committing insurance fraud need to defend themselves by all means available.

When facing allegations under the federal insurance fraud statute or another federal fraud law, it is critical to begin executing your defense strategy during the government’s investigation, if possible. In many cases, this will afford the opportunity to resolve the matter without criminal charges being filed. Once charges get filed, the options you have available become more limited; but, with that said, there are still several defenses an experienced federal defense lawyer may be able to use to protect you. These include substantive defenses such as lack of intent or willfulness, as well as procedural and constitutional defenses such as expiration of the statute of limitations or a violation of the Fourth Amendment protection against unreasonable searches and seizures.

Speak with an Insurance Fraud Defense Lawyer at Oberheiden P.C.

If you need to know more about the risks of facing federal insurance fraud charges, we encourage you to contact us promptly for more information. To speak with an insurance fraud defense lawyer at Oberheiden P.C. in confidence, please call 888-680-1745 or request a complimentary consultation online today.