Insurance is a system for compensating individuals who are harmed by the liability of another.  Insurance affects every aspect of our daily lives, even though we rarely think about insurance in that way.

Below, we will discuss:

• Insurance Fraud in the Fifth Degree – New York Penal Law § 176.1
• Insurance Fraud in the Fourth Degree – New York Penal Law § 176.15
• Insurance Fraud in the Third Degree – New York Penal Law § 176.2
• Insurance Fraud in the Second Degree – New York Penal Law § 176.25
• Insurance Fraud in the First Degree – New York Penal Law § 176.3
• Aggravated Insurance Fraud – New York Penal Law § 176.35

What Types of Insurance are Included in the Statutes?

Everything from the cars we drive (automobile insurance), to the sidewalks we walk on (home insurance), to occupations we hold (professional liability insurance), there is almost always some insurance policy that is implicated by our actions.

All types of insurances are covered under the fraud statute, including, but not limited to:

–       Umbrella insurance (excess lines)

–       Life insurance

–       Mortgage insurance

–       Disability insurance

–       Medicare insurance

–       Health insurance

Insurance Fraud Defined

Fraud, generally, is considered to be a white-collar crime that includes any act intended to deceive through a false representation for personal gain. The actor knowingly, and with the intent to defraud, represents a fact that is untrue. The victim relies upon this false information to their detriment.

Types of Fraud Crimes

–       Forging currency or checks

–       Pirating movies

–       Possessing a forged instrument

–       Falsely obtaining a utility, including internet services, oil, gas, electric,                              water, cable

–       Identity theft

–       Testifying falsely under oath at an official proceeding

–       Impersonating a police officer

Insurance fraud is a specific type of fraud. If insurance affects everyone, insurance fraud certainly does as well. Insurance fraud technically can also refer to insurance companies and agents defrauding consumers by collecting premiums for nonexistent policies with no intention of paying legitimate claims.

According to New York Penal Law §176.05

A person commits insurance fraud when that person knowingly and with intent to defraud presents a written statement or application to obtain insurance that contains materially false information about an important factor conceals information about an important fact.

Depending upon the severity of the offense, insurance fraud could be considered a misdemeanor or a felony.

Examples of insurance fraud include these prior cases:

• Defendant falsely reported to the insurance company that her truck was stolen when it was driven into a pond. She knew that the truck was driven into a pond and hid this fact from the insurance company when she reported her claim.
• Defendant recruited two other individuals and staged a motor vehicle accident. The individuals then sought treatment for fictitious injuries and filed personal injury claims for pain and suffering.
• Defendant was convicted of insurance fraud because defendant concealed the cause of a fire; defendant had acquired the property and took out a large insurance policy on it shortly before the fire, and purchased substantial quantities of the accelerant found at the crime scene, empty containers of which were subsequently recovered from defendant’s home.

What is the key component that underlies allegations of fraud?

The key component that underlies allegations of fraud is scienter, or that the representations made were false and intended to deceive. The defendant must also claim for financial benefit under the insurance policy.

Innocent or ignorant mistakes do not rise to this threshold. Furthermore, a defendant can challenge the sufficiency of the evidence on appeal. Examples of cases where the defendant was convicted but won their appeal include the following:

• Defendant was convicted of insurance fraud for merely filing a fraudulent application. The appellate court overturned the conviction because the submission of a fraudulent application without a subsequent claim for payment under the policy did not constitute a fraudulent insurance act. (People v. Ferone, 136 A.D.2d 282, 283 (App. Div. 1988)).
• Defendant was convicted of insurance fraud for intentional starting a fire to collect insurance proceeds. Expert testimony identified the use of an accelerant at the crime scene, and the defendant had keys to the building.

The appellate court countered the lower court because no evidence connected the defendant to the accelerant used to start the fire and the defendant was not the only individual with exclusive access to the keys to the building. (People v. Zurzolo, 143 A.D.2d 286, 286 (App. Div. 1988)).

• Defendant filed an insurance claim when the retail store he operated burnt down, along with 7,559 garments that were consumed by the fire.

The government alleged that the garments were not in the building at the time of the fire, but they failed to establish that the residue remaining after the fire was less than would be expected 7,559 garments. As such, the conviction was overturned. (People v. Rohany, 134 A.D.2d 626, 626 (App. Div. 1987)).

Elements of Insurance Fraud 

The “elements” of insurance fraud are the individual components that the prosecutor must prove in order to satisfy the “burden of proof.” In the case of insurance fraud, multiple components must be proven in order to make out a “prima facie” case, or when the government presents enough evidence to support a guilty verdict.

Element #1

The first component is “Knowingly and with Intent to Defraud.” There are cases in which the purpose may be inferred from the nature of the act. There are others where a willful purpose or guilty knowledge must be proved before a conviction can be had.

Similar illustrations of the latter rule are to be found in cases of passing counterfeit money, forgery, receiving stolen property, and obtaining money under false pretenses. An innocent man may, in a single instance, pass a counterfeit coin or bill.

To prove knowledge and intent to defraud the government must prove that the defendant knew that the information was false, and also wanted to deceive the insurance company.

For example:

• In an application for car insurance, an 18-year-old application, afraid of high insurance premiums, changes his date of birth on his application so that he is 38 years old, alleges that he has completed college, alleges that he has been driving for 20 years, and signs his name to the application, knowing of its falsities, in the hopes that he will save money on his insurance quote.

Element #2 

The second component is “a Written Statement or Application to Obtain Insurance.” The written statement within the meaning of the statute may compose of one materially false or misleading multiple documents collectively submitted to the insurer to advance a single fraudulent claim (People v. Aksoy, 84 N.Y.2d 912, 913, (1994)).

In the application for home insurance, the actual application for insurance itself could be considered a “written statement,” but so could riders to the application, including the title, inspection, and other related documents.

Element #3

The third component is “Materially False Information.” A material fact is any fact that an insurance underwriter would use in the assessment of risk associated with an insurance product.

Simply put, a material fact is any fact that could affect the premium calculation of an insurance instrument, or disqualify a person from obtaining insurance. In the application of an automobile insurance policy, a person misidentifying their business telephone number as their cellular telephone number would not affect the rate of their insurance policy.

However, errors with regards to the vehicle being insured, the number of years the applicant has been driving, and whether that applicant had any history of driving infractions or accidents would significantly alter the calculation of insurance premium. Accordingly, the latter are examples of material facts.

Element #4

The fourth component is “Conceals Information.” Courts have held that defendants who present sworn proofs of loss to the insurance company that omits material facts for the purpose of misleading may be guilty of insurance fraud. To conceal information refers to hiding information to deceive the insurance company.

An example of concealing would be to allege that the cause of damage to property is unknown, while the defendant knows, or was involved in the loss of the property-people v. Michael 210 A.D.2d 874 (1994).

Note that elements three and four are not conjunctive, meaning the prosecutor may prove one or the other. The prosecutor need not prove both elements to allege a legally cognizable claim.

Degrees of Insurance Fraud

There are different degrees of insurance fraud, each with their own level of severity based upon the amount allegedly taken. Under New York, Penal Law §176.10, insurance fraud in the fifth degree is a class A misdemeanor that involves committing any fraudulent insurance act. This is the base level offense in this category.

A misdemeanor in this context carries a maximum jail sentence of one year, while a felony is any jail sentence in excess of one year. The other insurance fraud crimes involve committing a fraudulent act, but also taking money or property with a certain value:

• In excess of $1,000 (§176.15, Fourth Degree Insurance Fraud, Class E Felony)
• In excess of $3,000 (§176.20, Third Degree Insurance Fraud, Class D Felony)
• In excess of $50,000 (§176.25, Second Degree Insurance Fraud, Class C Felony)
• In excess of $1,000,000 (§176.30, First Degree Insurance Fraud, Class B Felony)

Federal law also criminalizes insurance fraud

Under the Violent Crime Control and Law Enforcement Act (1994), insurance fraud is a federal crime if it affects interstate commerce. “Interstate commerce” may seem like a narrow phrase, but it has been defined through the courts over the years to be far-ranging and wide-reaching.

Almost everything is implicated by interstate commerce. For example, a trip to a grocery store involves the import and export of goods throughout the nation. As such, individuals who face prosecution for an insurance-related crime have to be concerned with both state and federal implications of their actions.

Maximum Sentences

Depending upon the severity of the charge, the penalty for an insurance fraud offense ranges from less than one year in prison (for a fifth-degree offense, which is a misdemeanor) to twenty-five years in prison:

• Up to 4 years in prison (§176.15, Fourth Degree Insurance Fraud, Class E Felony)
• Up to 7 years in prison (§176.20, Third Degree Insurance Fraud, Class D Felony)
• Up to 15 years in prison (§176.25, Second Degree Insurance Fraud, Class C Felony)
• Up to 25 years in prison (§176.30, First Degree Insurance Fraud, Class B Felony)

The penalties are harsher for repeat offenders. Defendants previously convicted of fraudulent insurance act within 5 years could be found guilty of aggravated insurance fraud, and face up to 7 years in prison (§176.20, Aggravated Insurance Fraud, Class D Felony).

Offenses Related to Insurance Fraud

Interestingly, insurance fraud is often charged with relation to the commission of another crime.

Example #1: Arson

Consider the defendant who burns down a building and files a false claim to an insurance company to collect the proceeds for the loss. That defendant would be charged with both insurance fraud and also arson.

In New York, a person is guilty of arson in the fourth degree when he recklessly damages a building by intentionally starting a fire.

In the above example, the defendant would be charged with insurance fraud and arson. In civil cases, arson is considered an affirmative defense which the insurance company shoulders the burden of proving.

Example #2: Larceny

In a scenario where the defendant files a false claim and is then given the proceeds of an insurance policy, that individual could be charged with both insurance fraud, and also larceny. Larceny is defined by the New York legislature as the wrongful taking, obtaining, or withholding of another’s policy by a number of ways, including trick, embezzlement, or by false pretenses.

The courts have separated the analysis in prosecuting larceny crimes from crimes involving insurance fraud. In fact, the specific value wrongfully obtained need not be proven in prosecutions for insurance fraud.

Rather, the amount implicates the severity of insurance fraud and the degree to which either insurance fraud or larceny may be charged. People v. Kramer, 132 Misc. 2d 753 (Sup. Ct. 1986).

Example #3: Forgery

When a defendant submits a false insurance application and signs another name, that individual may be guilty of both insurance fraud and forgery. Forgery involves the making, altering, or completing of a document by someone other than the ostensible maker or drawer or their agent. Forgery must be done with the intent to defraud or deceive another.

In one case, the defendant used an assumed name while in California and New York: John E. Zopp. This name was used to refer to himself in these states. The Court held that he did not commit forgery where the defendant did not intend to assume the identity of a different person by signing that name because it was his name to use. (People v. Wesley, 238 A.D.2d 939, 939 (App. Div. 1997)).

Enterprise Corruption 

Additional offenses relating to insurance fraud include enterprise corruption (when a defendant associated with the enterprise, acting with the necessary knowledge and intent, who engages in multiple criminal acts which are part of a single criminal transaction may be guilty of enterprise corruption where the transaction is itself part of the pattern of criminal activity).

Grand larceny (fourth degree, the taking of property or cash worth more than $1,000 but less than $3,000 – class E felony); and falsifying business records (first degree, when a person, with the requisite intent, makes or causes a false entry in the “business records” of an enterprise).

Insurance Fraud Prosecutions 

With media coverage of high profile insurance fraud cases, more attention is being given to these crimes than in years past. The prosecution of insurance fraud is conducted by state and local law enforcement. Federal claims are investigated by the FBI, as well as by federal prosecutors.

In New York, auto insurance fraud has become so rampant that the Auto Insurance Fraud Unit (“AIFU”) was established by Executive Order in 2001 and permitted the Attorney General as the Special Prosecutor to investigate and prosecute criminal acts relating to fraudulent motor vehicle insurance claims.

In New York, the Insurance Frauds Bureau was enacted in 1981 to enforce the laws pertaining that combat fraud. This agency is nuanced and highly specialized, including a number of units to deal with specific types of fraud:

Major Case Unit – Handles complex cases of insurance and financial fraud. Think of the show Billions on Showtime as a “major case.”

No-Fault Unit – Investigates claims relating to no-fault auto insurance coverage and individuals who engage in fraudulent activity, including staged accidents, runners, jump-ins and other cases.

General Unit – Handles life, homeowners, agent/broker fraud, larceny, burglary and types of fraud. This is the “catch-all” unit” for claims the other units do not specifically handle.

Mortgage and Title Unit – Covers consumers in the real estate market.

Arson Unit I – Investigates claims relating to fire and fire-related offenses

Auto Unit – Investigates automobile fraud, most commonly the individuals who fraudulently report their vehicles as stolen, as well as body shop operators suspected of enhancing auto damage and related fraudulent activities.

Workers’ Compensation Unit – Investigates false claims filed under the Workers’ Compensation statute.

Medical Unit – investigates consumers that submit false or exaggerated medical claims, as well as the doctors and medical providers the benefit from these claims.

Legal Defenses 

Pursuant to New York Penal Law §176.05, a person commits insurance fraud when that person knowingly and with intent to defraud presents a written statement or application to obtain insurance that contains materially false information about an important fact, or conceals information about an important fact.

The simplest way to consider a legal defense in this area of law is to negate one of the elements of the crime that the prosecution is required to prove.

For example: 

• A defendant who submitted an insurance application without the intent to deceive the insurer may not be guilty of insurance fraud. This could occur if there were a section that was misinterpreted or confusion. A mistake about a non-material element would similarly help a defendant escape culpability for insurance fraud.

It is worth noting that renunciation is not an affirmative defense to an insurance fraud charge. Renunciation refers to a defendant avoiding the commission of the crime by abandoning their criminal effort.

In the insurance fraud context, the crime is committed when the insured knowingly files false information with the carrier in an attempt to collect under the policy. The filing of the false application is the deciding factor, not whether the insurance premium was paid, as some defendants have tried to argue. (People v. Stevens, 884 N.Y.S.2d 283, 287 (App. Div. 2009).

Legal Assistance is Available

The cost of conviction is even farther reaching than a prison sentence. Many individuals find themselves unemployable with a criminal record, as many employers require a background check before starting a new position.

Criminal records could also result in the loss of a professional license, financial loss in terms of costs and fees associated with restitution, and the time it takes to fight a case in court. Skilled lawyers are available that can assist you with defending your name, your reputation, and your future.

If You Have Been Charged, Call Now

If you have been charged with insurance fraud, or if you fear you may be investigated for this crime, call an attorney today. The first step in defending against an insurance fraud claim is to speak with an attorney to discuss your rights and responsibilities.

Answering the questions you have will give you the peace of mind needed to think about your defense clearly and confidently. An attorney can assist you in preparing a litigation strategy, which includes preparing you for questioning, communicating with investigators, negotiating plea deals, and preparing a successful trial strategy.

The government has vast resources that are difficult for anyone, especially those that have not previously navigated the complex intricacies of the judicial system, to counter. For questions about insurance fraud, or to discuss your case confidentially with one of our criminal defense attorneys, do not hesitate to contact us today. We have local criminal law offices in your area.