Insurance fraud looms large in our society, not just as a clandestine crime but a costly menace that drives up premiums, shakes consumer trust, and drains public resources. Whether a slight exaggeration on a fender-bender claim or a complex staged crash, the ripple effects of deception can be massive.

Understanding what constitutes insurance fraud helps protect our communities and wallets by shining a light on illegal schemes hidden behind seemingly ordinary incidents. 

This guide delves into what insurance fraud entails, highlights eye-opening examples, and explains whether it’s usually treated as a felony. You’ll also learn about the serious penalties offenders face and the strongest defenses against accusations. 

Armed with this knowledge, you can make informed decisions, spot red flags before they happen, and ensure you’re protected if you’re ever wrongly accused. 

What is Insurance Fraud? 

Insurance fraud is any deliberate deception aimed at securing benefits that you’re not legitimately owed, or denying someone what they are owed. In other words, insurance fraud is when someone tries to turn fiction into fortune by bending the truth for a payout, but often ends up paying a much steeper price. 

From inflating repair costs to hiding past accidents, even innocent-sounding errors can cross legal lines when intentional. According to the FBI, the most common schemes include premium diversion of agents, falsified claims, and healthcare scams. 

Financially speaking, fraud isn’t small time. The Coalition Against Insurance Fraud and the FBI estimate that it costs insurers and consumes between $400 and $700 per household annually. Insurance fraud easily hits $40 billion annually in the United States. Every false or inflated claim chips away at your pockets. 

Insurance Fraud Examples

1. Staged Crash-for-Cash Accidents 

Criminal networks orchestrate minor collisions, like swoop-and-squat maneuvers, to file phony injury and repair claims. These ring-type scams, involving a web of participants, cost insurers and honest drivers tens of millions of dollars. 

2. Inflated Damage or Injury Claims 

You may have had a legitimate fender-bender, but if you tack on extra repairs or feign injuries, you’re crossing into fraud. These are soft fraud cases, and the most common, but also the most dangerous, because they feel harmless. 

3. Agent or Premium Fraud 

A crooked agent pockets premiums instead of forwarding them, or lies on applications to lower your rates. Either way, the insurer doesn’t get paid, or you’re underinsured if a claim hits. 

4. Healthcare and Workers’ Compensation Schemes 

Fake services, overbilling, phantom patients—these happen with worrisome frequency. Insurance providers and taxpayers often foot the bill, with federal penalties reaching into the hundreds of millions annually. 

insurance fraud

Is Insurance Fraud a Felony? 

Absolutely. 

Insurance fraud can be both a misdemeanor and a felony, depending on context and jurisdiction. 

California: 

Under Penal Code § 550, if the total fraud exceeds $950, prosecutors can pursue a felony with 2 to 5 years in state prison and fines up to $50,000 or double the fraud amount. Under $950? That’s typically a misdemeanor, meaning up to 6 months in jail and a $1,000 fine, unless multiple infractions occur within a year. 

Federally: 

Fraudulent schemes crossing state lines, especially in healthcare, can trigger federal charges under 18 U.S.C. § 1347 or § 1033. Sentences vary, but sweeping cases often result in prison time and massive financial penalties. 

The bottom line? What you thought was a harmless tweak for extra cash on your claim could easily escalate into felony territory. 

Penalties 

The penalties for insurance fraud can be financially and personally devastating.

Fines:

For misdemeanors, fines can reach $1,000. Felony cases often carry penalties up to $50,000 or twice the value of the fraudulent claim, whichever is greater.

Jail or Prison Time:

Misdemeanor convictions may result in up to six months in county jail. Felony convictions can lead to two to five years in state prison. Federal fraud convictions may lead to much longer prison terms.

Restitution:

Courts frequently order full repayment of any amount fraudulently obtained. In some cases, restitution is multiplied under federal statutes.

Professional and Personal Repercussions:

Beyond legal penalties, people convicted of insurance fraud may lose professional licenses, face barriers to employment, and experience significant personal and reputational damage. Insurers may also refuse to cover them in the future.

Defenses 

Facing insurance fraud charges can feel overwhelming, but several legal defenses may apply.

Lack of Intent

Insurance fraud requires intent. If errors occurred because of a misunderstanding of forms or paperwork, that lack of deliberate wrongdoing can be a powerful defense.

Truthful Claim

If your claim was accurate and supported by legitimate documentation like photos, receipts, and medical records, you may be able to prove that you acted honestly.

Mistake or Misunderstanding

If incorrect information was provided accidentally or based on bad advice, it may not qualify as criminal fraud. Many cases begin with simple paperwork mistakes that lack fraudulent intent.

Duress or Coercion

If someone +pressured or threatened you into submitting false claims, that coercion could serve as a valid legal defense.

Weak or Circumstantial Evidence

Prosecutors must prove beyond a reasonable doubt that fraud occurred. Gaps in the evidence, procedural mistakes, or unreliable witnesses can break the prosecution’s case.

Experienced attorneys know how to analyze insurance documents, cross-examine witnesses, and identify procedural violations. Even complex fraud cases can sometimes be dismissed or significantly reduced when weak evidence or legal errors exist.

Insurance fraud may sound like a distant, organized crime problem, but it happens every day in small and large ways. While exaggerating a claim might seem harmless, even minor misrepresentations can quickly spiral into criminal charges with serious consequences. At the same time, honest mistakes and misunderstandings are not criminal. That distinction makes early legal advice critical when accusations arise.

To Summarize 

Insurance fraud includes staged accidents, inflated claims, false applications, and premium diversion. It costs American households hundreds of dollars each year and carries stiff legal penalties. Depending on the amount involved, fraud can trigger misdemeanor or felony charges, leading to fines, restitution, prison time, and career consequences. However, many valid defenses exist, especially when intent is lacking or evidence is weak.

Contact David L. Faulkner, an experienced Insurance Fraud Defense Lawyer, today for strategic representation and protection.

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