Insurance Fraud Law

What is Insurance Fraud?

Insurance Fraud is the filing of a false claim to life, health, automobile, property, workers' compensation or other types of insurance benefits. Insurance fraud is typically criminal in nature, and regulated by both state and federal laws. Laws against insurance fraud are intended to protect both consumers and insurance companies from fraudulent claims.

Types of Insurance Fraud

Insurance fraud is often classified as either "hard" or "soft." Hard fraud entails the deliberate plan to invent an insurable loss, such as a car accident, theft, or fire, in order to obtain payment from an insurance company to cover the supposed loss. Many organized crime cartels have had dealings with hard fraud both as a means of stealing large sums of money and as a means of concealing the source of, or "laundering," illegally obtained funds.

Soft fraud is much more common and sometimes called a fraud of opportunity. In soft fraud, a policyholder exaggerates an otherwise legitimate claim in order to obtain a larger payout. For example, someone involved in a car accident might claim more serious injuries than they actually sustained in order to claim entitlement to a larger settlement. Some have also labeled as soft fraud the misrepresentation of preexisting conditions when obtaining insurance in an effort to obtain coverage that might otherwise be denied or to receive a larger payout in the event of a later insurable event despite preexisting damage.

Laws Against Insurance Fraud

In the United States, both state and federal laws prohibit both soft and hard insurance fraud. The practice has been recognized as a serious crime and a favorite scheme for organized crime, and have, as a result, criminalized insurance fraud. Every U.S. state now categorizes insurance fraud as a crime, though a few states have only criminalized certain types of fraud (e.g., Oregon only criminalized fraud against workers' compensation or property insurance policies). Similarly, the federal government has enacted laws that criminalize fraud and enhance sentences for those convicted should the scheme result in injury or death to a human being.

The problems of insurance fraud are so pervasive that 41 states have insurance fraud bureaus designed to combat illegal insurance activities. These insurance fraud bureaus are essentially law enforcement agencies with the jurisdiction of investigating suspicious insurance claims.

For more information about insurance fraud, please visit the resources below. You can also get answers to your specific questions, as well as assistance with any claims or defenses you may have related to insurance fraud, by visiting our Law Firms page and finding an experienced attorney in your area.


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