Michigan Insurance Fraud
Chapter 45 of the Michigan Insurance Code, MCL 500.4501 to 500.4511, makes insurance fraud a crime and controls how information about suspected fraud moves between insurers and investigators. It has five sections: definitions, fraudulent insurance acts, release of information, civil immunity and penalties.
Key Terms
The definitions in MCL 500.4501 reach further than everyday usage.
Fraudulent Insurance Acts
MCL 500.4503 covers acts or omissions by any person who acts “knowingly, and with an intent to injure, defraud, or deceive.” State of mind is the dividing line. A producer who mistypes a ZIP code has made an error, not committed fraud. The list below “includes, but is not limited to” what the section reaches, so conduct can qualify without appearing on it.
| MCL 500.4503 | Conduct |
|---|---|
| (a), (b) | Presenting, causing to be presented or preparing a statement known to contain false information about a fact material to an application, or assisting, abetting, soliciting or conspiring with another to prepare one |
| (c), (d) | The same for a statement, including computer-generated information, supporting a claim |
| (e) | Soliciting or accepting new or renewal risks by or for an insolvent insurer |
| (f) | Removing or attempting to remove an insurer’s assets or records from its place of business or safekeeping, or concealing or attempting to conceal them from the Director |
| (g) | Diverting, attempting to divert or conspiring to divert funds of an insurer or of others in connection with insurance or reinsurance transactions, an insurer’s business, or its formation, acquisition or dissolution |
| (h) | Employing, using or acting as a runner, capper or steerer with intent to falsely or fraudulently obtain benefits or assert a claim |
| (i) | Knowingly and willfully assisting, conspiring with or urging anyone to fraudulently violate the code, or knowingly and willfully benefiting from the proceeds as a result |
Subdivision (f) says “commissioner,” as older sections of the code do. The Director of DIFS holds that authority now.
Applications and Claims
Subdivisions (a) through (d) are where a producer is most exposed. They cover spoken statements as well as written ones, and they reach whoever helps as well as whoever signs. If an applicant asks you to enter a garaging address you know is false, or to leave off tobacco use you know about, preparing that application falls under these subdivisions. Nothing in the section excuses you because the client asked.
Claims work the same way. A homeowner lists furniture she never owned. A provider bills for a visit that never took place. Each is a “statement,” and anyone who knowingly helps prepare it falls under subdivision (d).
Chapter 45 does not define “material,” so read it in the sense you learned for misrepresentation in the base course.
For no-fault auto insurance, chapter 31 adds two more: a provider knowingly submitting false or misleading records for utilization review (MCL 500.3157a(2)), and a person knowingly presenting a false statement supporting a claim under the assigned claims plan (MCL 500.3173a(4)).
Runners, Cappers and Steerers
A runner, capper or steerer receives a benefit from a practitioner for procuring a client, patient or customer, at the practitioner’s direction or in cooperation with the practitioner, where the practitioner intends to obtain insurance benefits or assert a claim for those services (MCL 500.4501(h)). A practitioner who finds clients through public media is not one.
Suppose a clinic pays a tow driver for each crash victim he brings in, then bills insurers for treatment it never gave. Under subdivision (h), the clinic employs a runner, and the driver acts as one if he shares the intent to bill falsely.
Release of Information
MCL 500.4507 lets information flow for investigation and for no other reason.
- To an agency. On an authorized agency’s written request, an insurer, or an agent it has authorized to act on its behalf, may release any or all information considered important to suspected fraud, at the agency’s expense. This may include the policy and application, available premium payment records, claim history, and investigation material such as statements and proofs of loss (MCL 500.4507(1)).
- On the insurer’s initiative. An insurer with reason to believe a person committed a fraudulent insurance act, or knowing of a suspected act it reasonably believes is unreported, may notify an authorized agency, itself or through its authorized agent (MCL 500.4507(2)).
- Back to the insurer. An agency may release information to an insurer or its authorized agent on a showing of good cause (MCL 500.4507(1)). An insurer that gave notice may request in writing what the agency holds on the same act, and on good cause the agency may provide it at the insurer’s expense within 30 days of the request (MCL 500.4507(3)).
- Between agencies. An agency may pass the information to any other authorized agency (MCL 500.4507(4)).
Two limits protect the person under suspicion. Information requested or released under subsection (1) may serve only the investigation of suspected insurance fraud (MCL 500.4507(6)). And a claimant keeps the right to give the insurer a statement fully explaining the claim and have it placed in the claim file (MCL 500.4507(5)).
A producer without the insurer’s authorization who receives a request should take it to the insurer.
Immunity
Fear of a defamation suit could keep people silent, so MCL 500.4509 removes it.
- Reporting. A person acting without malice is not liable for filing a report or exchanging information on suspected or completed fraud with the state’s insurance regulator, the National Association of Insurance Commissioners (NAIC), a governmental agency established to detect and prevent insurance fraud, or an organization (MCL 500.4509(1)).
- Testifying. In a prosecution for perjury or insurance fraud, insurers, their officers, employees and agents, and private persons who cooperate have no civil liability for what they testify to or produce, absent malice (MCL 500.4509(2)).
- Tort claims. Those who report, provide information or cooperate with an investigation are protected from libel, slander and other tort claims, absent malice (MCL 500.4509(3)).
- Agencies. Agencies, the NAIC and organizations, acting without malice, are protected for their own reports and bulletins unless they know the contents are false (MCL 500.4509(4)).
For reporters and witnesses, protection ends if the person knows the information is false about a material fact or thing. An honest report that turns out to be wrong stays protected. Other privileges and immunities remain available (MCL 500.4509(5)).
Immunity follows the channel. A report to an insurer’s fraud department qualifies. Repeating your suspicion to other clients does not.
Penalties
| Offense | Imprisonment | Fine |
|---|---|---|
| Committing a fraudulent insurance act, MCL 500.4511(1) | Not more than 4 years | Not more than $50,000 |
| Agreeing or conspiring to commit one, MCL 500.4511(2) | Not more than 10 years | Not more than $50,000 |
Each is a felony, punishable by prison, a fine or both, and the court must order restitution. A client and producer who agree to falsify an application fall under the longer term.
If a court finds a practitioner or insurer responsible for or guilty of a fraudulent insurance act, it must notify the appropriate Michigan licensing authority (MCL 500.4511(3)).
A producer’s license is at stake too. The Director may place on probation, suspend or revoke a license, or levy a civil fine, and shall not issue one, for having admitted or been found to have committed insurance fraud (MCL 500.1239(1)(f)) or for a felony conviction of a fiduciary or financial nature, such as fraud, regardless of its date (MCL 500.1239(1)(e)(iii)). You must also report any criminal prosecution against you to the Director within 30 days after the initial pretrial hearing date (MCL 500.1247(2)).
Who Investigates
DIFS has its own anti-fraud unit, a criminal justice agency that may investigate persons the department regulates, consumers and insureds (MCL 500.6301(1), (2)). Material related to its investigations is confidential (MCL 500.6302(1)).
Lesson summary
- Chapter 45 has five sections: definitions, fraudulent insurance acts, release of information, civil immunity and penalties.
- A fraudulent insurance act requires knowledge and intent to injure, defraud or deceive. An honest mistake is not one.
- MCL 500.4503 covers false statements on applications and claims, helping to prepare them, business for an insolvent insurer, hiding insurer assets or records, diverting funds, and using or acting as a runner, capper or steerer.
- Insurers and their authorized agents may share information with authorized agencies, only to investigate suspected fraud. Chapter 45 permits reporting and does not require it.
- Immunity under MCL 500.4509 depends on the absence of malice and on not knowing the information is false, and it attaches to reports made to the listed recipients.
- A fraudulent insurance act is a felony of up to 4 years, a fine of up to $50,000, or both. An agreement or conspiracy to commit one carries up to 10 years and the same fine. Restitution must be ordered in both cases.
- Fraud also puts a producer’s license at risk, and a producer must report a criminal prosecution within 30 days after the initial pretrial hearing date.