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H.150

AN ACT RELATING TO INSURANCE FRAUD

It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1.  13 V.S.A. § 2031 is added to read:

§ 2031.  INSURANCE FRAUD

(a)  Definitions.  As used in this section:

(1)  “Conceal” means to take affirmative action to prevent others from discovering information.  Mere failure to disclose information does not constitute concealment.  Action by the holder of a legal privilege or one who has a reasonable belief that a privilege exists to prevent discovery of privileged information does not constitute concealment.

(2)  “Insurance policy” has the same meaning as in 8 V.S.A. § 4722(3).

(3)  “Insurance premium finance company” has the same meaning as in 8 V.S.A. § 7001.

(4)  “Insurance premium finance transaction” means a transaction by, between, or among an insured, a producer, or another party claiming to act on behalf of an insured and a third party insurance premium finance company for the purposes of purportedly or actually advancing money directly or indirectly to an insurer or producer at the request of an insured pursuant to the terms of an insurance premium finance agreement, wherein the insured has assigned the unearned premiums, accrued dividends, or loan payments as security for such advancement in payment of premiums on insurance policies only, and does not include the financing of insurance premiums purchased in connection with the financing of goods and services.

(5)  “Insurance professional” means sales agents, managing general agents, brokers, producers, adjusters, and third‑party administrators.

(6)  “Insurance transaction” means a transaction by, between, or among:

(A)  an insurer or a person who acts on behalf of an insurer; and

(B)  an insured, claimant, applicant for insurance, public adjuster, insurance professional, practitioner, or any person who acts on behalf of any of the foregoing, for the purpose of obtaining insurance or reinsurance, calculating insurance premiums, submitting a claim, negotiating or adjusting a claim, or otherwise obtaining insurance, self-insurance, or reinsurance or obtaining the benefits thereof or therefrom.

(7)  “Insurer” has the same meaning as in 8 V.S.A. § 4901(2).

(8)  “Person” means a natural person, company, corporation, unincorporated association, partnership, professional corporation, agency of government, or any other entity.

(9)  “Practitioner” means a licensee of this state authorized to practice medicine and surgery, psychology, chiropractic, or law, or any other licensee of the state or person required to be licensed in the state whose services are compensated either in whole or in part, directly or indirectly, by insurance proceeds, including insurance adjusters, or a licensee similarly licensed in other states and nations or the licensed practitioner of any nonmedical treatment rendered in accordance with a recognized religious method of healing.

(10)  “Premium” means consideration paid or payable for coverage under an insurance policy.  “Premium” includes any payments, whether due within the insurance policy term or otherwise, and deductible payments, whether advanced by the insurer or insurance professional and subject to reimbursement by the insured or otherwise; any self-insured retention or payments, whether advanced by the insurer or insurance professional and subject to reimbursement by the insured or otherwise; and any collateral or security to be provided to collateralize obligations to make payments listed in this subdivision.

(11)  “Withhold” means to fail to disclose facts or information which any law, other than this section, requires to be disclosed.  Mere failure to disclose information does not constitute “withholding” if the one failing to disclose reasonably believes that there is no duty to disclose.

(b)  Fraudulent insurance act.  No person shall, with intent to defraud:

(1)  Present, cause to be presented, or prepare with knowledge or belief that it will be presented by or on behalf of an insured, claimant, or applicant to an insurer, insurance professional, or insurance premium finance company in connection with an insurance transaction or premium finance transaction, any information which contains false representations as to any material fact or which withholds or conceals a material fact concerning any of the following:

(A)  The application for, rating of, or renewal of any insurance policy.

(B)  A claim for payment or benefit pursuant to any insurance policy.

(C)  Payments made in accordance with the terms of any insurance policy.

(D)  The application used in any insurance premium finance transaction.

(2)  Present, cause to be presented, or prepare with knowledge or belief that it will be presented to or by an insurer, insurance professional, or an insurance premium finance company in connection with an insurance transaction or premium finance transaction, any information which contains false representations as to any material fact or which withholds or conceals a material fact concerning any of the following:

(A)  The solicitation for sale of any insurance policy or purported insurance policy.

(B)  An application for certificate of authority.

(C)  The financial condition of any insurer.

(D)  The acquisition, formation, merger, affiliation, or dissolution of any insurer.

(3)  Solicit or accept new or renewal insurance risks by or for an insolvent insurer.

(4)  Remove the assets or records of assets, transactions, and affairs or such material part thereof from the home office or other place of business of the insurer or from the place of safekeeping of the insurer, or destroy or sequester the same from the department of banking, insurance, securities, and health care administration.

(5)  Divert, misappropriate, convert, or embezzle funds of an insurer, an insured, a claimant, or an applicant for insurance in connection with:

(A)  an insurance transaction;

(B)  the conduct of business activities by an insurer or insurance professional;

(C)  the acquisition, formation, merger, affiliation, or dissolution of any insurer. 

(c)  Penalties.  A person who violates subsection (b) of this section shall:

(1)  if the benefit wrongfully obtained or the loss suffered by any person as a result of the violation has a value of less than $500.00, be imprisoned for not more than two years or fined not more than $5,000.00, or both; or

(2)  if the benefit wrongfully obtained or the loss suffered by any person as a result of the violation has a value of more than $500.00, be imprisoned for not more than five years or fined not more than $10,000.00, or both; or

(3)  for a second or subsequent offense, regardless of the value of the benefit wrongfully obtained, be imprisoned not more than five years or fined not more than $20,000.00, or both.

(d)  Administrative action.  Upon the conviction of a practitioner for a violation of subsection (b) of this section, the court clerk shall inform the office of professional regulation, the department of health, and the department of banking, insurance, securities, and health care administration of the conviction.  The office of professional regulation, the department of health, and the department of banking, insurance, securities, and health care administration shall then forward a notice of the conviction to the licensing authorities in every state.  Any victim may notify the appropriate licensing authorities in this state and any other jurisdiction in which the practitioner is licensed of the conviction.

(e)  Civil remedies.

(1)  A person damaged as a result of a violation of subsection (b) of this section may bring a civil action against the violator for damages and such other relief as the court deems appropriate.  The relief may include:

(A)  Return of any profit, benefit, compensation, or payment received by the violator directly resulting from the violation.

(B)  Reasonable attorney’s fees and court costs. 

(2)  The attorney general shall have authority to seek restitution, reasonable attorney’s fees, and court costs in superior court on behalf of the department of banking, insurance, securities, and health care administration and any victims of violations of this section.  Pending final determination thereof, the court may at any time enter such restraining orders or prohibitions or take such other actions, including the acceptance of satisfactory performance bonds, as it shall deem proper.

(f)  Cooperation.  Any insurer or insurance professional that has reasonable belief that insurance fraud will be, is being, or has been committed shall furnish and disclose any information in its possession concerning such act to the appropriate law enforcement official or authority, subject to any legal privilege protecting such information.

(g)  Immunity.  No insurer or insurance professional acting in good faith and furnishing or disclosing information to the appropriate law enforcement official shall be subject to civil liability for libel, slander, or any other cause of action arising from the furnishing or disclosing of such information.  This section does not abrogate or modify in any way any common law or statutory privilege or immunity heretofore enjoyed by any person.

Sec. 2.  8 V.S.A. chapter 130 is added to read:

Chapter 130.  Insurance Fraud

§ 4750.  Insurer Anti-Fraud Plans

(a)  Every insurer with direct written premiums shall prepare, implement, and maintain an insurance anti-fraud plan.  Each insurer’s anti-fraud plan shall outline specific procedures, appropriate to the type of insurance the insurer writes in this state, to:

(1)  Prevent, detect, and investigate all forms of insurance fraud, including fraud involving the insurer’s employees or agents; fraud resulting from misrepresentations in the application, renewal, or rating of insurance policies; claims fraud; and security of the insurer’s data processing systems.

(2)  Educate appropriate employees on fraud detection and the insurer’s anti-fraud plan.

(3)  Provide for the hiring of or contracting for fraud investigators.

(4)  Report insurance fraud to appropriate law enforcement and regulatory authorities in the investigation and prosecution of insurance fraud.

(5)  Where appropriate, pursue restitution for financial loss caused by insurance fraud.

(6)  Ensure that applicable state and federal privacy laws are complied with and that the confidential personal and financial information of consumers and insureds is protected.

(7)  Comply with such other procedures as the commissioner may require by rule.

(b)  The commissioner shall require an insurer to file annually its anti-fraud plan with the department and an annual summary of the insurer’s anti-fraud activities and results. 

(c)  This section confers no private rights of action.  This section does not affect private rights of action conferred under other laws or court decisions.

(d)  Enforcement.  Notwithstanding any other provision of this title, the following are the exclusive monetary penalties for violation of this section.  Insurers that fail to prepare, implement, maintain, or submit to the department of banking, insurance, securities, and health care administration an insurance anti-fraud plan are subject to a penalty of $500.00 per day, not to exceed $10,000.00.

§ 4751.  FRAUD WARNINGS

(a)  All applications for insurance and all claim forms regardless of the form of transmission provided and required by an insurer or required by law as a condition of payment of a claim shall contain a statement, permanently affixed to the application or claim form, that clearly states in substance the following:

“It is a crime for any person knowingly to provide material false, incomplete, or misleading information to an insurance company for the purpose of defrauding the company, for any person knowingly to provide material false, incomplete, or misleading information concerning the sale of insurance or the status of an insurer, or for any person to misappropriate the funds of an insured or an applicant for insurance.  Penalties include imprisonment, fines, and denial of insurance benefits.”

(b)  The lack of a statement required in subsection (a) of this section does not constitute a defense in any criminal prosecution under 13 V.S.A. § 2031 nor in any civil action referenced therein.

(c)  The warning required by this subsection shall not be required on forms relating to reinsurance.

Sec. 3.  1 V.S.A. § 317(c)(36) is added to read:

(36)  anti-fraud plans and summaries submitted by insurers to the department of banking, insurance, securities, and health care administration for the purposes of complying with 8 V.S.A. § 4750.

Sec. 4.  EFFECTIVE DATE

This act shall take effect July 1, 2006, except for Sec. 2, which shall take effect January 1, 2007.



Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont


www.leg.state.vt.us