Introduced by Representatives Keenan of St. Albans City and Young of Orwell
Subject: Crimes; insurance fraud
Statement of purpose: This bill establishes the offense of insurance fraud and prescribes penalties and establishes requirements for insurers to file anti-fraud plans with the commissioner of banking, insurance, securities, and health care administration and to include fraud statements on certain documents.
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) “Actual malice” means knowledge that information is false or reckless disregard of whether it is false.
(2) “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.
(3) “Insurance policy” has the same meaning as in 8 V.S.A. § 4722(3).
(4) “Insurance premium finance company” has the same meaning as in 8 V.S.A. § 7001.
(5) “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.
(6) “Insurance professional” means sales agents, managing general agents, brokers, producers, adjusters, and third‑party administrators.
(7) “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.
(8) “Insurer” has the same meaning as in 8 V.S.A. § 4901(2).
(9) “Person” means a natural person, company, corporation, unincorporated association, partnership, professional corporation, agency of government, or any other entity.
(10) “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 but not limited to automotive repair shops, building contractors, and 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.
(11) “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.
(12) “Reckless” means without reasonable belief of the truth, or, for the purposes of subdivision (b)(3) of this section, with a high degree of awareness of probable insolvency.
(13) “Withhold” means to fail to disclose facts or information which any law (other than this act) 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.
(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.
(A) Return of any profit, benefit, compensation, or payment received by the violator directly resulting from said violation.
(B) Reasonable attorney’s fees and related legal expenses, including internal legal expenses and court costs, not to exceed $5,000.00.
(2) The attorney general or state’s attorney shall have authority to maintain civil proceedings 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.
(3) An insurer shall not pay damages awarded under this subsection or provide a defense or money for a defense on behalf of an insured under a contract of insurance or indemnification. A third party who has asserted a claim against an insured shall have no cause of action under this section against the insurer of the insured arising out of the insurer’s processing or settlement of the third party’s claim. An obligee under a surety bond shall not have a cause of action under this section against the surety arising out of the surety’s processing or settlement of the obligee’s claim against the bond.
Chapter 130. Insurance Fraud
(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 appropriation, pursue restitution for financial loss caused by insurance fraud.
(b) The commissioner may review each insurer’s anti-fraud plan to determine if it complies with the requirements of this subdivision. The commissioner shall also determine the insurer’s compliance with its submitted
anti-fraud plan. The commissioner may require reasonable modification of the insurer’s anti-fraud plan or may require other reasonable remedial action if the review or examination reveals substantial noncompliance with the terms of an insurer’s plan.
(c) The commissioner may require each insurer to file a summary of the insurer’s anti-fraud activities and results. The anti-fraud plans and the summary of the insurer’s anti-fraud activities and results are not public records and shall be proprietary and not subject to public examination and shall not be discoverable or admissible in civil litigation.
(d) This section confers no private rights of action.
§ 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 to knowingly provide false, incomplete, or misleading information to an insurance company for the purpose of defrauding the company. 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. § 2029 nor in any civil action referenced therein.
The Vermont General Assembly
115 State Street