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Senator Bruno explains that insurance fraud claims in New York have almost tripled since 1995. |
Proposal Includes Increasing Penalties, Targeting Insurance Scam 'Runners' & Doubling Funds For Local Law Enforcement To Combat Fraud
Tuesday, April 3, 2001
The New York State Senate today proposed a comprehensive package of legislation to combat the increasing problem of insurance fraud that is driving up auto insurance rates and nearly $10 million in state assistance to help local law enforcement and prosecutors fight insurance fraud.
"Insurance fraud is a crime which affects us all through higher insurance premiums and it's growing at an alarming rate," Senate Majority Leader Joseph L. Bruno said. "It's estimated that one-quarter to one-third of all auto insurance claims contain some element of fraud. We need to change our laws to make it tougher to commit fraud. The bills we are proposing would increase criminal penalties to deter people from committing fraud and increasing penalties on those who do."
INCREASING PENALTIES FOR INSURANCE FRAUD
"Fraudulent and abusive claims cost New Yorkers close to $1 billion each year," Senator James L. Seward (R-C, Oneonta), Chairman of the Senate Insurance Committee, said. "By boosting penalties for insurance fraud, the Senate is declaring war on fraud and on the scam artists who belong in jail for ripping off consumers and insurers. Our goals are to deter people from committing fraud and to lower insurance costs."
To make it easier to prosecute insurance fraud, the legislation (S.3001) would cut in half the value of property obtained through a fraudulent insurance act in order to be convicted of insurance fraud:
Insurance fraud in the 4th degree, a Class E Felony: Value reduced from $1,000 to $500
3rd degree, a Class D Felony: Value reduced from $3,000 to $1,500
2nd degree, a Class C Felony: Value reduced from $50,000 to $25,000
1st degree, a Class B Felony: Value reduced from $1 Million to $500,000
In addition, the bill would crack down on repeat offenders by establishing three levels of the crime of aggravated insurance fraud for people who commit fraud more than once in a five year period.
MAKING USE OF INSURANCE FRAUD 'RUNNERS' ILLEGAL
The Senate is also scheduled to act on a bill, sponsored by Senator Dean G. Skelos (R, Rockville Centre), that would make the use of "runners" illegal in New York.
A "runner" is a person who receives money for obtaining clients or patients to participate in insurance fraud. Runners are commonly used in the New York City metropolitan area to steer accident victims towards unnecessary medical treatments. Insurance companies have to pay the fraudulent claims and must make up the cost through higher auto insurance premiums.
"Because most fraud schemes depend on a large volume of patients, health care providers and attorneys engaged in fraud will often pay third parties for recruiting clients, patients and customers," Senator Skelos said. "Often the client, patient or customer receives inadequate or inappropriate care and services.
The bill (S.123) makes it a class E felony to act as a runner or hiring another person to act as a runner.
Recent news reports in New York City have described the operations of medical mills that submit fraudulent medical claims for unnecessary tests for phony accident victims. Under the state's no-fault insurance law, accident victims can build up $50,000 worth of medical bills that must be paid by insurance companies. Sometimes clinics steal identities and policy numbers to commit fraud, even using information of people who are deceased.
Fraud has been a key factor in increased auto insurance rates, especially for drivers in the assigned risk pool. Insurance rates for assigned risk drivers in New York City have increased between 18% to 30% over the last year.
REFORM INSURER NOTICE PROVISIONS
Last year the State Insurance Department issued a regulation that, among other things, reduced the six month time period during which health care providers must submit proof of the claim to an insurer.
The regulation was in response to concerns that the existing time frames facilitated no-fault insurance fraud because the length of time to submit a claim was too long. However, the regulation was struck down by the courts on procedural grounds. A new regulation has not been made effective.
"Recent news reports have documented how scam artists manipulate insurance companies into paying for unnecessary medical treatments, often staging car accidents and steering phony victims towards medical mills that generate up to $50,000 worth of medical bills for a single accident victim," Senator Seward said. "The claims are submitted just under the 180 day time limit and insurance companies only have 30 days to investigate all the claims.
"State law requires the company to pay the claims, even if there are allegations of fraud, if they fail to act within 30 days," Senator Seward said. "The payoffs go to the medical mills, unscrupulous doctors who are part of the scam and runners who recruit people to participate in the fraud. The costs are passed along to policyholders through higher premiums."
Senator Seward said that he is introducing legislation to reduce from 180 days to 60 days, the time period during which health care providers must submit proof of the claim to an insurer.
"Changing no-fault time frames would be very helpful in preventing fraud," Senator Seward said. "Existing law gives scam artists too much time to commit insurance fraud and run up phony medical bills."
MORE TIME TO CHALLENGE FRAUD
In an effort to give insurance companies more time to investigate claims they suspect may be fraudulent, Senator Seward has introduced a bill (S.2129A) to extend to 45 days, the period of time an insurer has to challenge a claim as being fraudulent. The current 30 day time frame is too short to conduct a thorough investigation of fraud suspicions.
"Under a recent Court of Appeals ruling, insurers are precluded from raising defenses relating to fraud unless they have paid or denied the claim within 30 days of receipt," Senator Seward said. "This leads to increased no-fault costs and increased auto insurance premiums. By extending the time period, this bill would aid insurance companies in their fraud prevention efforts, because it is rarely known within the first 30 days after a claim is received whether fraud is involved."
INCREASING LOCAL LAW ENFORCEMENT ASSISTANCE TO FIGHT FRAUD
The Senate Majority is also proposing more than doubling the amount of money distributed to local law enforcement agencies and prosecutors to combat auto theft and insurance fraud. The 2000-01 budget included $4.7 million for this purpose, the Senate is proposing increasing the amount to $10 million.
"Local law enforcement officers are the front lines against insurance fraud," said Senator Guy J. Velella (R, Bronx/Westchester), who originated the New York State Motor Vehicle and Insurance Fraud Prevention Fund while serving as Chairman of the Senate Insurance Committee. "As the problem of insurance fraud grows, we must increase state assistance to police and prosecutors so they have the resources necessary to fight insurance scam mills that are driving up auto insurance premiums. This, combined with toughening our laws against insurance fraud, is the best way to attack the problem and reduce premium rates for drivers in New York State, particularly in New York City, where my constituents pay some of the highest rates in the nation."
The State currently assesses all commercial and passenger vehicle insurance policies a $1 surcharge that is deposited into the New York State Motor Vehicle and Insurance Fraud Prevention Fund. Up to $9.1 million from the surcharge goes to the State Police. Receipts in excess of the $9.1 million are distributed to local law enforcement agencies and prosecutors to combat auto theft and insurance fraud. The account currently has a fund balance of $12 million and a projected balance of $8.9 million at the end of the 2001-02 fiscal year, about half of the balance has not been appropriated.
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