Most, if not all, states have insurance fraud prevention statutes designed to punish those who defraud private insurers. California, however, has enacted a law that takes insurance fraud prevention a step further. The California Insurance Frauds Prevention Act (“IFPA”) contains qui tam provisions that allow individuals or entities, known as relators: i) to blow the whistle on fraud against private insurance companies by bringing lawsuits on behalf of the state, and ii) to receive a percentage (between 30% and 50%) of whatever proceeds are recovered in the lawsuit.
The IFPA is designed to combat fraud committed against private insurance companies. It is premised on the notion that insurance fraud harms not only the defrauded insurance company, but also the public at-large, because fraudulent claims cause insurance companies to raise rates, thereby passing the cost of fraud onto the public. In order to combat fraud, the IFPA provides for fines against fraudsters ranging from $5,000 to $10,000 per violation in addition to damages of three times the amount of money the fraud cost the defrauded insurance company. The IFPA is designed to combat a wide range of insurance fraud, and the conduct that it prohibits could include:
- Paying kickbacks in exchange for patients or clients (the IFPA specifically prohibits employing “runners, cappers, steerers, or other persons to procure clients or patients”);
- Overbilling, double-billing, upcoding, or billing for services not provided by hospitals and medical providers;
- Overbilling, double-billing, or billing for services not provided by auto repair shops;
- Underreporting of the number of employees by employers attempting to lower their workers’ compensation insurance rates.
The IFPA holds liable those who perpetrate the fraudulent schemes listed above, as well as those who perpetrate many other types of insurance fraud. In that sense, the IFPA is similar to the insurance fraud prevention laws that are enacted in many states. It is unusual, however, in that it includes qui tam provisions that allow for public-private cooperation in qui tam cases brought under the statute. Specifically, it allows for individuals or entities, known as relators, to bring suits on behalf of the State of California against those who defraud private insurance companies. The IFPA mirrors the False Claims Act (“FCA”) in many of its provisions, with the obvious difference being that, under the FCA, fraudsters are liable for false claims presented to the government for payment, whereas, under the IFPA, fraudsters are liable for false claims presented to private insurance companies for payment.
The IFPA closely mirrors the FCA in its procedural requirements. In order to bring a suit under the IFPA, a relator must file a complaint under seal in the appropriate court, and provide a copy of the complaint along with a written disclosure of all material facts known to the relator to the appropriate District Attorney as well as the Insurance Commissioner (collectively, “the government”). The government then has a period of sixty days in which it must decide whether it wishes to intervene in the case and take over primary control, or not to intervene and to leave the primary control and direction of the litigation to the relator’s attorneys. The government may seek extensions of the sixty-day time limit if it is able to show good cause for why it needs more time. If the government intervenes in the case, the relator is still entitled to actively participate in the litigation, and if the government does not intervene, the relator may proceed to litigate the qui tam case as the primary plaintiff. Normally, after the government makes its intervention decision, the case is unsealed and served upon the defendant (the entity that committed insurance fraud).
The IFPA also mirrors the FCA in many substantive respects. It includes many of the same hurdles and restrictions as the FCA, such as the so-called first-to-file bar and the public disclosure bar. The IFPA also includes rewards for relators. Like the FCA, the IFPA provides for a percentage of the funds recovered by the suit to be awarded to the relator. In fact, the IFPA provides for an even larger percentage award than the FCA. Under the IFPA, a relator is entitled to no less than 30% and no more than 40% of the proceeds of a successful case in which the government has intervened, and no less than 40% and no more than 50% of the proceeds of a successful case in which the government has not intervened. The relator is also entitled to recover attorney’s fees and reasonable costs in any successful action under the IFPA. If the court determines that the action is “based primarily” on information other than the information provided by the relator – for example, legislative or administrative reports, news articles, or public hearings – the relator is entitled to no more than 10% of the proceeds of the case. In any scenario, the precise amount the relator is entitled to depends on “the extent to which the person substantially contributed to the prosecution of the action.”
In addition to its qui tam provisions, the IFPA provides relators and would-be relators with broad protections against retaliation at work. Employees that are retaliated against at work for assisting in the furtherance of a case under the IFPA may bring retaliation cases pursuant to the IFPA’s retaliation provisions. Those employees “shall be entitled to all relief necessary to make the employee whole.” That relief could include reinstatement with the same seniority the employee would have had if not for suffering the retaliation, as well as double backpay plus interest, and “any special damages sustained as a result of the discrimination,” including attorney’s fees and reasonable litigation costs.
If you have information about private insurance fraud in California and think you may have a claim under the IFPA, you should contact a qui tam attorney to discuss your case.