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The California Insurance Frauds Prevention Act

The California Insurance Frauds Prevention Act (California Insurance Code § 1871.7) prohibits the use of fraudulent or false claims for official payment or submit false or misleading statements to in an insurance contract. Companies that fraudulent or false claims for insurance reimbursement may be subject to civil penalties between $5,000 and $10,000 per violation. Damages may be assessment at up to three times the amount of each claim for compensation submitted.

California Insurance Code § 1871.7 allows “interested persons” to file complaints targeting fraudulent billing to private insurers.  Section 1871.7 functions much like federal False Claims Act (the “FCA”), which allows qui tam relators to initiate a suit.  If the District Attorney or the Insurance Commissioner intervenes in the lawsuit, you are eligible to receive between 30% and 40% of the recovery, depending upon the extent to which the you substantially contributed to the prosecution of the action. If the District Attorney or Insurance Commissioner declines to intervene, then you will receive between 40% and 50% of the proceeds. You will also be entitled to award of reasonable attorney’s fees and expenses. 

Significantly, if you (or your company) paid money to the defendant in the underlying claim, then you will get up to double the amount paid, if that amount is greater than 50% of the proceeds. Section 1871.7 is an important antifraud tool. Unlike the FCA, which can only recover federal funds wrongly paid by federal programs such as Medicare and Medicaid, Section 1871.7 provides a remedy when private insurers are defrauded. As Section 1871.7 notes, health insurance fraud is a particular problem for all Americans because it adds billions of dollars every year in unnecessary healthcare costs and higher premiums.

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