Insurance Fraud

Many people are familiar with insurance fraud, yet there's considerable confusion about what it entails. At its core, insurance fraud is a white-collar crime involving the deliberate misrepresentation or concealment of information to receive benefits or advantages otherwise unavailable.


These deceptive acts can include anything from inflating the value of a claim to faking an injury to even committing arson fraud as part of a fraudulent scheme.

In the U.S., the insurance industry is regulated at both the state and federal levels, leading to a complex legal landscape that can be difficult to navigate. Insurance fraud is no exception. This article aims to clarify the intricacies of this topic by examining the federal law on insurance fraud, 18 U.S.C. § 1033, and its interplay with the Arizona Revised Statutes.

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insurance fraud

Overview of Federal Insurance Fraud

The federal government's view of insurance fraud is encapsulated in Title 18 U.S. Code § 1033: Crimes by or affecting persons engaged in the business of insurance whose activities affect interstate commerce.


This law effectively breaks criminal insurance activity down into categories:

  • Knowingly making material false statements regarding the value of land, property, or security for insurance purposes;
  • Willfully embezzling or misappropriating premiums, credits, or other money or property of an insured;
  • Knowingly falsifying information about the financial state of a business with the intent to deceive insurers, examiners, or regulatory agencies;
  • Making threats or attempting to obstruct the efforts of insurance examiners or regulatory agencies from the "due and proper administration of the law;
  • Conducting insurance business if you have been previously convicted of insurance fraud or felony offenses involving breach of financial trust.

The Role of Material False Statements in 18 U.S.C. § 1033

18 U.S.C. § 1033 comprises multiple distinct yet interconnected federal clauses tackling the issue of insurance fraud. According to subsection (a) of Section 1033, anyone involved in the insurance sector whose activities impact interstate commerce could face federal criminal charges.


Nonetheless, it's essential to prove that this person, with an intention to mislead, knowingly makes a substantial false statement or report or intentionally and materially inflates the value of any land, property, or financial tool under specific conditions. These scenarios might encompass submitting financial reports to a regulatory authority or office intending to sway government action.


Primarily, this subdivision targets insurance firms rather than insured individuals, punishing principally the deliberate and fraudulent overestimation of insured land or property.


It's crucial to highlight that the false statements must be substantial - they must involve significant facts that could influence the result of an insurance issue. Moreover, these statements must be directed to an insurance regulatory official or their delegate, aiming to affect their actions.


A breach under this subsection attracts a severe potential penalty of up to a decade in federal imprisonment. This type of fraud crime amplifies to a maximum penalty of 15 years if the false statement places the insurance company at financial risk and/or leads to the insurance company undergoing receivership or liquidation as per a court order.

18 U.S.C. § 1033

Misconduct by Insurance Company Employees under 18 U.S.C. § 1033

Subsection (b) of Section 1033 lays down the law for officers, directors, agents, or employees of insurance companies operating in interstate commerce, thereby falling under federal jurisdiction. Any individual in these roles found guilty of embezzling, stealing, or otherwise misappropriating any funds or property of the insurance company commits a federal offense.


The repercussion of such a violation under Section 1033 may lead to a maximum of 10 years in federal prison.


Notably, the law includes an enhancement under subsection (b) that heightens the maximum punishment to 15 years if the accused's actions jeopardized the insurance company's viability or subjected it to compulsory court supervision like receivership.


Subsection (c) of Section 1033 focuses on anyone involved in interstate insurance commerce who introduces a false, significant fact into any record, report, or any other written document with the intent to mislead anyone – not only insurance regulators – regarding the insurance company's financial state. This offense also constitutes a federal crime.


The sternest penalty for violating this subsection is 10 years, extendable up to 15 years if the false statement caused significant damage to the insurance company.


Subsection (d) of Section 1033 treats any conduct, including threats or the use of verbal or physical force, intended to unlawfully influence or obstruct the business of insurance impacting interstate commerce as a federal crime. The maximum penalty for this violation is 10 years in federal prison.

The Intersection of Arizona Revised Statutes and 18 U.S.C. § 1033

Federal laws like 18 U.S.C. § 1033 are a crucial piece of the puzzle, but they don't stand alone. Arizona has its own set of rules and regulations that play a significant role in combating insurance fraud.


As per A.R.S. 20-466.01, insurance fraud is designated as a class 6 felony in Arizona, with the specific penalties and charges one might encounter contingent upon the extent of the fraud and several other influencing factors.


Typically, individuals found guilty of insurance fraud can expect to confront penalties such as incarceration, monetary fines, restitution, and potential job loss.


In particularly severe fraud cases, the offender might look at a decade of imprisonment, maximum fines of $150,000, and possible civil penalties of around $5,000 for each infringement.


Insurance fraud charges in Arizona are broken down into five tiers, each carrying a specific penalty upon conviction.


Here's a comprehensive breakdown of these five degrees and their associated penalties:

  • Fraud of the 5th degree

    Unlawful gains under $1,000 fall into this category.

    Classified as a Class A offense, a conviction may result in up to one year of imprisonment.

  • Fraud of the 4th degree

    Fraud involving amounts ranging from $1,000 to $3,000 constitutes a Class E felony.

    The defendant might face up to four years in prison if found guilty.

  • Fraud of the 3rd degree

    Fraud ranging from $3,000 to $50,000 is deemed a Class D felony.

    A guilty verdict may lead to a sentence of up to seven years in prison.

  • Fraud of the 2nd degree

    Fraud cases between $50,000 and $1,000,000 fall into the Class C felony category.

    Convicted individuals might serve up to 15 years in prison.

  • Fraud of the 1st degree

    Fraud involving sums of $1,000,000 or more is classified as a Class B felony.

    The defendant could look at up to 25 years of imprisonment if convicted.

Something to note is that if an individual has committed insurance fraud within the past five years, they will automatically be charged with fourth-degree fraud. 


It's also worth noting that these state and federal laws often operate in tandem. An act that constitutes insurance fraud under Arizona law could also violate federal law, leading to potential prosecution under both legal frameworks.

federal insurance fraud

Critical Elements of Insurance Fraud Under Federal Law

Insurance fraud under 18 U.S.C. § 1033 is multifaceted, with several key elements required for a conviction.

  • 1


    Firstly, there must be intent. The accused must have knowingly and willfully committed an act to defraud an insurance entity. Merely making a mistake on an insurance form wouldn't qualify - there needs to be deliberate deception.

  • 2

    Making a False Statement

    The second element is making a false statement or using deceptive practices. This could range from inflating the value of a damaged item on an insurance claim, making a false statement about the circumstances of a loss, or even orchestrating a larger fraudulent scheme, such as staging an accident or committing arson to make a fraudulent claim.

  • 3

    Affect on Interstate Commerce

    Finally, the fraudulent act must affect interstate commerce for a charge under 18 U.S.C. § 1033. This typically means the insurance company operates across state lines, a common occurrence in today's interconnected world.

Potential Penalties for Violating 18 U.S.C. § 1033

The repercussions you might face if found guilty of federal insurance fraud are primarily contingent on the specifics of your offense.


In general terms:

  • Should you be convicted for carrying on insurance operations after disqualification due to a criminal conviction, you could face a maximum of five years in prison.
  • If found guilty of hindering or impeding an insurance examiner via threats or coercion, the penalty can extend up to 10 years of imprisonment.
  • In case of conviction for misappropriation of insurance funds or making significant false statements, the potential sentence can range from 10 to 15 years in prison.

Building a Strong Defense Against Insurance Fraud Charges: The Role of the Kolsrud Law Office

The Kolsrud Law Office can provide the legal expertise you need when faced with insurance fraud charges. Our attorneys understand federal laws like 18 U.S.C. § 1033 and Arizona's Revised Statutes. This knowledge is crucial in developing a strategic defense tailored to your unique case.


In these challenging times, having an experienced federal criminal defense attorney at your side is invaluable.  If you're facing insurance fraud charges, remember: you don't have to face them alone. Contact us today to receive a free consultation. 


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