SB2313 HD2

SECTION 1. Insurance fraud reportedly costs every household in the United States an average of $500 per year. In Hawaii, the cost of motor vehicle insurance fraud is estimated to be over $164 per household annually. In recognition of the impact that fraud has on the cost of motor vehicle insurance, the legislature enacted Act 251, Session Laws of Hawaii 1997, to establish an insurance fraud investigations unit and violations and penalties for motor vehicle insurance fraud. Act 155, Session Laws of Hawaii 1998, was enacted the following year to clarify the penalties for the offense of motor vehicle insurance fraud, and enhance and clarify the powers and purpose of the insurance fraud investigations unit.

Insurance fraud has also increasingly impacted costs within the health insurance industry with estimated healthcare fraud losses reported at three to fourteen per cent of the total amount of $1,200,000,000,000 in annual national healthcare costs. This is equivalent to approximately $36,000,000,000 to $144,000,000,000 annually. In Hawaii, based on the conservative estimate that insurance fraud amounts to three per cent of annual Hawaii healthcare costs, health insurance fraud causes losses exceeding $60,000,000 annually. Realizing that insurance fraud is a growing problem in the area of health insurance, the legislature passed Act 125, Session Laws of Hawaii 2003, to provide health insurance fraud provisions under chapters 431, article 10A; 432, article 1; and 432D, Hawaii Revised Statutes. However, none of these penalty provisions clearly assigns responsibility for the investigation and prosecution of insurance fraud cases to a specific law enforcement agency.

The legislature finds that no line or area of insurance is exempt from insurance fraud. Hawaii's insurance fraud laws should be expanded to include all lines of insurance, except for workers' compensation, rather than be limited to administrative, civil, and criminal penalties for insurance fraud cases relating to only a select few lines of insurance.

The purpose of this Act is to:

(1) Discontinue the existing insurance fraud investigations unit under section 431:10C-307.8, Hawaii Revised Statutes, and establish a new insurance fraud investigations branch to investigate and prosecute all lines of insurance fraud, except for workers' compensation under chapter 386, Hawaii Revised Statutes;

(2) Expand administrative, civil, and criminal penalties for offenses of insurance fraud in all lines of insurance, except for workers' compensation under chapter 386, Hawaii Revised Statutes, and for different types of insurance fraud, including fraudulent applications and sales; and

(3) Deposit all fines and settlements resulting from successful insurance fraud prosecutions into the compliance resolution fund under section 26-9(o), Hawaii Revised Statutes, to assist the insurance fraud investigations branch to cover its operation costs.

SECTION 2. Chapter 431, article 2, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"Part . INSURANCE FRAUD

§431:2-A Definitions. As used in this part:

"Branch" means the insurance fraud investigations branch of the insurance division under the department of commerce and consumer affairs.

"Insurance policy" means a contract issued by an insurer or other licensee.

"Licensee" means an entity licensed under and governed by title 24, including an insurer governed by chapter 431, a mutual benefit society governed by chapter 432, article 1, a fraternal benefit society governed by chapter 432, article 2, or a health maintenance organization governed by chapter 432D, and their respective agents and employees engaged in the business of the licensee.

"Person" means any individual, company, association, organization, group, partnership, business, trust, or corporation, excluding insurers, as defined in section 431:1-202, and other licensees, as defined in this part.

§431:2-B Insurance fraud investigations branch. (a) There is established in the insurance division an insurance fraud investigations branch.

(b) The branch shall:

(1) Conduct a statewide program for the prevention of fraud in all lines of insurance except workers' compensation;

(2) Notwithstanding any other law to the contrary, investigate and prosecute in administrative hearings and courts of competent jurisdiction all persons involved in fraud violations arising out of any line of insurance except workers' compensation; and

(3) Promote public and industry-wide education about insurance fraud.

(d) The commissioner shall employ or retain, by contract or otherwise, attorneys, investigators, investigator assistants, auditors, accountants, physicians, health care professionals, paralegals, consultants, experts, and other professional, technical, and support staff, as necessary, to promote the effective and efficient conduct of the activities of the branch. The commissioner may hire employees without regard to chapter 76.

(e) Notwithstanding any other law to the contrary, an attorney employed or retained by the branch may represent the State in any criminal, civil, or administrative proceeding to enforce all applicable state laws relating to insurance fraud, including criminal prosecutions, disciplinary actions, and actions for declaratory and injunctive relief. Each attorney representing the State in a proceeding shall be designated by the attorney general as a special deputy attorney general. The decision to designate an attorney as a special deputy attorney general shall be solely within the discretion of the attorney general.

(f) Investigators, investigator assistants, and auditors appointed and commissioned under this part shall have and may exercise all of the powers and authority of a police officer.

(g) Funding for the branch shall come from the compliance resolution fund established under section 26-9(o).

§431:2-C Insurance fraud; criminal penalties. (a) A person commits the offense of insurance fraud if, with respect to any line of insurance other than workers' compensation, the person intentionally or knowingly:

(1) Misrepresents or conceals material facts, opinions, intention, or law to obtain or attempt to obtain coverage, benefits, recovery, or compensation for services provided in the following situations or circumstances:

(A) When presenting, or causing or permitting to be presented:

(i) An application, whether written, typed, or transmitted through electronic media, for the issuance or renewal of an insurance policy or reinsurance contract;

(ii) False information on a claim for payment whether typed, written, or transmitted through electronic media;

(iii) A claim for the payment of a loss;

(iv) Improper multiple duplicative claims for the same loss or injury, including knowingly presenting these multiple and duplicative claims to more than one insurer;

(v) Any claim for payment of a health care benefit;

(vi) A claim for a health care benefit that was not used by, or provided on behalf of, the claimant;

(vii) Improper multiple and duplicative claims for payment of the same health care benefit;

(viii) For payment, any undercharges for benefits on behalf of a specific claimant unless any known overcharges for benefits under this article for that claimant are presented for reconciliation at the same time;

(ix) To a person, insurer, or other licensee false, incomplete, or misleading information to obtain coverage or payment otherwise available under an insurance policy; and

(x) To a person or producer, information about a person's status as a licensed producer that induces a person or insurer to purchase an insurance policy or reinsurance contract;

(B) When fabricating, altering, concealing, making an entry in, or destroying a document whether typed, written, or produced through an audio or video tape or electronic media;

and

(C) When making, or causing or permitting to be made, any statement, either typed, written, or produced through audio or video tape or electronic media, or claims by the person or on behalf of a person with regard to obtaining legal recovery or benefits;

(2) Aids, agrees, or attempts to aid, solicit, or conspire with any person who engages in an unlawful act as defined under this section; or

(3) Makes, causes, or permits to be presented, any false statements or claims by any person or on behalf of any person during an official proceeding as defined by section 710-1000.

(b) Where the person acting with intent to defraud under subsection (a) possessed actual knowledge or acted in deliberate ignorance of the truth or falsity of the misrepresentation or concealment of the material facts, opinions, intention, or law, insurance fraud is:

(1) A class B felony if the value of the benefits, recovery, or compensation obtained or attempted to be obtained is more than $20,000;

(2) A class C felony if the value of the benefits, recovery, or compensation obtained or attempted to be obtained is more than $300; or

(3) A misdemeanor if the value of the benefits, recovery, or compensation obtained or attempted to be obtained is $300 or less.

(c) This section shall not supersede any other law relating to theft, fraud, or deception. Insurance fraud may be prosecuted under this part, or any other applicable statute or common law, and all such remedies shall be cumulative.

(d) For the purpose of this section, "intentionally" and "knowingly" have the meanings defined in section 702-206.

§431:2-D Restitution. Where the ability to make restitution can be demonstrated, any person convicted of insurance fraud under this part shall be ordered by a court to make restitution to any insurer, person, or other licensee for any financial loss sustained by that insurer, person, or licensee caused by the act or acts for which the person was convicted.

§431:2-E Insurance fraud; administrative penalties. (a) In addition to or in lieu of criminal penalties under section 431:2-C(b), any person who commits insurance fraud may be subject to the administrative penalties of this section.

(b) If a person is found to have knowingly committed insurance fraud, the commissioner may assess any or all of the following penalties:

(1) Restitution to any insurer or any other person of benefits or payments fraudulently received or other damages or costs incurred;

(2) A fine of not more than $10,000 for each violation; and

(3) Reimbursement of attorneys' fees and costs of the party sustaining a loss under this part, except that the State shall be exempt from paying attorney fees and costs to other parties.

(c) Administrative actions brought for insurance fraud under this part shall be brought within six years after the insurance fraud is discovered or by exercise of reasonable diligence should have been discovered and, in any event, no more than ten years after the date on which a violation of this part is committed.

(d) For the purpose of subsection (b), "knowingly" shall have the same meaning as defined in section 702-206.

§431:2-F Administrative procedures. (a) An administrative penalty for insurance fraud may be imposed based upon a judgment by a court of competent jurisdiction or upon an order by the commissioner.

(b) The commissioner shall hold a hearing in accordance with chapter 91, prior to the imposition of any administrative remedy.

§431:2-G Acceptance of payment. A provider's failure to dispute a reduced payment by an insurer shall not constitute an implied admission that a fraudulent billing had been submitted.

§431:2-H Civil cause of action for insurance fraud; exemption. (a) An insurer or other licensee shall have a civil cause of action to recover payments or benefits from any person who has committed insurance fraud. No recovery shall be allowed if the person has made restitution under section 431:2-D or 431:2-E(b)(1).

(b) A person, insurer, or other licensee, including an insurer's or other licensee's adjusters, bill reviewers, producers, representatives, or common-law agents, if acting without actual malice, shall not be subject to civil liability for providing information, including filing a report, furnishing oral, written, audiotaped, videotaped, or electronic media evidence, providing documents, or giving testimony concerning suspected, anticipated, or completed insurance fraud to:

(1) A court;

(2) The commissioner;

(3) The insurance fraud investigations branch;

(4) The National Association of Insurance Commissioners;

(5) The National Insurance Crime Bureau;

(6) Any federal, state, or county law enforcement or regulatory agency; or

(7) Another insurer or other licensee,

if the information is provided for the purpose of preventing, investigating, or prosecuting insurance fraud, except if the person commits perjury.

(c) Civil actions brought for insurance fraud under this part shall be brought within six years after the insurance fraud is discovered or by exercise of reasonable diligence should have been discovered and, in any event, no more than ten years after the date on which the insurance fraud was committed.

§431:2-I Mandatory reporting. (a) Within sixty days of an insurer or other licensee's employee or agent discovering credible information indicating that a violation of section 431:2-C is occurring or has occurred or as soon thereafter as practicable, the insurer or licensee shall provide to the insurance fraud investigations branch the information, including documents and other evidence, regarding the alleged insurance fraud. The branch shall work with the insurer or licensee to determine what information shall be provided.

(b) Information provided pursuant to this section shall be protected from public disclosure to the extent authorized by chapter 92F and section 431:2-209; provided that the branch may release the information in an administrative or judicial proceeding to enforce this part, to federal, state, or local law enforcement or regulatory authorities, the National Association of Insurance Commissioners, the National Insurance Crime Bureau, or an insurer or other licensee aggrieved by the alleged insurance fraud.

§431:2-J Deposit into the compliance resolution fund. All moneys that have been recovered by the department of commerce and consumer affairs as a result of prosecuting insurance fraud pursuant to this part, including civil fines, criminal fines, administrative fines, and settlements, but not including restitution made pursuant to section 431:2-D, 431:2-E(b)(1), or 431:2-H, shall be deposited into the compliance resolution fund established pursuant to section 26-9(o)."

SECTION 3. Section 431:2-203, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b)(1) A person who intentionally or knowingly violates, intentionally or knowingly permits any person over whom the person has authority to violate, or intentionally or knowingly aids any person in violating any insurance rule or statute of this State or any effective order issued by the commissioner, shall be subject to any penalty or fine as [~~stated in~~] provided by this code or the penal code of the Hawaii Revised Statutes.

(2) If the commissioner has cause to believe that any person has violated any penal provision of this code or of other laws relating to insurance, the commissioner may proceed against that person or shall certify the facts of the violation to the public prosecutor of the jurisdiction in which the offense was committed.

(3) Violation of any provision of this code is punishable by a fine of not less than $100 nor more than $10,000 per violation, or by imprisonment for not more than one year, or both, in addition to any other penalty or forfeiture provided herein or otherwise by law.

(4) The terms "intentionally" and "knowingly" have the meanings given in section 702-206(1) and (2)."

SECTION 4. Section 431:2-204, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

"(d) When the commissioner, through the insurance fraud investigations [~~unit,~~] branch, is conducting an investigation of possible [~~violations of section 431:10C-307.7,~~] insurance fraud pursuant to part , the commissioner shall pay to a financial institution that is served a subpoena issued under this section a fee for reimbursement of [~~such costs as are necessary and which have been~~] costs necessarily and directly incurred in searching for, reproducing, or transporting books, papers, documents, or other objects designated by the subpoena. Reimbursement shall be paid at a rate not to exceed the rate set forth in section 28-2.5(d)."

SECTION 5. Section 432:2-102, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) Nothing in this article shall exempt fraternal benefit societies from the provisions and requirements of part of chapter 431:2 and section 431:2-215."

SECTION 6. Section 431:10A-131, Hawaii Revised Statutes, is repealed.

["~~[§431:10A-131] Insurance fraud; penalties.~~ (a) A person commits the offense of insurance fraud if the person acts or omits to act with intent to obtain benefits or recovery or compensation for services provided, or provides legal assistance or counsel with intent to obtain benefits or recovery, through the following means:

~~(1)~~ ~~Knowingly presenting, or causing or permitting to be presented, with the intent to defraud, any false information on a claim;~~

~~(2)~~ ~~Knowingly presenting, or causing or permitting to be presented, any false claim for the payment of a loss;~~

~~(3)~~ Knowingly presenting, or causing or permitting to be presented, multiple claims for the same loss or injury, including presenting multiple claims to more than one insurer, except when these multiple claims are appropriate;

~~(4)~~ ~~Knowingly making, or causing or permitting to be made, any false claim for payment of a health care benefit;~~

~~(5)~~ ~~Knowingly submitting, or causing or permitting to be submitted, a claim for a health care benefit that was not used by, or provided on behalf of, the claimant;~~

~~(6)~~ ~~Knowingly presenting, or causing or permitting to be presented, multiple claims for payment of the same health care benefit except when these multiple claims are appropriate;~~

~~(7)~~ Knowingly presenting, or causing or permitting to be presented, for payment any undercharges for benefits on behalf of a specific claimant unless any known overcharges for benefits under this article for that claimant are presented for reconciliation at the same time;

~~(8)~~ ~~Aiding, or agreeing or attempting to aid, soliciting, or conspiring with any person who engages in an unlawful act as defined under this section; or~~

~~(9)~~ ~~Knowingly making, or causing or permitting to be made, any false statements or claims by, or on behalf of, any person or persons during an official proceeding as defined by section 710-1000.~~

~~(b) Violation of subsection (a) is a criminal offense and shall constitute a:~~

~~(1)~~ ~~Class B felony if the value of the benefits, recovery, or compensation obtained or attempted to be obtained is more than $20,000;~~

~~(2)~~ ~~Class C felony if the value of the benefits, recovery, or compensation obtained or attempted to be obtained is more than $300; or~~

~~(3)~~ ~~Misdemeanor if the value of the benefits, recovery, or compensation obtained or attempted to be obtained is $300 or less.~~

(c) Where the ability to make restitution can be demonstrated, any person convicted under this section shall be ordered by a court to make restitution to an insurer or any other person for any financial loss sustained by the insurer or other person caused by the act or acts for which the person was convicted.

(d) A person, if acting without malice, shall not be subject to civil liability for providing information, including filing a report, furnishing oral or written evidence, providing documents, or giving testimony concerning suspected, anticipated, or completed public or private insurance fraud to a court, the commissioner, the insurance fraud investigations unit, the National Association of Insurance Commissioners, any federal, state, or county law enforcement or regulatory agency, or another insurer if the information is provided only for the purpose of preventing, investigating, or prosecuting insurance fraud, except if the person commits perjury.

(e) This section shall not supersede any other law relating to theft, fraud, or deception. Insurance fraud may be prosecuted under this section, or any other applicable section, and may be enjoined by a court of competent jurisdiction.

(f) An insurer shall have a civil cause of action to recover payments or benefits from any person who has intentionally obtained payments or benefits in violation of this section; provided that no recovery shall be allowed if the person has made restitution under subsection (c)."]

SECTION 7. Section 431:10C-307.7, Hawaii Revised Statutes, is repealed.

["~~§431:10C-307.7 Insurance fraud; penalties.~~ (a) A person commits the offense of insurance fraud if the person acts or omits to act with intent to obtain benefits or recovery or compensation for services provided, or provides legal assistance or counsel with intent to obtain benefits or recovery, through the following means:

~~(1)~~ ~~Knowingly presenting, or causing or permitting to be presented, any false information on a claim;~~