II. Criminal Penalties for Insurance Fraud

• Library: The Law of Automobile Insurance in SC (SCBar) (2015 Ed.)

II. Criminal Penalties for Insurance Fraud

A. General

Insurance fraud involves reporting false information on insurance forms or insurance claims. States have proscribed these wrongful acts as criminal. Automobile insurance has historically been among the largest insurance sectors affected by insurance fraud in South Carolina. Seventy-five percent of fraud claims reported in South Carolina in 2014 involved automobile insurance.³⁸⁷ State prosecutors must prove each of the following elements for an insurance fraud conviction. A fraudulent insurance act is committed when: (1) a false statement is made (2) which was material (3) with knowledge of its falsity (4) intending to obtain an undeserved economic advantage, benefit, or payment (5) in connection with an insurance transaction.³⁸⁸ This portion of the chapter summarizes South Carolina's criminal penalties for insurance crimes including arson and insurance fraud and highlights the arson and insurance fraud reporting requirements specified in South Carolina law.

B. S.C. Code Section 38-55-170: Presenting False Claims for Payment

Section 38-55-170 makes it a felony for any person to knowingly cause to be presented or knowingly assist, solicit or conspire with another to present a false claim for insurance payment. If the amount of the claim is over $2,000, the crime is classified as a felony. ³⁸⁹ If convicted, the statute sets forth various sentencing options depending upon the severity of the offense: (1) imprisonment for not more than ten years or fined not more than $5,000, or both if the claim submitted was over $10,000; and (2) fined in the discretion of the court or imprisoned not more than five years, or both if the claim is more than $2,000 but less than $10,000. Claims less than $2,000 are considered misdemeanors triable in Magistrates' Court or Municipal Court. Upon conviction for a misdemeanor, the person must be fined not more than $1,000, or imprisoned not more than 30 days, or both.³⁹⁰

C. S.C. Code Section 16-11-125: Insurance Fraud Involving Arson

Section 16-11-l25 deals specifically with insurance fraud arising out of arson.³⁹¹ The section makes it a felony to (1) willfully and knowingly present or cause to be presented a false or fraudulent claim, or any proof in support of such claim; or (2) prepare, make or subscribe to a false or fraudulent account, certificate, affidavit, or proof of loss, or other documents or writings, with intent that such documents be presented or used in support of such claim, for the payment of an insurance claim resulting from a fire loss or loss caused by explosion. Upon conviction, the person must be fined not more than $10,000 or imprisoned for not more than five years, or both, in the discretion of the court.³⁹²

D. S.C. Code Section 16-11-130

Section 16-11-130 also deals with insurance fraud arising out of arson.³⁹³ This section makes it a felony, if done willfully and with intent to injure or defraud an insurer, (1) to set fire to or cause to be burned; or (2) to aid, counsel, or procure the burning of any goods, wares, or other personal property of any kind, whether the property of himself or another, which is at the time of the fire insured by any person.³⁹⁴ Punishment for violation of the section is imprisonment for not less than one nor more than five years.³⁹⁵

Similarly, it is unlawful for a person to willfully and maliciously attempt to set fire to, burn, or aid, counsel, or procure the burning of any of the buildings or property mentioned in Sections 16-11-110 to 16-11-140 or commit an act in furtherance of burning these buildings. A person who violates the provisions of this section is guilty of a felony and, upon conviction, must be imprisoned not more than five years or fined not more than $10,000.³⁹⁶

E. Arson Reporting Immunity Act

The South Carolina Arson Reporting Immunity Act (the "Reporting Act") was passed in l984.³⁹⁷ The Reporting Act allows any authorized law enforcement agency to require an insurer to provide all information or evidence to that authorized law enforcement agency that is "deemed important" by that authorized agency as relating to a fire loss. The Reporting Act defines the terminology "deemed important" as any material requested by the authorized agency. Four authorized agencies were included initially within the Act: the South Carolina Attorney General, the Chief of the State Law Enforcement Division, the solicitor responsible for prosecution in the county where the fire occurred, and the State Fire Marshal when authorized or required to investigate the fire at the place where the fire actually took place. Subsequently, the United States Department of Justice and the Federal Bureau of Investigation were added, at their request, as authorized agencies by the General Assembly.

Upon request, any insurer must provide to any requesting authorized law enforcement agency such relevant information as insurance policy information, copies of applications for coverage, any available insurance policy premium payment records, a history of previous claims made by the insured, and any materials relating to the insurer's investigation of the fire loss including statements of any person, any filed proof of loss, and other evidence relevant to the investigation.³⁹⁸ The authorized law enforcement agency may also request any evidence that the authorized agency believes will have the tendency to make the existence of any fact which is consequential to the investigation or helps determine any issue relevant to its investigation more or less probable than it would be without the evidence.³⁹⁹

Any insurer or other person who intentionally or knowingly refuses to release any requested, relevant information may be found guilty of a misdemeanor. Upon conviction of that misdemeanor, that person must be fined not more than $3,000 or imprisoned not more than two years or both.⁴⁰⁰

Along with the requirement to release relevant information and evidence, the insurer and any person acting on its behalf are immune from any liability arising out of its release of such information. This immunity applies to any civil action or criminal prosecution which arises from any action taken by the insurer or by an authorized law enforcement agency pursuant to the Arson Reporting Immunity Act.⁴⁰¹ That immunity, however, may be lost if the insurer acted with actual malice against an insured or with gross negligence or reckless disregard for the insured's rights.⁴⁰² An "action" under the Reporting Act is both an affirmative act and a failure to take action.⁴⁰³ Any authorized law enforcement agency, its agents, or its employees may be required to testify in any litigation in which the insurer is named as a party.⁴⁰⁴

Once an insurer has released relevant information to any authorized agency, the authorized agency may release or provide that information to any other agency participating in the investigation.⁴⁰⁵ However, unless so provided, the relevant evidence must be held in confidence by the authorized law enforcement agency until its release is required pursuant to a criminal prosecution or a civil action.⁴⁰⁶ Any failure of an authorized law enforcement agency, its agents, or employees to honor such confidence can result in a conviction for a misdemeanor punishable by a fine of not more than $3,000 or imprisonment of not more than two years, or both.⁴⁰⁷ Any authorized law enforcement agency that properly releases relevant information gathered from an insurer pursuant to the Reporting Act is also immune from liability.⁴⁰⁸

Insurers are also given the authority under the Reporting Act to notify any authorized law enforcement agency that it had reason to believe that a fire loss in which it had an interest occurred as a result of other than accidental means.⁴⁰⁹ By notifying the authorized law enforcement agency, the insurer triggers the confidentiality and immunity provisions of the Act. If the insurer has developed evidence that the fire loss was caused by arson or other unlawful burning involving specifically named people, then the insurer is also directed by the Reporting Act to provide that evidence to the solicitor in the judicial circuit where the fire occurred. The solicitor may then furnish that information to any other authorized law enforcement agency which he deems proper. Notice provided by the insurer to any one authorized law enforcement agency is sufficient to meet notice requirements for the purpose of the...