Over the past several years, states throughout the country have enacted legislation and regulations intended to strengthen the ongoing fight against insurance fraud. Accompanying that is an oft-criticized but growing call for a federal insurance regulatory system. At the center of the battle over federal oversight of insurance is the National Insurance Consumer Protection Act (NICPA), which at the time of this writing is being considered by Congress.
NICPA provides insurers with the option to be licensed under a federal charter, and it creates an Office of National Insurance (ONI) intended to regulate insurance entities. ONI would include a Division of Insurance Fraud, established for the purpose of investigating and prosecuting insurance fraud committed by or against insurers, agents and producers. Its jurisdiction would extend to all cases or suspected cases of insurance fraud.
NICPA imposes potential penalties of up to $500,000 and/or imprisonment for up to five years for anyone committing a fraudulent insurance act or knowingly and intentionally interfering with the investigation of a suspected fraudulent act. An entity licensed under the federal charter (or a party affiliated with such an entity) may be subject to a fine of up to $1 million and/or imprisonment for up to 10 years for violating the proposed law’s anti-fraud provisions. For fraudulent acts involving amounts less than $5,000 that are committed by an entity not licensed under the federal charter, the maximum fine is reduced to $100,000, with the maximum prison time decreased to one year. In addition, NICPA requires parties convicted of violating the anti-fraud provisions to make financial restitution to parties injured as a result of the illegal action; such restitution is “the exclusive monetary remedy available to the victim at law or at equity after entry of judgment.”
Similar to most state insurance fraud statutes, the anti-fraud provisions of NICPA prohibit parties from presenting or preparing to present “false information as part of, in support of, or concerning a fact material to” a claim for policy benefits to an insurer, agent or producer. However, unlike some state insurance fraud statutes, the anti-fraud provisions also extend to a wide variety of other insurance transactions, including insurance policy applications, the issuance of evidence of insurance, and the reinstatement of insurance policies.
Interestingly, NICPA also addresses several types of potential misrepresentations that could be made by insurers. These include misrepresentations material to the rating of insurers, their financial condition and the “formation, acquisition, merger, consolidation, or dissolution of a national insurer or national insurance agency.” Also covered are misrepresentations made in documents filed with the Commissioner of the Office of National Insurance. The anti-fraud provisions of NICPA also preclude a person “who knows or should know that the national insurer or state insurer is insolvent at the time of the transaction” from soliciting or accepting new policies or renewals. These provisions also proscribe the “[r]emoval, concealment, alteration or destruction of the records” of a state or national insurer, as well as the “[t]ransaction of the business of insurance in violation of laws requiring a charter or license” under NICPA.
Finally, the anti-fraud provisions of NICPA provide immunity from liability to “any person who shares, furnishes, discloses, receives, collects or uses information concerning a suspected, anticipated or completed fraudulent insurance act” if such information is disclosed to or by the Commissioner of the Office of National Insurance; a federal, state or local enforcement or regulatory official; a self-regulatory organization; a person “involved in the investigation (including cooperation or participation in an investigation), prevention and detection of fraudulent insurance acts”; the National Association of Insurance Commissioners; or any employee, agent or representative of these individuals or entities. However, NICPA does not provide immunity for false statements to these parties made with “actual malice.”
Given the issues currently before Congress, it is unlikely that Congress will have the opportunity to vote on NICPA before the end of the current term. Nonetheless, such a system could become a reality in the near future. The development of a federal insurance regulatory system could provide legislators with a valuable opportunity to strengthen efforts to detect and prosecute insurance fraud, through both the creation of a national anti-fraud bureau and the promulgation of anti-fraud statutes that may prove to be broader in scope than certain state statutes.
Debate will continue over whether or not the benefits of a federal licensing and regulatory system for insurers are outweighed by the potential dilution of state oversight and the complications that may arise from having two parallel systems of insurance regulation. The ability to fight insurance fraud deserves to play an important role in this conversation.
Robert Horst, a founding partner of Nelson Levine de Luca & Horst, LLC, specializes in the representation of his insurer clients in fraud litigation, complex coverage disputes, class actions and bad-faith litigation. Mark H. Rosenberg is an associate attorney with NLdH specializing in the defense of complicated insurance-practice and bad-faith disputes.