Workers’ compensation insurance premium fraud in California

Workers' compensation insurance premium fraud is a crime and a conviction can result in imprisonment and hefty monetary fines.

Employers are generally required to carry workers’ compensation coverage to protect employees in the event of an accident while on-the-job. Depending on the details of the business, these insurance policies can become costly. As a result, it is not uncommon for an employer to be accused of workers’ compensation insurance premium fraud.

Workers’ compensation insurance premium fraud defined

Workers’ compensation insurance premium fraud occurs when employers provide falsified information in an attempt to receive a better rate with the insurance provider. A recent publication by the Society for Human Resource Management (SHRM) discussed the issue, touching on common examples. According to the piece, the most common examples were misrepresentation of an employee’s classification, pay rate or the employer’s claim history.

Allegations of this form of fraud can lead to prosecution against the business. The California Department of Insurance states that it will prosecute allegations of insurance fraud when the following elements are present:

  • Intent. The employer accused of premium fraud had the intent to defraud.
  • Act. The employer completed the act.
  • Combination. The act and intent must "come together" to result in the commission of workers’ compensation insurance premium fraud.

Employers should be aware of the fact that no actual loss is needed for the allegations to be prosecuted as a crime.

Insurance fraud and California state law

In California, it is illegal to deliberately falsify an employee’s classification to the State Compensation Insurance Fund (SCIF) under Insurance Code Section 11880. More specifically, the code states it is illegal to:

[M]ake or cause to be made any knowingly false or fraudulent statement, whether made orally or in writing, of any fact material to the determination of the premium, rate, or cost of any policy workers’ compensation insurance issued or administered by the State Compensation Insurance Fund for the purpose of reducing the premium, rate, or cost of the insurance.

The SCIF is the largest workers’ compensation provider in the state.

Prosecution of workers’ compensation insurance premium fraud

According to a recent article in Insurance Journal, the certain activities are viewed as "red flags" that an employer may be committing premium fraud. The method of mailing is one example. The use of a mail drop or post office box as the business address could be viewed as suspicious. The ratio of clerical to nonclerical employees could also aid the prosecution. A finding of an "unusual" ratio may support the allegations.

Accusations of insurance fraud and the need for legal counsel

Employers that are accused of workers’ compensation premium fraud should take the allegations seriously. Penalties can be harsh. A violation of Insurance Code Section 11880 can come with five years imprisonment and a monetary fine of $50,000 or double the value of the fraud, whichever is greater. Penalties can increase depending on the details of the allegations, including the presence of any past violations.

The SHRM notes that the insurance industry and state governments are encouraged to "aggressively pursue criminal prosecution of companies they suspect of committing premium fraud." As a result, it is wise for those facing the allegations to contact an experienced employer defense lawyer. This legal professional will advocate for employers’ rights, helping to better ensure their best interests are protected.