During the Regular 2012 Session, the Alabama Legislature passed and Governor Robert Bentley signed House Bill 323, changing the landscape of insurance fraud in Alabama. Effective August 1, 2012, the new bill makes insurance fraud a crime in Alabama for the first time in state history. To that end, the bill gives a definition to insurance fraud, creates an Insurance Fraud Unit within the Alabama Department of Insurance, creates a fund in order to support the operations of the newly created unit, and provides civil and criminal penalties to persons convicted of insurance fraud.
The bill states that “a person commits the crime of insurance fraud, if knowingly and with intent to defraud, he or she commits, or conceals any material information concerning, one or more of the following acts:” an insurer soliciting or accepting an insurance policy knowing the insurer will not be able to pay the claim, destruction of insured property, embezzlement or theft of property related to the insurance transaction, providing false information, or failure to return insurance payments for coverage to which the insured was not qualified by fault of the insurer.
Fraud with damages exceeding $1,000 is insurance fraud in the first degree and a Class B felony, while damages not exceeding $1,000 dollars constitutes insurance fraud in the second degree and a Class C felony. Individuals convicted will be disqualified from engaging in the business of insurance. The bill also makes it a Class A misdemeanor to transact insurance without a license.
This bill imposes several requirements and restrictions on insurers doing business in Alabama. Insurers authorized to write insurance in the State of Alabama will be required to pay two hundred dollars a year to fund the operations of the newly formed Insurance Fraud Unit. Insurance providers will not be able to employ a person previously convicted of insurance fraud in the first or second degree to transact insurance. Providers will also be required to report violations and suspected violations to the Department of Insurance.
Additionally, for insurers that hold a certificate of authority, a fraud warning must be included on at least one of the following documents: claim release forms, applications, reinstatements for insurance, participation agreements, declaration pages, and claim documents. This fraud warning must contain the following statement or a substantially similar statement: “Any person who knowingly presents a false or fraudulent claim for payment of a loss or benefit or who knowingly presents false information in an application for insurance is guilty of a crime and may be subject to restitution fines or confinement in prison, or any combination thereof.” This warning must be in place on or before February 1, 2013. However, insurance providers are not required to send any such warning to existing customers.
Insurance providers who are convicted of violations face suspension of their licenses, suspension of their certificates of authority, as well as a $5,000 fine for every violation.
Enforcement of this new law is the duty of the Department of Insurance. The Department will investigate and may present its case to the Alabama Attorney General. If the Attorney General declines or neglects to prosecute the violation, the Department of Insurance will then be vested with all the powers of the Attorney General to proceed with the prosecution. Results of the investigations will be confidential. The bill provides a two (2) year statute of limitations period to prosecute any alleged violations.
Prepared by W. Steven Nichols