H 3977 Session 110 (1993-1994)
H 3977 General Bill, By Meacham
A Bill to establish within the South Carolina Department of Insurance an
Insurance Fraud Bureau, provide for the powers and duties of the Bureau, and
provide for related matters, including a provision that a person convicted for
the violation of any law concerning insurance fraud, following the
investigation and referral for prosecution by the Bureau, shall be ordered to
make restitution for financial loss sustained as a result of that violation.
04/14/93 House Introduced and read first time HJ-18
04/14/93 House Referred to Committee on Labor, Commerce and
Industry HJ-18
02/23/94 House Committee report: Favorable with amendment Labor,
Commerce and Industry HJ-8
03/24/94 House Amended HJ-56
03/24/94 House Read second time HJ-62
03/24/94 House Unanimous consent for third reading on next
legislative day HJ-62
03/25/94 House Read third time and sent to Senate HJ-6
03/29/94 Senate Introduced and read first time SJ-8
03/29/94 Senate Referred to Committee on Banking and Insurance SJ-8
AMENDED
March 24, 1994
H. 3977
Introduced by REP. Meacham
S. Printed 3/24/94--H.
Read the first time April 14, 1993.
STATEMENT OF ESTIMATED FISCAL
IMPACT
1. Estimated Cost to State-First Year$842,926
2. Estimated Cost to State-Annually Thereafter$602,337
House Bill 3977, as amended by the House Labor, Commerce and
Industry Committee amends Chapter 55 of Title 38 of the S.C. Code of
Laws, 1976, by adding Article 5, Insurance Fraud and Reporting
Immunity act; and, by adding Section 42-9-440.
The purpose of establishing the Insurance Fraud and Reporting
Immunity Act is to allow reporting of suspected insurance fraud; to grant
immunity for reporting the suspected fraud; to prescribe penalties; to
require restitution for victims of fraud; to establish a division within the
Office of the Attorney General to prosecute insurance fraud; and, to
require the investigation of alleged insurance fraud by the State Law
Enforcement Division (SLED).
Enactment of House Bill 3977 will necessitate expenditures from the
general fund of $842,926 for the first year of operation and $602,337
annually thereafter.
Sections 38-55-540 and 38-55-550 establish fines and civil penalties
for violating this act. Fines are not to exceed $50,000 upon conviction
of insurance fraud.
The Attorney General's Office estimates a cost of $373,210 with 7
positions will be required to establish the Insurance Fraud Division with
$326,000 in recurring costs. Revenue estimates generated by
convictions cannot be determined by the Attorney General's Office since
authority regarding penalties does not reside with them.
ATTORNEY GENERAL'S COST
Personal Service $196,000
(3 attorneys; 3 clerical; 1 paralegal)
Employer Contributions (25%) 49,000
Operating-Recurring 81,000
TOTAL RECURRING $326,000
Operating-Non-Recurring 47,210
TOTAL COST - ATTORNEY GENERAL'S OFFICE$373,210
Section 38-55-560 requires SLED to investigate all claims or
allegations of violations of Sections 38-55-170 and 38-55-540 of the
Code of Laws, 1976, and related criminal insurance activity received
from the Attorney General pursuant to this section.
SLED estimates the proposed legislation will cost between
$400,000-$500,000 which includes 5 positions. Identified below are
SLED's approximate costs required to implement House Bill 3977. First
year costs are estimated at $469,716 with recurring costs of $276,337.
STATE LAW ENFORCEMENT DIVISION'S COST
Personal Service $155,163
(4 special agents III; 1 adm asst II)
Employer Contributions 45,059
Operating-Recurring 76,115
TOTAL RECURRING $276,337
Operating-Non-Recurring 193,379
TOTAL COST - SLED $469,716
Section 42-9-440 is added to the 1976 Code whereby the Workers'
Compensation Commission shall refer all cases of suspected false
statement or misrepresentation to the Insurance Fraud Division of the
office of the Attorney General for investigation and prosecution.
Prepared By: Approved By:
Cheryl H. Morris George N. Dorn, Jr.
State Budget Analyst State Budget Division
Kenneth Brown
State Budget Analyst
A BILL
TO ESTABLISH WITHIN THE SOUTH CAROLINA DEPARTMENT
OF INSURANCE AN INSURANCE FRAUD BUREAU, PROVIDE
FOR THE POWERS AND DUTIES OF THE BUREAU, AND
PROVIDE FOR RELATED MATTERS, INCLUDING A PROVISION
THAT A PERSON CONVICTED FOR THE VIOLATION OF ANY
LAW CONCERNING INSURANCE FRAUD, FOLLOWING THE
INVESTIGATION AND REFERRAL FOR PROSECUTION BY THE
BUREAU, SHALL BE ORDERED TO MAKE RESTITUTION FOR
FINANCIAL LOSS SUSTAINED AS A RESULT OF THAT
VIOLATION.
Amend Title To Conform
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Chapter 55 of Title 38 of the 1976 Code is amended by
adding:
"Article 5
Insurance Fraud and
Reporting Immunity
Section 38-55-510. This article is known and may be cited as the
`Omnibus Insurance Fraud and Reporting Immunity Act'.
Section 38-55-520. The purpose of this article is to confront
aggressively the problem of insurance fraud in South Carolina by
facilitating the detection of insurance fraud; to allow reporting of
suspected insurance fraud; to grant immunity for reporting suspected
insurance fraud; to prescribe penalties for insurance fraud; to require
restitution for victims of insurance fraud; to establish a division within
the Office of the Attorney General to prosecute insurance fraud; and to
require the investigation of alleged insurance fraud by State Law
Enforcement Division.
Section 38-55-530. As used in this article:
(a) `Authorized agency' means any duly constituted criminal
investigative department or agency of the United States or of this State;
the Department of Insurance; the Department of Revenue and Taxation,
Division of Motor Vehicles; the Workers' Compensation Commission;
the Office of the Attorney General of this State; or the prosecuting
attorney of any judicial circuit, county, municipality, or political
subdivision of this State or of the United States, and their respective
employees or personnel acting in their official capacity.
(b) `Insurer' shall have the meaning set forth in Section 38-1-20(25)
and includes any authorized insurer, self-insurer, reinsurer, broker,
producer, or any agent thereof.
(c) `Person' means any natural person, company, corporation,
unincorporated association, partnership, professional corporation, or
other legal entity and includes any applicant, policyholder, claimant,
medical provider, vocational rehabilitation provider, attorney, agent,
insurer, fund, or advisory organization.
(d) `False statement and misrepresentation' means a statement or
representation made by a person that is false, material, made with the
person's knowledge of the falsity of the statement and made for the
purpose of obtaining or denying or causing another to obtain or deny any
benefit or payment in connection with an insurance transaction and such
shall constitute fraud.
(e) `Immune' means that neither a civil action nor a criminal
prosecution may arise from any action taken pursuant to this article
unless actual malice on the part of the reporting person or gross
negligence or reckless disregard for the rights of the reported person is
present.
Section 38-55-540. Any person or insurer who makes a false
statement or misrepresentation, and any other person knowingly, with
an intent to injure, defraud or deceive, who assists, abets, solicits, or
conspires with such person or insurer to make a false statement or
misrepresentation, is guilty of a:
(1) misdemeanor, for a first offense violation, if the amount of the
benefit received is less than one thousand dollars. Upon conviction, the
person must be punished by a fine not to exceed five hundred dollars or
by imprisonment not to exceed thirty days;
(2) misdemeanor, for a first offense violation, if the amount of the
benefit received is one thousand dollars or more. Upon conviction, the
person must be punished by a fine not to exceed fifty thousand dollars
or by imprisonment for a term not to exceed three years, or by both such
fine and imprisonment;
(3) felony, for a second or subsequent violation, regardless of the
amount of the benefit received. Upon conviction, the person must be
punished by a fine not to exceed fifty thousand dollars or by
imprisonment for a term not to exceed ten years, or by both such fine
and imprisonment.
Any person or insurer convicted under this section must be ordered to
make full restitution to the victim or victims for any economic benefit
or advantage which has been obtained by the person or insurer as a result
of that violation.
Section 38-55-550. (A) In addition to any criminal liability, any
person who is found by a court of competent jurisdiction to have
violated any provision of this act, including Section 38-55-170, must be
subject to a civil penalty for each violation as follows:
(1) for a first offense, a fine not to exceed five thousand dollars;
(2) for a second offense, a fine not less than five thousand dollars
but not to exceed ten thousand dollars;
(3) for a third and subsequent offense, a fine not less than ten
thousand dollars but not to exceed fifteen thousand dollars.
(B) The civil penalty shall be paid to the director of the Insurance
Fraud Division to be used in accordance with subsection (D) of this
section. The court may also award court costs and reasonable attorneys'
fees to the director. When requested by the director, the Attorney
General may assign one or more deputy attorney generals to assist the
bureau in any civil court proceedings against the person.
(C) Nothing in subsections (A) and (B) shall be construed to prohibit
the director of the Insurance Fraud Division and the person alleged to be
guilty of a violation of this act from entering into a written agreement in
which the person does not admit or deny the charges but consents to
payment of the civil penalty. A consent agreement may not be used in
a subsequent civil or criminal proceeding relating to any violation of this
act.
(D) All revenues from the civil penalties imposed pursuant to this
section shall be used to provide funds for the costs of enforcing and
administering the provisions of this act.
Section 38-55-560. (a) There is established in the Office of the
Attorney General a division to be known as the Insurance Fraud
Division, which must prosecute violations of Sections 38-55-170 and
38-55-540 of the 1976 Code and related criminal insurance activity.
Upon receipt of any claims or allegations of violations of Sections
38-55-170 and 38-55-540 of the 1976 Code and related criminal
insurance activity, the Attorney General shall forward the information
to the State Law Enforcement Division for investigation.
(b) The Attorney General, upon receipt of any claims or allegations
of violations of Sections 38-55-170 and 38-55-540 of the 1976 Code and
related criminal insurance activity, is empowered to:
(1) refer the matter for investigation to the State Law
Enforcement Division;
(2) prosecute persons determined to be in violation of Sections
38-55-170 and 38-55-540 of the 1976 Code and related criminal
insurance activity in a court of appropriate jurisdiction; and
(3) collect fines and restitution ordered by such courts. Where
deemed appropriate, the Attorney General may use the Setoff Debt
Collection Act to collect fines and restitution ordered as a result of
actions brought pursuant to Sections 38-55-170 and 38-55-540.
(c) The State Law Enforcement Division shall investigate
thoroughly all claims or allegations of violations of Sections 38-55-170
and 38-55-540 of the 1976 Code and related criminal insurance activity
received from the Attorney General pursuant to this section.
(d) The Insurance Fraud Division of the Office of Attorney General
and the investigative services of the State Law Enforcement Division as
provided by this section must be funded by an appropriation of not less
than two hundred thousand dollars annually from the general revenues
of the State derived from the insurance premium taxes collected by the
Department of Insurance and/or from fines assessed under Sections
38-55-170 and 38-55-540 which shall be deposited in the general
revenue fund to the credit of the Office of the Attorney General and the
State Law Enforcement Division to offset the costs of this
program;provided that the funds generated from these fines, to be
utilized by either the Office of the Attorney General or SLED, shall not
total more than $500,000. These monies shall be shared equally on a
fifty-fifty basis by the Office of the Attorney General and the State Law
Enforcement Division, and the balance must go to the general fund of
the State.
Section 38-55-570. (a) Any person, insurer, or authorized agency
having reason to believe that another has made a false statement or
misrepresentation or has knowledge of a suspected false statement or
misrepresentation shall, for purposes of reporting and investigation,
notify the Insurance Fraud Division of the Office of the Attorney
General of the knowledge or belief and provide any additional
information within his possession relative thereto.
(b) Upon request by the Insurance Fraud Division, any person,
insurer, or authorized agency shall release to the Insurance Fraud
Division any or all information relating to any suspected false statement
or misrepresentation including, but not limited to:
(1) insurance policy information relevant to the investigation,
including any application for such a policy;
(2) policy premium payment records, audits, or other documents
which are available;
(3) history of previous claims, payments, fees, commissions,
service bills, or other documents which are available; and
(4) other information relating to the investigation of the suspected
false statement or misrepresentation.
(c) Any authorized agency provided with or obtaining information
relating to a suspected false statement or misrepresentation as provided
for above may release or provide the information to any other authorized
agency. The Department of Insurance, the Department of Revenue and
Taxation, Division of Motor Vehicles, and the Workers' Compensation
Commission shall refer, but not adjudicate, all cases of suspected or
reported false statement or misrepresentation to the Insurance Fraud
Division of the Office of Attorney General for appropriate investigation
or prosecution, or both.
(d) Except as otherwise provided by law, any information furnished
pursuant to this section shall be privileged and shall not be part of any
public record. Any information or evidence furnished to an authorized
agency pursuant to this section shall not be subject to subpoena or
subpoena duces tecum in any civil or criminal proceeding unless, after
reasonable notice to any person, insurer, or authorized agency which has
an interest in the information and after a subsequent hearing, a court of
competent jurisdiction determines that the public interest and any
ongoing investigation will not be jeopardized by obeyance of the
subpoena or subpoena duces tecum.
Section 38-55-580. (a) A person, insurer, or authorized agency,
when acting without malice or in good faith, is immune from any
liability arising out of filing reports, cooperating with investigations by
any authorized agency, or furnishing other information, whether written
or oral, and whether in response to a request by an authorized agency or
upon their own initiative, concerning any suspected, anticipated, or
completed insurance fraud, when such reports or information are
provided to or received by any authorized agency.
(b) Nothing herein abrogates or modifies in any way common law
or statutory privilege or immunity heretofore enjoyed by any person,
insurer, or authorized agency.
(c) Nothing herein limits the liability of any person or insurer who,
with malice or in bad faith, makes a report of suspected fraud under the
provisions of this article.
Section 38-55-590. The director of the Insurance Fraud Division in
the Office of the Attorney General shall annually report to the General
Assembly regarding:
(a) the status of matters reported to the division, if not privileged
information by law;
(b) the number of allegations or reports received;
(c) the number of matters referred to SLED for investigation;
(d) the outcome of all investigations and prosecutions under this act,
if not privileged by law;
(e) the total amount of fines levied by the court and paid to or
deposited by the division; and
(f) patterns and practices of fraudulent insurance transactions
identified in the course of performing its duties. The director shall also
periodically report this information to insurers transacting business in
this State, health maintenance organizations transacting business in this
State, and other persons, including the State of South Carolina, which
provide benefits for health care in this State, whether these benefits are
administered directly or through a third person."
SECTION 2. The 1976 Code is amended by adding:
"Section 42-9-440. The commission shall refer all cases of
suspected false statement or misrepresentation to the Insurance Fraud
Division of the Office of the Attorney General for investigation and
prosecution, if warranted, pursuant to the Omnibus Insurance Fraud and
Reporting Immunity Act.
For the purposes of this section, `false statement and
misrepresentation' means a statement or representation made by a person
that is false, material, made with the person's knowledge of the falsity of
the statement and made for the purpose of obtaining or denying or
causing another to obtain or deny any benefit or payment in connection
with an insurance transaction and such shall constitute fraud."
SECTION 3. This act takes effect July 1, 1994.
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