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H. 4894
STATUS INFORMATION
General Bill
Sponsors: Reps. Tripp, Cato, Vaughn, Leach, Hamilton, Kirsh, Loftis, G.R. Smith, Taylor and Walker
Document Path: l:\council\bills\dka\3768dw04.doc
Introduced in the House on March 3, 2004
Currently residing in the House Committee on Labor, Commerce and Industry
Summary: Department of Insurance, civil enforcement unit
HISTORY OF LEGISLATIVE ACTIONS
Date Body Action Description with journal page number
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3/3/2004 House Introduced and read first time HJ-39
3/3/2004 House Referred to Committee on Labor, Commerce and Industry
HJ-39
View the latest legislative information at the LPITS web site
VERSIONS OF THIS BILL
TO AMEND ARTICLE 5, CHAPTER 55, TITLE 38, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO INSURANCE FRAUD AND REPORTING IMMUNITY, SO AS TO ESTABLISH A CIVIL ENFORCEMENT UNIT OF THE DEPARTMENT OF INSURANCE, TO CHANGE AND ADD CERTAIN DEFINITIONS, TO INCREASE PENALTIES FOR CONVICTION, TO PROVIDE CIVIL REMEDIES FOR PERSONS INJURED, TO PROVIDE FOR THE POWERS, DUTIES, AND RESPONSIBILITIES OF THE CIVIL ENFORCEMENT UNIT, TO PROVIDE THAT THE UNIT SHALL RECEIVE REVENUE FROM THE FINES ASSESSED, TO PROVIDE THAT THE OFFICE OF THE ATTORNEY GENERAL, THE STATE LAW ENFORCEMENT DIVISION, AND THE DEPARTMENT OF INSURANCE CIVIL ENFORCEMENT UNIT SHALL COOPERATE AS APPROPRIATE, AND TO AUTHORIZE THE DEPARTMENT OF INSURANCE TO ASSESS LICENSED INSURERS BASED ON PREMIUM WRITINGS AND TO PROVIDE FOR THE DISTRIBUTION OF FUNDS GENERATED BY THE ASSESSMENTS.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Article 5, Chapter 55, Title 38 of the 1976 Code is amended to read:
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:
(1) confront aggressively the problem of insurance fraud in South Carolina by facilitating the detection of insurance fraud;
(2) to allow reporting of suspected insurance fraud;
(3) to grant immunity for reporting suspected insurance fraud;
(4) to prescribe penalties for insurance fraud;
(5) to require restitution for victims of insurance fraud;
(6) to establish a division within the Office of the Attorney General to prosecute insurance fraud;
(7) establish a Civil Enforcement Unit at the Department of Insurance; and
(8) to require the investigation of alleged insurance fraud by State Law Enforcement Division.
Section 38-55-530. As used in this article:
(A)(1) '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; the Department of Public Safety; the Workers' Compensation Commission; the State Accident Fund; the Second Injury Fund; the Employment Security Commission; the Department of Consumer Affairs; the Human Affairs Commission; the Department of Health and Environmental Control; the Department of Social Services; the Department of Health and Human Services; the Department of Labor, Licensing and Regulation; all other state boards, commissions, and agencies; the Office of the Attorney General of South Carolina; 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)(2) 'Insurer' shall have has the meaning set forth as provided in Section 38-1-20(25) and includes any authorized insurer, self-insurer, reinsurer, broker, producer, or any an agent thereof of them. 'Insurer' also includes a person or an entity which purports to be an authorized insurer, a self-insurer, a reinsurer, a broker, a producer, or an agent of them, or a person or an entity which undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.
(C)(3) 'Person' means any natural person, company, corporation, unincorporated association, partnership, professional corporation, or other legal entity and includes any applicant, policyholder, claimant, medical providers, vocational rehabilitation provider, attorney, agent, insurer, fund, or advisory organization.
(D)(4) 'False statement and misrepresentation' means a statement or representation made by a person, in any form, which includes all electronic transmissions, that is false, material, made with the person's knowledge of the falsity of the statement, and made with the intent of obtaining or causing another to obtain or attempting to obtain or causing another to obtain an undeserved economic advantage or benefit or made with the intent to deny or cause another to deny any a benefit or payment in connection with an insurance transaction and such shall constitute constitutes fraud.
(E)(5) 'Immune' means that neither a civil action nor a criminal prosecution may arise from any an 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.
(6) 'Pattern or practice' means repeated, routine, or generalized in nature, and not merely isolated or sporadic.
(7) 'Victim' includes any corporation, fraternal organization, burial association, other association, partnerships, society, order, individual, or aggregation of individuals engaging or proposing or attempting to engage as principals in any kind of insurance or surety business, including the exchanging of reciprocal or interinsurance contracts between individuals, partnerships, and corporations.
Section 38-55-540. (A) Any A person or an insurer who makes a false statement or misrepresentation, and any other another person knowingly, with an intent to injure, defraud, or deceive, who assists, abets, solicits, or conspires with such a person or an insurer to make a false statement or misrepresentation, is guilty of a:
(1) misdemeanor, for a first offense violation, if the amount of the economic advantage benefit received or attempted to receive is less than one thousand dollars. Upon conviction, the person must be punished by a fine not to exceed fined not more than five hundred dollars or by imprisonment not to exceed imprisoned not more than thirty days;
(2) misdemeanor felony, for a first offense violation, if the amount of the economic advantage benefit received or attempted to receive is equal to or exceeds one thousand dollars or more but is less than five thousand dollars. Upon conviction, the person must be punished by a fine not to exceed fined not more than fifty thousand dollars or by imprisonment for a term not to exceed imprisoned not more than three years, or by both such fine and imprisonment;
(3) felony, for a first offense, if the amount of the economic advantage benefit received or attempted to receive is equal to or exceeds five thousand dollars or an action which places a person at risk of death or serious bodily injury. Upon conviction, the person must be fined not more than one hundred thousand dollars or imprisoned not more than ten years, or both;
(4) felony, for a second or subsequent violation, regardless of the amount of the economic advantage benefit received or attempted to receive or an action which places a person at risk of death or serious bodily injury. Upon conviction, the person must be punished by a fine not to exceed fifty fined not more than one hundred thousand dollars or by imprisonment for a term not to exceed imprisoned not more than ten years, or by both such fine and imprisonment.
(B) Any A person or an insurer convicted under pursuant to this section must be ordered to make full restitution to the victim or victims for any economic advantage or benefit 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 a person who is found by a court of competent jurisdiction to have violated any a provision of this article, including Section 38-55-170, is 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 of not less than five thousand dollars but not to exceed ten fifty thousand dollars;
(3) for a third and subsequent offense, a fine of not less than ten fifty thousand dollars but not to exceed fifteen one hundred thousand dollars.
(B) The civil penalty must 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 may award court costs and reasonable attorneys' attorney's fees to the director. When If requested by the director, the Attorney General may assign one or more deputies attorneys general to assist the bureau division in any a civil court proceedings proceeding against the person.
(C) Nothing in subsections (A) and (B) shall must be construed to prohibit the director of the Insurance Fraud Division and the person alleged to be guilty of a violation of this article 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 a violation of this article.
(D) All revenues from the civil penalties imposed pursuant to this section must be used to provide funds for the costs of enforcing and administering the provisions of this article Section 38-55-555(C).
Section 38-55-555. (A)(1) A person injured in his business or on his property by reason of a violation of the provisions of this article may recover, in an appropriate court, from a person violating the provisions of this article the following:
(a) return of any profit, benefit, compensation, payment, or unpaid premium received or retained by a person violating the provisions of this article directly resulting from a violation;
(b) reasonable attorney's fees, related legal expenses, including internal legal expenses and court costs, and reasonable investigative fees;
(c) full restitution to the victim must be given priority over all other awards and penalties.
(2) An action maintained pursuant to this subsection may neither be certified as a class action nor be made part of a class action.
(B) A person injured in his business or on his property by a person violating this article, upon showing evidence that the violation was part of a pattern or practice of those violations, is entitled to recover three times the injured person's economic damages. One third of the treble damages awarded is payable to the Department of Insurance to be used only for the purpose of investigation and civil enforcement of violations of this article or other fraudulent behavior relating to insurance transactions, and for public education relating to insurance fraud, or both. An action maintained pursuant to this subsection may neither be certified as a class action or be made part of a class action.
(C)(1) The Department of Insurance Civil Enforcement Unit as provided by Section 38-55-565 has authority to maintain:
(a) civil proceedings on behalf of the State of South Carolina, as authorized by the Attorney General, and any victims of violations of this article and any other insurance laws of this State; and
(b) administrative proceedings on behalf of the Department of Insurance for violations of this article and any other insurance laws of this State. This does not preclude civil or criminal proceedings from taking place before, during, or after the administrative proceeding.
(2) The court shall proceed with all deliberate speed to the hearing and determination of all actions authorized by this article. Pending final determination, the court may at any time enter restraining orders or prohibitions, or take other actions, including the acceptance of satisfactory performance bonds, as it considers proper.
(3) The courts of the State have jurisdiction to prevent and restrain violations of this article by issuing appropriate orders.
(4) In an action commenced pursuant to subsection (C), the court, upon finding that a person has violated this article or other insurance laws of this State, shall levy a fine of up to one hundred thousand dollars for each violation.
(D)(1) A court in which a civil action for violation of this article is pending has authority to stay or limit proceedings in another civil action regarding the same or related conduct.
(2) A court in which a civil action is pending brought pursuant to subsection (C) may stay or limit proceedings in actions brought pursuant to subsections (A), (B), and (C) regarding the same or related conduct or may transfer the actions, consolidate them before that court, or allow the plaintiffs in the actions to participate in the action brought pursuant to subsection (C) as it prescribes.
(E) A cause of action pursuant to this section for violation of this article must be brought within three years from the date the plaintiff discovered, or should have discovered, acts constituting a violation of this article, whichever is later.
(F) An insurer shall not pay damages awarded pursuant to this section or provide a defense or money for a defense on behalf of an insured under a contract of insurance or indemnification. A third party who has asserted a claim against an insured has no cause of action pursuant to this section against the insurer of the insured arising out of the insurer's processing or settlement of the third party's claim. An obligee under a surety bond does not have a cause of action pursuant to this section against the surety arising out of the surety's processing or settlement of the obligee's claim against the bond.
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 prosecutes violations of Sections 38-55-170 and 38-55-540 and related criminal insurance activity. Upon receipt of any claims or allegations of violations of Section 38-55-170 and 38-55-540 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 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 and related criminal insurance activity in a court of competent jurisdiction; and
(3) collect fines and restitution ordered by the court. Where considered 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 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, or both, which must 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 the State Law Enforcement Division shall not total more than five hundred thousand dollars. These monies must 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 38-55-565. (A) There is created within the Department of Insurance, under the control and direction of the Director of the Department of Insurance, a Department of Insurance Civil Enforcement Unit.
(B)(1) The Department of Insurance may assess all licensed insurers based upon their direct premium writings in South Carolina as provided in the annual statements filed with the department. The Department of Insurance may establish the schedule for payment of the assessment and the method of payment by department bulletin. The annual assessment must total two million, five hundred thousand dollars. Of the total annual assessment collected:
(a) seven hundred fifty thousand dollars must be distributed to the State Law Enforcement Division for the investigation of criminal insurance fraud;
(b) seven hundred fifty thousand dollars must be distributed to the Office of the Attorney General for the prosecution of criminal insurance fraud; and
(c) the remaining one million dollars must be retained by the Department of Insurance Civil Enforcement Unit for the screening, administration, and initiation of civil insurance fraud claims.
(2) These agencies are required to collect or receive, expend, retain, and carry forward these funds for the exclusive use and operation of the investigation and prosecution of insurance fraud.
(3) The Department of Insurance shall distribute these funds by September fifteenth of each year. Expenditure of these funds must be reported to the General Assembly by September thirtieth of each year.
(C) Records, documents, reports, and evidence obtained or created by the Department of Insurance Civil Enforcement Unit as a result of an inquiry or investigation of suspected insurance fraud are confidential and are not subject to the South Carolina Freedom of Information Act or to outside review or release by an individual, but are subject to court order. Information and records must be disclosed upon request to officers and agents of federal, state, county, or municipal law enforcement agencies, to the State Law Enforcement Division, to the Office of the Attorney General, and to solicitors in criminal investigations.
(D) The Department of Insurance Civil Enforcement Unit is authorized to employ civil investigators.
(E) The Department of Insurance Civil Enforcement Unit shall receive for its use all revenues derived from fines assessed pursuant to the provisions of Section 38-55-555.
Section 38-55-570. (A) Any A person, an insurer, or an 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 notify, 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 to a false statement or misrepresentation.
(B) Upon request by the Insurance Fraud Division, any a person, an insurer, or an authorized agency shall release to the Insurance Fraud Division any or all information relating to any a suspected false statement or misrepresentation including, but not limited to:
(1) insurance policy information relevant to the investigation, including any application for such a polity policy;
(2) policy premium payment records, audits, or other documents which are available;
(3) history of previous claims, payments, fees, commission, 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 An authorized agency provided with or obtaining information relating to a suspected false statement or misrepresentation as provided for above in this section may release or provide the information to any other another authorized agency. The Department of Insurance, the Department of Revenue, and the Department of Public Safety shall report, but not adjudicate, all cases of suspected or reported false statement or misrepresentation to the Insurance Fraud Division of the Office of the Attorney General of South Carolina for appropriate investigation or prosecution, or both. The Workers' Compensation Commission may refer such those cases as provided in Section 42-9-440.
(D) The Office of the Attorney General, the State Law Enforcement Division, and the Department of Insurance Civil Enforcement Unit shall cooperate as appropriate and necessary to implement the purposes of this article.
(E) Except as otherwise provided by law, any information furnished pursuant to this section is privileged and shall is not be part of any public record. Any Information or evidence furnished to an authorized agency pursuant to this section is not subject to subpoena or subpoena duces tecum in any civil or criminal proceeding unless, after reasonable notice to any a person, an insurer, or an 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 is not be jeopardized by obedience of the subpoena or subpoena duces tecum. The Department of Insurance may receive and must shall maintain as confidential any documents or information furnished to it by the National Association of Insurance Commissioners or insurance departments of other states which is classified as confidential by that association or state. The Department of Insurance may share documents or information, including confidential documents or information, with the National Association of Insurance Commissioners or insurance departments of other states, if the association or other state agrees to maintain the same level of confidentiality as is provided under South Carolina law. If the documents or information received by the Department of Insurance from the National Association of Insurance Commissioners or the insurance departments of other states involve allegations of insurance fraud, the documents or information must be forwarded by the Department of Insurance to the Insurance Fraud Division of the Office of the Attorney General.
Section 38-55-580. (A) A person, an insurer, or an 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 an 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 false statement or misrepresentation when such the reports or information are provided to or received by any an authorized agency.
(B) Nothing herein in this section abrogates or modifies in any way common law or statutory privilege or immunity heretofore enjoyed by any a person, an insurer, or an authorized agency.
(C) Nothing herein in this section limits the liability of any a person or an insurer who, with malice or in bad faith, makes a report of suspected fraud under the provisions of this article.
(D) In addition to the immunity granted in this section, persons identified as designated employees whose responsibilities include the investigation and disposition of claims relating to suspected fraudulent insurance acts may share information relating to persons suspected of committing fraudulent insurance acts with other designated employees employed by the same or other insurers whose responsibilities include the investigation and disposition of claims relating to fraudulent insurance acts, provided the department has been given written notice of the names and job titles of these designated employees prior to before any designated employee sharing information. Unless the designated employees of the insurer act in bad faith or in reckless disregard for the rights of any insured, neither the insurer nor its designated employees are civilly liable for libel, slander, or any other relevant tort, and a civil action does not arise against the insurer or its designated employees for any information related to suspected fraudulent insurance acts provided to:
(1) for any information related to suspected fraudulent insurance acts provided to an insurer; or
(2) for information related to suspected fraudulent insurance acts provided to the National Insurance Crime Bureau or the National Association of Insurance Commissioners.
Provided, however, that The qualified immunity against civil liability conferred on any an insurer or its designated employees shall be is forfeited with respect to the exchange or publication of any defamatory information with third persons not expressly authorized by this subsection (D) to share in such this information.
Section 38-55-590. (A) The director of the Insurance Fraud Division in the Office of the Attorney General shall report annually report to the General Assembly regarding the:
(A)(1) the status of matters reported to the division, if not privileged information by law;
(B)(2) the number of allegations or reports received;
(C)(3) the number of matters referred to the State Law Enforcement Division for investigation;
(D)(4) the outcome of all investigations and prosecutions under pursuant to this article, if not privileged by law;
(E)(5) the total amount of fines levied by the court and paid to or deposited by the division; and
(F)(6) patterns and practices of fraudulent insurance transactions identified in the course of performing its duties.
(B) The director also shall also report 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. This act takes effect upon approval by the Governor.
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