When Your Personal Injury Claim Becomes Fraud

If you're making a personal injury claim, be sure to play by the rules, avoid exaggerating injuries, and steer clear of any hints of fraud.

Filing a fraudulent personal injury-related insurance claim can have serious ramifications. Not only can the insurer deny your claim, you could also be liable to the company for any money paid out to you, for the costs of the insurance company investigation of the claim, and even for punitive damages in some cases. You could even face criminal charges. Read on to learn more.

What is a Fraud in a Personal Injury Insurance Claim?

Personal injury-related insurance fraud is typically defined as any act intended to cause an insurance company to compensate you for an injury that is nonexistent, exaggerated, or unrelated to any accident covered by the policy. Common examples include faking or exaggerating the nature and extent of injuries after an accident, or planning or staging a theft, arson incident, or car accident.

It is important to note that you can be liable for fraudulently filing an injury-related insurance claim even if you do not lie or make false representations. For example, if you notify your own insurance company of an accident that could trigger coverage, and you simply fail to disclose information which you have a legal duty to disclose, you may be liable for filing a fraudulent personal injury claim.

Types of Fraudulent Personal Injury Claims

There are two basic types of fraudulent personal injury-related insurance claims: "soft" insurance fraud and "hard" insurance fraud.

• Soft Insurance Fraud. Soft insurance fraud (also called "opportunistic" insurance fraud) is the most common type of insurance fraud. Soft insurance fraud occurs when the claimant makes an inflated claim, such as exaggerating the severity of a neck injury. Obviously you want to get every dollar your injury justifies, but you cross the line when you claim losses beyond your actual damages.
• Hard Insurance Fraud. Hard insurance fraud (also called "premeditated" insurance fraud) occurs when the claimant invents a way to make an insurance claim. This type of insurance fraud usually involves some sort of deliberate action, such as intentionally causing an accident or staging arson or theft of a vehicle.

Civil and Criminal Consequences

If you file a fraudulent personal injury claim, you can be liable to the insurance company, and you might even face criminal charges.

Liability to the Insurance Company

Filing a fraudulent personal injury claim can result in the insurance company taking the following actions:

• Denial of award from a claim. The least severe consequence for filing a fraudulent personal injury claim is for the claim to be denied. In such a situation, the insurance company will not compensate you for any losses associated with the claim.
• Cancellation of insurance coverage. The insurance company also has the option of dropping the claimant as a customer, regardless of whether the claimant filed an insurance claim against the company. Fraudulent insurance claims are reported to the state department of insurance. Insurance companies check this on a regular basis. Most coverage contracts permit an insurance company to cancel a policy without notice if the policy holder is in any way involved in a fraudulent claim. Once appearing on a list as having filed a fraudulent insurance claim, it is unlikely the claimant will be able to obtain insurance coverage in the future.
• Revocation of settlement or lawsuit award. If you were awarded any money by the insurance company, the insurance company will request that the money be returned. If you cannot refund the full amount, the insurance company may file a lawsuit against you. In this lawsuit, the insurance company can recover the full amount of losses it suffered as a result of your fraudulent claim, including the amount it paid you, but also the costs incurred for investigating your fraudulent claim. If your actions were particularly egregious, the insurance company can also recover punitive damages, or damages meant to punish bad conduct. Punitive damages can double or even quadruple the size of the claim the insurance company has against you! If you are unable to pay the damages, the insurance company could request a lien in court. If granted, the insurance company could prevent you from selling or profiting from certain assets without their first being notified and being entitled to the proceeds. The company can also garnish your wages.

Criminal Consequences

No matter what state you live in, filing a fraudulent insurance claim is a crime punishable as either a misdemeanor or felony. However, the punishment will vary from state to state, and according to the severity of the fraud.

• Misdemeanor fraudulent insurance claims. Most fraudulent injury-related insurance claims are misdemeanors. This usually applies if you exaggerated the claim or made a misrepresentation on the application. For example, you state that your car is stored in a garage, when in fact you always park it on the street. A misdemeanor can result in a fine, probation, and even jail time (less than one year).
• Felony fradulent insurance claims. Fraudulent insurance claims that involve the destruction of property can result in a felony conviction—for example, destroying a car by way of arson or staging a collision to claim the insurance payment. A felony can result in a fine and jail time.

To learn more about the criminal aspects of insurance fraud, see Insurance Fraud Laws and Penalties (On CriminalDefenseLawyer.com, opens in a new window).