SB 507 Text

Senate Bill No. 507
(By Senator Jenkins)
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[Introduced February 11, 2004; referred to the Committee on the Judiciary; and then to the Committee on Finance.]
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A BILL to amend the code of West Virginia, 1931, as amended, by adding thereto a new section, designated §33-22-2a ; to amend said code by adding thereto a new section, designated §33-23-2a ; to amend said code by adding thereto a new section, designated §33-24-4a ; to amend said code by adding thereto a new section, designated §33-25-6a ; to amend said code by adding thereto a new section, designated §33-25A-24a ; and to amend and reenact §33-41-1, §33-41-2, §33-41-3, §33-41-4, §33-41-5, §33-41-6, §33-41-7, §33-41-8, §33-41-9, §33-41-10, §33-41-11, §33-41-12, §33-41-13 and §33-41-14 , all relating to insurance fraud; subjecting farmers mutual insurance companies, fraternal benefit societies, certain hospital, medical, dental and health services corporations, health care corporations and health maintenance organizations to insurance fraud provisions; defining terms; establishing an insurance fraud unit within the division of insurance; authorizing the promulgation of rules and requiring the filing of annual reports; establishing powers and duties of the unit; outlining investigative powers and procedures; providing confidentiality and immunity of the unit operations; prohibiting insurance fraud; establishing criminal penalties and fines; authorizing prosecution for fraudulent acts; authorizing special prosecutors; specifying duties of insurers; authorizing funding by an assessment of insurers; establishing the West Virginia insurance fraud prevention act; defining legislative intent and terms; creating misdemeanor and felony offenses for the commission of fraudulent acts; and creating penalties, exceptions and immunities.

Be it enacted by the Legislature of West Virginia:
That the code of West Virginia, 1931, as amended, be amended by adding thereto a new section, designated §33-22-2a ; that said code be amended by adding thereto a new section, designated §33-23-2a; that said code be amended by adding thereto a new section, designated §33-24-2a ; that said code be amended by adding thereto a new section, designated §33-25-6a ; that said code be amended by adding thereto a new section, designated §33-25A-24a ; and to amend and reenact §33-41-1, §33-41-2, §33-41-3, §33-41-4, §33-41-5, §33-41-6, §33-41-7, §33-41-8, §33-41-9, §33-41-10, §33-41-11, §33-41-12, §33-41-13 and §33-41-14 , all to read as follows:
ARTICLE 22. FARMERS' MUTUAL FIRE INSURANCE COMPANIES.
§33-22-2a. Applicability of Insurance Fraud Prevention Act.
Notwithstanding any provision of this code to the contrary, article forty-one, chapter thirty-three is applicable to farmers? mutual fire insurance companies.
ARTICLE 23. FRATERNAL BENEFIT SOCIETIES.
§33-23-2a. Applicability of Insurance Fraud Prevention Act.
Notwithstanding any provision of this code to the contrary, article forty-one, chapter thirty-three is applicable to fraternal benefit societies.
ARTICLE 24. HOSPITAL SERVICE CORPORATIONS, MEDICAL SERVICE CORPORATIONS, DENTAL SERVICE CORPOR4TIONS AND HEALTH SERVICE CORPORATIONS.

§33-24-4a. Applicability of Insurance Fraud Prevention Act.
Notwithstanding any provision of this code to the contrary, article forty-one, chapter thirty-three is applicable to hospital service corporations, medical service corporations, dental service corporations and health service corporations.
ARTICLE 25. HEALTH CARE CORPORATIONS.
§33-25-6a. Applicability of Insurance Fraud Prevention Act.
Notwithstanding any provision of this code to the contrary, article forty-one, chapter thirty-three is applicable to health care corporations.
ARTICLE 25A. HEALTH MAINTENANCE ORGANIZATION ACT.
§33-25A-24a. Applicability of Insurance Fraud Prevention Act.
Notwithstanding any provision of this code to the contrary, article forty-one, chapter thirty-three is applicable to health maintenance organizations.
ARTICLE 41. INSURANCE FRAUD PREVENTION ACT.
§33-41-1. Legislative purpose and findings.
This article may be cited as the "West Virginia Insurance Fraud Prevention Act." The West Virginia Legislature finds that the business of insurance involves many transactions that have potential for fraud, abuse and other illegal activities. This article is intended to permit full utilization of the expertise of the commissioner to investigate and discover fraudulent insurance acts more effectively, halt fraudulent insurance acts and assist and receive assistance from state, local and federal law-enforcement and regulatory agencies in enforcing laws prohibiting fraudulent insurance acts.
§33-41-2. Definitions.
As used in this article:
(a) "Benefits" mean money payments, goods, services or any other thing of value.
(b) "Business of insurance" means the writing of insurance or the reinsuring of risks by an insurer, including acts necessary or incidental to writing insurance or reinsuring risks and the activities of persons who act as or are officers, directors, agents or employees of insurers, or who are other persons authorized to act on their behalf.
(c) "Claim" means an application or request for payment or benefits provided under an insurance policy.
(d) "Commissioner" means the commissioner of insurance, the commissioner?s designees or the office of the insurance commissioner.
(e) "Financial loss" includes, but is not limited to, loss of earnings, out-of-pocket and other expenses, repair and replacement costs and claims payments made by any insurer, provider or person.
(f) "Fraudulent insurance act" means an act or omission committed by a person who, knowingly and with intent to injure, defraud, or deceive any person commits, or conceals any material information concerning, one or more of the following:
(1) Presenting, causing to be presented or preparing with knowledge or belief that it will be presented to or by an insurer, a reinsurer, broker or its agent, false information as part of, in support of or concerning a fact material to one or more of the following:
(A) An application for the issuance or renewal of an insurance policy or reinsurance contract;
(B) The rating of an insurance policy or reinsurance contract; (C) A claim for payment or benefit pursuant to an insurance policy or reinsurance contract;
(D) Premiums paid on an insurance policy or reinsurance contract;
(E) Payments made in accordance with the terms of an insurance policy or reinsurance contract;
(F) A document filed with the commissioner or the chief insurance regulatory official of another jurisdiction;
(G) The financial condition of an insurer or reinsurer;
(H) The formation, acquisition, merger, reconsolidation, dissolution or withdrawal from one or more lines of insurance or reinsurance in all or part of this state by an insurer or reinsurer;
(I) The issuance of written evidence of insurance; or
(J) The reinstatement of an insurance policy;
(2) Solicitation or acceptance of new or renewal insurance risks on behalf of an insurer, reinsurer or other person engaged in the business of insurance by a person who knows or should know that the insurer or other person responsible for the risk is insolvent at the time of the transaction;
(3) Removal, concealment, alteration or destruction of the assets or records of an insurer, reinsurer or other person engaged in the business of insurance;
(4) Willful embezzlement, abstracting, purloining or conversion of moneys, funds, premiums, credits or other property of an insurer, reinsurer or person engaged in the business of insurance;
(5) Transaction of the business of insurance in violation of laws requiring a license, certificate of authority or other legal authority for the transaction of the business of insurance;
(6) Soliciting, offering or receiving any remuneration, including any kickback, rebate or bribe, directly or indirectly, with the intent of causing an expenditure of moneys from any person which would not otherwise be payable under an applicable insurance policy; or
(7) Attempting to commit, aiding or abetting in the commission of; or conspiracy to commit the acts or omissions specified in this subsection.
(g) "Health care provider" means any person, firm or corporation rendering health care services or goods.
(h) "Insurance" means a contract or arrangement in which one undertakes to:
(1) Pay or indemnity another as to loss from certain contingencies called "risks," including through reinsurance;
(2) Pay or grant a specified amount or determinable benefit to another in connection with ascertainable risk contingencies;
(3) Pay an annuity to another; or
(4) Act as surety.
(i) "Insurer" means a person entering into arrangements or contracts of insurance or reinsurance. Insurer includes, but is not limited to, any domestic or foreign stock company, mutual company, mutual protective association, farmers' mutual fire companies, fraternal benefit society, reciprocal or interinsurance exchange, nonprofit medical care corporation, nonprofit health care corporation, nonprofit hospital service association, nonprofit dental care corporation, health maintenance organization, captive insurance company, risk retention group or other insurer, regardless of the type of coverage written, benefits provided or guarantees made by each. A person is an insurer regardless of whether the person is acting in violation of laws requiring a certificate of authority or regardless of whether the person denies being an insurer.
(j) "Insurance representative" means any person, firm or corporation acting on an insurer?s behalf, including, but not limited to, any agent, adjuster, officer, director, employee or investigator.
(k) "NAIC" means the national association of insurance commissioners.
(l) "Person" means an individual, a corporation, a limited liability company, a partnership, an association, a joint stock company, a trust, trustees, an unincorporated organization, or any similar business entity or any combination of the foregoing. "Person" also includes hospital service corporations, medical service corporations and dental service corporations as defined in article twenty-four of this chapter, health care corporations as defined in article twenty-five of this chapter, or a health maintenance organization organized pursuant to article twenty-five-a of this chapter.
(m) "Policy" means an individual or group policy, group certificate, contract or arrangement of insurance or reinsurance affecting the rights of a resident of this state or bearing a reasonable relation to this state, regardless of whether delivered or issued for delivery in this state.
(n) "Reinsurance" means a contract, binder of coverage (including placement slip) or arrangement under which an insurer procures insurance for itself in another insurer as to all or part of an insurance risk of the originating insurer.
(o) "Statement" means any written or oral representation made to any person, insurer or authorized agency. A statement includes, but is not limited to, any oral report or representation; any insurance application, policy, notice or statement; any proof of loss, bill of lading, receipt for payment, invoice, account, estimate of property damages, or other evidence of loss, injury or expense; any bill for services, diagnosis, prescription, hospital or doctor record, x-ray, test result or other evidence of treatment, services or expense; and any application, report, actuarial study, rate request or other document submitted or required to be submitted to any authorized agency. A statement also includes any of the above recorded by electronic or other media.
(p) "Unit" means the insurance fraud unit established pursuant to the provisions of this article acting collectively or by its duly authorized representatives.
§33-41-3. Fraudulent insurance acts, interference and participation of convicted felons prohibited.

(a) A person may not commit a fraudulent insurance act.

(b) A person may not knowingly or intentionally interfere with the enforcement of the provisions of this article or investigations of suspected or actual violations of this article.
(c)(l) A person convicted of a felony involving dishonesty or breach of trust may not participate in the business of insurance.
(2) A person in the business of insurance may not knowingly or intentionally permit a person convicted of a felony involving dishonesty or breach of trust to participate in the business of insurance.
§33-41-4. Fraud warning required.
(a) Claim forms and applications for insurance, regardless of the form of transmission, shall 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 knowingly presents false information in an application for insurance is guilty of a crime and may be subject to fines and confinement in prison."
(b) The lack of a statement as required in subsection (a) of this section does not constitute a defense in any prosecution for a fraudulent insurance act.
(c) Policies issued by nonadmitted insurers pursuant to article twelve-c of this chapter shall contain a statement disclosing the status of the insurer to do business in the state where the policy is delivered or issued for delivery or the state where coverage is in force. The requirement of this subsection may be satisfied by a disclosure specifically required by section five, article twelve-c of this chapter; section nine, article thirty-two of this chapter; and section eighteen, article thirty-two for this chapter.
(d) The requirements of this section shall not apply to reinsurance claim forms or reinsurance applications.
§33-41-5. Investigative and prosecution authority of the commissioner.

(a) The commissioner may investigate suspected fraudulent insurance acts and persons engaged in the business of insurance.
(b) The commissioner may employ attorneys to assist in the prosecution of violations of this article. If the commissioner finds that the prosecuting attorney of the county in which the violation occurred is, for some reason, unable or unwilling to take appropriate action, the commissioner may petition the appropriate circuit court for the appointment of the commissioner?s attorney as a special prosecutor. An attorney appointed as a special prosecutor shall have the same authority as a county prosecutor to investigate and prosecute criminal violations of this article.
(c) Funds allocated for insurance fraud prevention may be dispersed by the commissioner, at his or her discretion, to prosecution authorities for the purpose of insurance fraud enforcement as identified in this article.
(d) The commissioner may negotiate with an attorney representing the state to prosecute violations of the article, to provide technical and litigation assistance to the Department of Insurance, and to allocate resources for the purpose of insurance fraud prosecution as identified in this article.
(e) It shall be the duty of the West Virginia state police, municipal police departments and the sheriffs of the counties in West Virginia to assist fraud investigators in making arrests and the duty of the prosecuting attorneys of the several counties to assist in the prosecution of all violations of this chapter and of other chapters governing the regulatory authority of the office of the insurance commissioner.
(f) The commissioner is hereby authorized to apply for and the court to grant a temporary or permanent injunction, to be issued without bond, restraining any person from violating or continuing to violate any provision of this article or rule promulgated thereunder notwithstanding the existence of other remedies at law.
§33-41-6. Mandatory reporting of fraudulent insurance acts.
(a) A person engaged in the business of insurance having knowledge or a reasonable belief that a fraudulent insurance act is being, will be or has been committed shall provide to the commissioner the information required by, and in a manner prescribed by, the commissioner.
(b) Any other person having knowledge or a reasonable belief that a fraudulent insurance act is being, will be or has been committed may provide to the commissioner the information required by, and in a manner prescribed by, the commissioner.
§33-41-7. Immunity from liability.
(a) There shall be no civil liability imposed on and no cause of action shall arise from a person furnishing information concerning suspected, anticipated or completed fraudulent insurance acts, if the information is provided to or received from:
(1) The commissioner or the commissioner?s employees, agents or representatives;
(2) Federal, state, or local law enforcement or regulatory officials or their employees, agents or representatives;
(3) A person involved in the prevention and detection of fraudulent insurance acts or that person?s agents, employees or representatives; or
(4) The national association of insurance commissioners or its employees, agents or representatives.
(b) Subsection (a) of this section shall not apply to statements made with actual malice. In an action brought against a person for filing a report or furnishing other information concerning a fraudulent insurance act, the party bringing the action shall plead specifically any allegation that subsection (a) of this section does not apply because the person filing the report or furnishing the information did so with actual malice.
(c) This section does not abrogate or modify common law or statutory privileges or immunities.
§33-41-8. Confidentiality.
(a) Documents, materials or other information in the possession or control of the office of the insurance commissioner that are provided pursuant to section six of this article or obtained by the commissioner in an investigation of suspected or actual fraudulent insurance acts shall be confidential by law and privileged, may not be subject to article one, chapter twenty-nine-b of the West Virginia code, 1931, as amended, are not open to public inspection, may not be subject to subpoena, and may not be subject to discovery or admissible in evidence in any private civil action. However, the commissioner is authorized to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the commissioner?s official duties. The commissioner is authorized to use the documents, materials or other information if they are required for evidence in criminal proceedings or other action by the state.
(b) Neither the commissioner nor any person who receives documents, materials or other information while acting under the authority of the commissioner may be permitted or required to testify in any private civil action concerning any confidential documents, materials or information subject to subsection (a) of this section.
(c) In order to assist in the performance of the commissioner?s duties, the commissioner:
(1) May share documents, materials or other information, including the confidential and privileged documents, materials or information subject to subsection (a) of this section with other state, federal and international regulatory agencies, with the national association of insurance commissioners and its affiliates and subsidiaries, and with local, state, federal and international law-enforcement authorities, provided that the recipient agrees to maintain the confidentiality and privileged status of the document, material or other information;
(2) May receive documents, materials or information, including otherwise confidential and privileged documents, materials or information, from the national association of insurance commissioners and its affiliates and subsidiaries, and from regulatory and law-enforcement officials of other foreign or domestic jurisdictions, and shall maintain as confidential or privileged any document, material or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or information;
(3) May enter into agreements governing sharing and use of information including the furtherance of any regulatory or legal action brought as part of the recipient?s official duties; and
(d) No waiver of any applicable privilege or claim of confidentiality in the documents, materials or information shall occur as a result of disclosure to the commissioner under this section or as a result of sharing as authorized in subsection (c) of this section.
§33-41-9. Creation and purpose of the insurance fraud unit.
(a) The West Virginia insurance fraud investigation unit is established within the office of the insurance commissioner. The director of the insurance fraud investigation unit shall be a full-time position and shall be appointed by the commissioner. The commissioner shall provide office space, equipment, supplies, clerical and other staff necessary for the insurance fraud investigation unit to carry out its duties and responsibilities under this article. The investigative personnel shall be qualified by training and experience to perform the duties of their positions.
(b) The fraud unit may:
(1) Initiate independent inquiries and conduct independent investigations when the insurance fraud unit has cause to believe that a fraudulent insurance act may be, is being or has been committed;
(2) Review reports or complaints of alleged fraudulent insurance activities from federal, state and local law-enforcement and regulatory agencies, persons engaged in the business of insurance, and the public to determine whether the reports require further investigation and to conduct these investigations; and
(3) Conduct independent examinations of alleged fraudulent insurance acts and undertake independent studies to determine the extent of fraudulent insurance acts.
(c) The insurance fraud investigation unit shall have the authority to:
(1) To employ and train personnel to achieve the purposes of this article and to employ legal counsel, investigators, auditors and clerical support personnel and other personnel as the commissioner determines necessary from time to time to accomplish the purposes herein;
(2) Inspect, copy or collect records and evidence;
(3) Serve subpoenas;
(4) Administer oaths and affirmations;
(5) Share records and evidence with federal, state or local law-enforcement or regulatory agencies;
(6) Make criminal referrals to the county prosecuting authorities; and
(7) Conduct investigations outside of this state. If the information the insurance fraud unit seeks to obtain is located outside this state, the person from whom the information is sought may make the information available to the insurance fraud unit to examine at the place where the information is located. The insurance fraud unit may designate representatives, including officials of the state in which the matter is located, to inspect the information on behalf of the insurance fraud unit, and the insurance fraud unit may respond to similar requests from officials of other states.
(d) On or before the first day of each regular session of the Legislature, the commissioner shall file with the governor, the clerk of the Senate and the clerk of the House of Delegates a report detailing the finalized actions taken by the insurance fraud unit in the preceding fiscal year.
§33-41-10. Other law-enforcement or regulatory authority.
This article shall not:
(a) Preempt the authority or relieve the duty of other law-enforcement or regulatory agencies to investigate, examine and prosecute suspected violations of law;
(b) Prevent or prohibit a person from disclosing voluntarily information concerning insurance fraud to a law-enforcement or regulatory agency other than the insurance fraud unit; or
(c) Limit the powers granted elsewhere by the laws of this state to the commissioner or the insurance fraud unit to investigate and examine possible violations of law and to take appropriate action against wrongdoers.
§33-41-11. Fraudulent claims investigation unit of insurers.
(a) Every insurer admitted to do business in the state shall maintain effective procedures and resources to deter and investigate fraudulent insurance acts prohibited by this article, including a unit that will investigate suspected fraudulent insurance acts. For the purpose of this section, "insurer" does not include reinsurers or reinsurance as defined in section eleven, article one of this chapter.
(b) Insurers may maintain the unit required by subsection (a) of this section, using its employees or by contracting with others for that purpose.
(c) Insurers shall establish the unit required by this section no later than the first day of July, two thousand four.
(d) The unit may include the assignment of fraud investigation to employees whose principal responsibilities are the investigation and disposition of claims. If an insurer creates a distinct unit, hires additional employees, or contracts with another entity to fulfill the requirements of this article, the additional cost incurred shall be included as an administrative expense.
(e) Insurers shall make personnel involved in investigating insurance fraud and any files relating to insurance fraud investigation available to the commissioner, local prosecuting officials, special prosecuting attorneys, or other law-enforcement agencies as needed in order to further the investigation and prosecution of insurance fraud. Information supplied by an insurer and contained in such files shall upon receipt become part of the investigative file and subject to the provisions of section eight of this article. The insurer and its employees and agents shall be entitled to immunity as provided in section seven of this article.
(f) Any expenses incurred by insurers as a result of this article shall be defrayed by such insurers from their own funds and shall not be borne by the state or by the special insurance fraud fund.
§33-41-12. Rules.
The insurance commissioner may, in accordance with article three, chapter twenty-nine-a of this code, promulgate reasonable rules as are necessary or proper to carry out the purposes of this article.
§33-41-13. Penalties.
A person who violates this article is subject to the following:
(a) Suspension or revocation of license or certificate of authority, civil penalties of up to ten thousand dollars per violation, or both. Suspension or revocation of license or certificate of authority and imposition of civil penalties shall be pursuant to an order of the commissioner issued under section thirteen, article two of this chapter. The commissioner?s order may require a person found to be in violation of this article to make restitution to persons aggrieved by violations of this article; or
(b) (1) If a person commits a fraudulent insurance act of the value of one thousand dollars or more, such person is guilty of a felony and, upon conviction thereof, shall be imprisoned in the state correctional facility not less than one nor more than ten years, and shall be fined not more than ten thousand dollars.
(2) If a person commits a fraudulent insurance act of the value of less than one thousand dollars, such person is guilty of a misdemeanor and, upon conviction thereof, shall be confined in a county or regional jail for a term not to exceed one year or fined not to exceed two thousand five hundred dollars, or both, in the discretion of the court.
(c) A person convicted of a violation of section three of this article shall be ordered to pay restitution to persons aggrieved by the violation of this article. Restitution shall be ordered in addition to a fine or imprisonment, but not in lieu of a fine or imprisonment; and
(d) A person convicted of a felony violation of this article pursuant to subsection (b) of this section shall be disqualified from engaging in the business of insurance.
(e) Any money or other property that is awarded to the insurance fraud investigation unit as costs of investigation, shall be credited to the special revenue fund established in section thirteen, article three of this chapter.
§33-41-14. Violations of article; penalties for misdemeanor.
(a) It is a misdemeanor for any person to violate any of the provisions of this article unless such violation is by this chapter or other law of this state declared to be a felony.
(b) Every person convicted of a misdemeanor for a violation of any of the provisions of this article for which another penalty is not provided shall for a first conviction thereof be punished by a fine of not more than one hundred dollars or by imprisonment for not more than ten days; for a second such conviction within one year thereafter such person shall be punished by a fine of not more than two hundred dollars or by imprisonment for not more than twenty days or by both such fine and imprisonment; upon a third or subsequent conviction such person shall be punished by a fine of not more than five hundred dollars or by imprisonment for not more than six months or both such fine and imprisonment.

NOTE: The purpose of this bill is to include farmers' mutual insurance companies, fraternal benefit societies, certain hospital, medical, dental and health services corporations, health care corporations, and health maintenance organizations to insurance fraud provisions of the code. The bill establishes an insurance fraud unit within the division of insurance and gives it authority to promulgate rules, and require the filing of annual reports. The bill also sets forth powers and duties of the fraud unit including investigative powers and procedures, confidentiality and immunity for the unit's operations.
Under the bill, insurance fraud is prohibited, criminal penalties and fines are established and special prosecutors are provided to prosecute violations.

§33-22-2a , §33-23-2a , §33-24-4a , §33-25-6a and §33-25A-24a are new and §33-41-1 et seq. has been completely rewritten ; therefore, strike-throughs and underscoring have been omitted.

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