Insurance Claim Exaggeration.

Exaggerating an otherwise legitimate insurance claim is generally referred to as “insurance fraud” when the misrepresentations are material, meaning, substantial enough to influence the insurer’s decision about coverage, payment, or the need for further investigation. The term “fraud” also denotes a specific state of mind: the fraudulent intent to deceive.

Similar to most fraud allegations, allegations of insurance fraud turn on whether the claimant knowingly intended to deceive the insurance company. If the misstatement was an innocent or good-faith mistake, it would generally fall short of meeting the legal criteria for fraud. However, if it is found to be a knowing and intentional misstatement designed to mislead the insurance company into paying a higher benefit, the risk of civil and criminal consequences increases.

Crucially, claim exaggeration alone does not automatically establish criminal liability. While such a practice may raise suspicion, the burden of proof in both civil and criminal cases falls on the insurance company or prosecutors. These entities must demonstrate that the exaggeration was intentional and material.

Whether claim exaggeration justifies criminal charges depends on a variety of factors, including:

1. Materiality

Materiality is the first key factor. A material misstatement is one that is sufficiently significant that it could affect an insurer’s decision to cover a loss, the amount paid out, or the insurer’s decision to further investigate a potentially fraudulent claim.

However, an immaterial misstatement in an otherwise honest claim does not constitute fraud. For example, if a policyholder slightly overstates the value of a missing item, and the error is unintentional and has no impact on the claim’s outcome, this is unlikely to trigger criminal charges.

2. Knowledge and Intent

The second key factor is knowledge and intent. A fundamental distinction exists between an innocent valuation error and a knowing and intentional misrepresentation designed to deceive the insurer. This distinction is vital, as evidence of fraudulent intent is essential for criminal prosecution.

3. Nature and Extent of Exaggeration

The nature and extent of the exaggeration can also play a significant role. For instance, if a claim is partially exaggerated but contains many other legitimate losses, this is viewed differently than if the claim is almost entirely unsupported. A partially exaggerated claim may result in an insurer reducing or denying coverage under the policy’s terms, while a claim that is essentially fabricated is more likely to trigger criminal charges.

4. Contractual Dispute vs. Criminal Prosecution

Another critical factor is the distinction between a contractual dispute and a criminal prosecution. Many insurance fraud allegations begin as contractual disputes that may be civil in nature. The risk of criminal charges increases when evidence suggests the claimant intentionally lied or defrauded the insurer.

How Can One Claim Lead to Denial, Repayment, or Prosecution?

The claim filed with the insurance company is rarely the first or only document an investigator will review. Insurers typically have internal Special Investigation Units (SIUs) that scan for fraud “red flags,” such as inconsistent statements or patterns of abuse, prior to initiating a full investigation. If the insurer’s internal investigation reveals evidence of fraud, they may then hand this evidence over to the district attorney’s or state attorney general’s office. This transfer marks the point where a claim misstatement transitions from an internal insurer matter to a matter for potential criminal prosecution.

Investigators will also closely examine your insurance policy, along with all other relevant documents. Your insurance policy is the contract that defines what is (and what isn't) covered. All fraud allegations must ultimately be measured against the terms and conditions of your policy. It includes not only your coverage options but also specific exclusions that apply when a policyholder engages in certain activities. Even a legitimate claim may be excluded from coverage if there is proof of, for example, pre-existing medical conditions or fraud, or failure to complete required safety steps.

4. Restitution and Forfeiture

When fraud is proven in criminal court, a sentencing court may be required to order restitution. Restitution may require a defendant to pay a victim’s losses directly and proximately caused by the offense. The purpose of restitution is not punishment, but compensation. The person who caused the financial loss must make the victim whole.

A person convicted of a qualifying federal fraud offense may be subject to asset forfeiture. This may include forfeiture of assets derived directly from the fraud (i.e., payments from the insurance company) as well as forfeiture of other assets that were used in the commission of the crime.

5. Denial of Insurance Coverage

In many cases, insurers will deny coverage in entire claims based on intentional material misstatements on a policy application. For instance, a person may misrepresent their health or their home occupancy status. If the insurer finds the misstatement was made with the intent to defraud or secure coverage that would have otherwise been denied, this may entitle the insurer to deny the entire claim.

6. The Three Consequences

While the consequences of denying a claim, filing a civil fraud lawsuit, and filing criminal charges are sometimes described together in these cases, they are nonetheless distinct. When a claimant’s application contains a material misstatement, this may justify denial of the insurance coverage, leading to a contractual dispute over a denied claim rather than a civil lawsuit or criminal charges.

Todd Spodek has been selected to Super Lawyers for six consecutive years.

What Claim Evidence Can Expose a Knowing Inflation?

When investigating an insurance claim, insurers may seek to obtain recorded statements from the claimant and witnesses. Investigators will carefully review these statements for inconsistencies, vagueness, and contradictions. They will cross-examine the claimant’s statements with other evidence, and any contradictions could be used to argue that the claimant has lied about their claim.

2. Surveillance and Social-Media Footage

Private investigators often play a key role. In addition to observing claimants, they can take photographs of claimants’ properties, record their activities, or gain surveillance footage. Social-media footage is another common evidence source. It is very common for people to post photos and videos about their accident on Instagram or Facebook. If such evidencecontradicts the claimant’s injury, it could be evidence of claim inflation.

3. Electronic Evidence

From electronic devices to electronic payment methods, almost all aspects of our lives generate data. Investigators can use this electronic evidence to prove that a claim is fraudulent. The following are examples of evidence that could be used to prove that a claim is fraudulent, subject to a person’s right to privacy protections:

• Location data (GPS logs)
• Messages (Text, WhatsApp, Messenger)
• Emails
• Social-media posts
• Digital access logs (IP address, devices used to access the insurer’s website)
• Electronic signatures (Docusign logs)
• Application usage logs

4. Witness Testimony

Adjusters, doctors, police officers, neighbors, coworkers, and the claimants’ families are among those who may be called to testify about a disputed claim. For example, if the claim involves injuries, a doctor’s assessment of the injured person may be used to establish whether the claimed injuries are consistent with the circumstances of the accident and to determine if the claimant has been exaggerating.

5. Expert Testimony

Experts such as medical professionals, auto mechanics, forensic accountants, or other professionals in relevant fields may also provide testimony. When determining what types of injuries or types of property damage are common, an expert may be called to the stand to testify. For example, if a claimant says they have sustained a specific injury resulting from an accident, an expert may be asked whether that injury is technically plausible.

What Makes an Insurance-Fraud Case Federal Rather Than State-Based?

The federal government relies on several different statutes when pursuing insurance-fraud charges. These include:

1. 18 U.S.C. § 1341

The federal mail fraud statute (18 U.S.C. § 1341) covers “any fraudulent scheme or artifice” that uses the Postal Service or any private or commercial interstate carrier. Claims submitted electronically via the Internet may implicate 18 U.S.C. § 1343 when an interstate transmission is made in furtherance of a scheme to defraud. The statutory definition of “mailing” is interpreted broadly and is used to include all forms of mail and all courier services.

2. 18 U.S.C. § 1343

The federal wire fraud statute (18 U.S.C. § 1343) is similar to the mail fraud statute. However, it covers fraud schemes that use electronic transmissions, which the statute refers to as “wires.” This includes emails, text messages, and claims submitted electronically. When these transmissions pass through interstate communication channels (i.e., across state lines), federal authorities may use this statute to pursue prosecution.

3. 18 U.S.C. § 1347

The healthcare benefit fraud statute (18 U.S.C. § 1347) covers “to defraud any health care benefit program;” This is a broad definition that encompasses everything from private insurance plans to Medicare and Medicaid. This statute can apply in cases involving misrepresentation for the purpose of getting a higher payout and in cases involving fraudulent billing practices.

4. 18 U.S.C. § 371

The conspiracy statute (18 U.S.C. § 371) comes into play when two or more people agree to engage in a federal crime and one or more of them performs an act to effect the conspiracy. This is common in insurance-fraud cases, which often involve an insurer, its agent, and potentially a doctor as well. Even if the conspiracy does not lead to a successful insurance payout, 18 U.S.C. § 371 requires that one or more conspirators perform an act to effect the conspiracy; the agreement alone is insufficient.

Speak With Counsel Before You Answer Anything

If agents have contacted you, the order matters: counsel first, answers second. Spodek Law Group has been practicing since 1976 and defends federal matters nationwide, coast to coast, from offices in New York, Brooklyn, Queens and Los Angeles. Call 888 348 8028.