What is CALIFORNIA’S INSURANCE FRAUD STATUTE – PENAL CODE 550?
California Penal Code Section 550 (PC 550)
California Penal Code Section 550 (often referred to as PC 550) is the primary statute that criminalizes insurance fraud in California. It prohibits various forms of knowingly engaging in fraudulent activities related to insurance claims, including submitting false or fraudulent claims for payment of losses or injuries.
The law applies to all types of insurance (e.g., auto, health, property), and it covers not only direct submission of false claims but also aiding, abetting, soliciting, or conspiring in such acts.
Key Provisions (from the official text in Penal Code § 550(a))
It is unlawful to do any of the following (or to aid/abet/solicit/conspire to do so):
- Knowingly present or cause to be presented any false or fraudulent claim for the payment of a loss or injury (including under an insurance contract).
- Knowingly present multiple claims for the same loss or injury (e.g., to multiple insurers) with intent to defraud.
- Knowingly cause or participate in a vehicular collision or other accident for the purpose of presenting any false or fraudulent claim.
- Knowingly present or cause to be presented any claim that contains false or misleading information concerning a material fact.
- Knowingly prepare, make, or subscribe any writing with intent to present or use it in support of any false or fraudulent claim.
- Knowingly make or cause to be made any false or misleading statement of a material fact in support of a claim.
- For health care-related claims: various provisions prohibiting fraudulent billing, multiple claims for the same benefit, or concealing material facts affecting eligibility or payment.
There is also a subsection (b) that addresses making false statements under penalty of perjury in certain insurance contexts, which can be charged as a misdemeanor or felony depending on circumstances.
Common Examples of Violations
- Staging a car accident to file an insurance claim.
- Submitting the same damage claim to multiple insurance companies.
- Inflating injuries or damages in a claim.
- Submitting fake medical bills or documents.
- Falsely claiming residency to get lower insurance rates (in some auto insurance contexts).
Penalties
Violations are generally prosecuted as felonies, punishable by up to 5 years in state prison (or county jail under realignment), fines up to $50,000 (or double the amount of the fraud, whichever is greater), and restitution. Some lesser violations (e.g., certain low-value health care fraud claims under $950 or specific false statements) may be charged as misdemeanors or "wobblers" (prosecutable as either felony or misdemeanor).
This statute is frequently used in cases involving auto insurance fraud, health care fraud (including Medi-Cal), and other insurance schemes.
PC 550 is a Catch All Statute
We consider PC 550 to be a catch all statute so that any conduct that places an individual, physician, attorney, at odds with an insurance also places that person at risk of being charged with a Penal Code section 550 violation.
There are constitutional objections to this statute as applied becauses its broad language sweeps both obvious criminal conduct and legitimate conduct into the same pile. It provides no guidance to people as to what is a business dispute as compared to what is fraud. It also places overly broad discretion in the hands of prosecutors who can deem any business dispute with an insurer to be criminal.
Penal Code section 550 walks a line where gross or continued mistakes can be deemed fraudulent. “Willful blindness” can be deemed “criminal intent”. For example, if a doctor makes a referral of a patient for testing at a facility that routinely overcharges, the physician could be guilty of fraud.
This is particularly dangerous when the doctor gets reports from that entity and bills for reviewing the reports or gets referrals from that entity or facility. If you are an orthopedist and you refer a patient to a physical therapist who routinely upcodes, the “negligent” referral label may be attached and your overall relationship with that entity will be under scrutiny.
With 100% legitimacy you may argue that “they are expensive but they are the best”. However, that type of defense is often an after arrest assertion and does NOT lead to the dismissal of charges at the early stages. It is ultimately a TRIAL defense which may lead (eventually) to dismissal or may need to be asserted at trial.
Physician Insurance Fraud Charges
To prove Insurance Fraud in California under Penal Code section 550 the prosecution has to establish knowledge by the defendant doctor. The knowledge element requires at least some understanding that the conduct that the doctor engaged in was wrong. But “wrong” is defined as any conduct leading to an unwarranted insurance claim. Think about the number of disagreements the average physician has with insurance companies over appropriate treatment. If a physician engages in a PATTERN of TREATMENT that conflicts with established insurance reimbursement policies the PROFIT MOTIVE in that medical choice will (often) be scrutinized. If the published literature does not strongly support a treatment choice, a fraud investigation is possible.
Insurance Fraud requires a Criminal Mental State
The mental state element for Worker’s Compensation fraud (which is a subset of Insurance Fraud) and Penal Code section 550 fraud is the same. The person must make a claim or present some documentation to support an insurance claim knowing the claim is false. See: People v. Scofield (1971) 17 Cal.App.3d 1018, 1025–1026
But these statutes both have the same danger to the innocent physician. Submitting a claim for payment subjects medical records, medical bills, documents asking a person off work for a period of time, bills deemed inaccurate - can all support an insurance fraud claim.
This trend to create laws that criminalize billing and related conduct guarantees that a large number of these insurance fraud claims are unfounded.
The cases are often hard to understand in terms of what is being charged.
A count of insurance fraud might have a date range of many years. If that is the case, the defense should ask the court to instruct the jury that there must either be one, unbroken and continuing course of conduct or they must unanimously agree on at least one single wrongful act. (See People v. Dieguez (2001) 89 Cal.App.4th 266, 274–275
In other words, there might have been thousands of documents submitted to an insurance company but the jury has to find one document that was fraudulent, transmitted for the purpose of promoting a fraud and that this transmission was done by the defendant (or someone working with the defendant) and on purpose.
The prosecution usually focuses on the physician/chiropractor but staff are often drawn in on a conspiracy theory. Pressure is then applied to staff by law enforcement. “Cooperate against the doctor” and no charges will be filed.
The physician/chiropractor who is charged may escape liability by providing information against other medical practitioners. In those cases a corporation plea is often negotiated. This means that the medical corporation pleads guilty and pays a huge fine but the practitioner him/her self gets off.
Daniel Horowitz and his team of healthcare lawyers have their office in Lafayette, California (Contra Costa County). His work takes him throughout the state. He recently had all charges dismissed in a Riverside (Orange County) workers compensation fraud case charged under PC 550. Daniel represents clients throughout the State of California and he is a criminal defense specialist (certified by the State of California, Board of Legal Specialization)
To schedule an initial consultation and evaluation of your exposure to criminal charges, contact Daniel Horowitz at (925) 283-1863.
