New Jersey Insurance Fraud Prevention Act
Insurance fraud is a serious crime in New Jersey. The Insurance Fraud Prevention Act defines specific violations and establishes penalties including fines, criminal prosecution, and license revocation.
Exam Alert!
Know the penalty amounts: $5,000 first, $10,000 second, $15,000 subsequent. Plus the $1,000 surcharge!
Fraud Violations Under the Act
The following are considered violations of the New Jersey Insurance Fraud Prevention Act:
False or Misleading Statements
Knowingly presenting any written or oral false or misleading statement as part of, in support of, or in opposition to a claim for payment or other benefit.
Example: After a minor fender bender, you claim the accident caused your pre-existing back injury and submit medical bills from 6 months ago = FRAUD
Concealing Events
Concealing or knowingly failing to disclose the occurrence of an event that affects any person's initial or continued right to insurance benefits, or the amount entitled.
Example: You're receiving disability benefits but start working a new job. Not telling the insurer you're now employed = FRAUD
False Residency Claim (Motor Vehicle)
Preparing or making a statement for a motor vehicle insurance policy stating the person's principal residence is in NJ when, in fact, it is in another state.
Example: Living in NY but claiming NJ residence for lower rates = FRAUD
False Application Information
Preparing or making a statement for any insurance policy knowing it contains false or misleading information concerning any material fact.
Example: Saying "No" when asked if you've had any DUIs on an auto insurance application, when you actually had one last year = FRAUD
Concealing Evidence
Concealing or knowingly failing to disclose any evidence, written or oral, that may be relevant to finding whether a violation has or has not occurred.
Example: During a fraud investigation, you delete text messages that prove you planned a staged accident = FRAUD (separate violation!)
Assisting or Conspiring
Knowingly assisting, conspiring with, or urging any person to violate any provisions of the act.
Example: A body shop owner tells a customer "Just say the damage was worse than it was - I'll write up an inflated estimate and we'll split the extra money" = FRAUD (for both parties!)
Benefiting from Fraud
Knowingly benefiting, directly or indirectly, from the proceeds derived from a violation due to assistance, conspiracy, or urging of any person.
Example: Your friend stages a car accident and gives you $500 of the fraudulent insurance payout as a "thank you" for being a fake witness = FRAUD (you benefited from fraud proceeds)
Hospital Facilities for Fraud
For an owner, administrator, or employee of any hospital, knowingly allowing the use of hospital facilities in furtherance of a scheme or conspiracy to violate the act.
Example: A hospital administrator knows doctors are performing unnecessary MRIs on "accident victims" to bill insurance for procedures that aren't needed, but looks the other way = FRAUD
Illegal Solicitation
Directly or indirectly soliciting:
- • A person to hire themselves or others to manage, adjust, or prosecute claims for damages for pecuniary gain
- • Others to bring causes of action for personal injuries or death for pecuniary gain
- • Others to make claims for personal injury protection (PIP) benefits
Example: "Runners" who show up at accident scenes handing out business cards for lawyers or chiropractors, saying "You should file a claim - we can get you money!" = FRAUD
Commissioner's Actions
When the Commissioner determines that a person has violated the NJ Insurance Fraud Prevention Act, the Commissioner may:
Primary Options:
Civil Action (Lawsuit)
Bring a lawsuit against the offender
Civil Administrative Penalty
Assess fines and order restitution
In Lieu Of, May Request:
Attorney General
Request criminal action under criminal statutes
Licensing Authorities
Refer for license suspension or revocation
Penalties for Fraud Violations
Penalty Amounts
$5,000
First Violation
$10,000
Second Violation
$15,000
Each Subsequent
Additional Surcharge
In addition to any other penalty!
Individuals guilty of committing insurance fraud are ALSO subject to a $1,000 surcharge.
Settlement Surcharge - 5%
If a legal proceeding is resolved through a monetary settlement, the guilty party must pay:
5%
of total settlement payment
All surcharges must be made payable to the Treasurer of the State of New Jersey.
Quick Reference: Fraud Penalties
$5,000
1st violation
$10,000
2nd violation
$15,000
Subsequent violations
$1,000
Additional surcharge
5%
Settlement surcharge (of total settlement)
Exam Tips
Tip #1: Penalty Progression
Remember: $5K → $10K → $15K. Each doubles then adds $5K!
Tip #2: The Two Surcharges
$1,000 flat surcharge + 5% of settlements. Both go to State Treasurer.
Tip #3: Motor Vehicle Fraud
Claiming NJ residency when you live elsewhere to get lower rates = specific fraud violation!
Tip #4: Commissioner's Options
Can bring civil action OR assess penalty, or refer to Attorney General for criminal charges.