In California, workers’ compensation insurance is a no-fault system.
Injured employees need not prove an injury was someone else’s fault in order to receive workers’ compensation benefits for an on-the-job injury.
In addition to medical expenses being covered for injured employees, some injured workers are entitled to recover a portion of lost wages resulting from injury.
Workers’ compensation insurance fraud occurs in simple and complex schemes that often require difficult and lengthy investigations.
Employees may exaggerate or even fabricate injuries. At the other end of the spectrum, white-collar criminals, including doctors and lawyers, entice, pay, and conspire with others to defraud the system by creating false or exaggerated claims, over treating, and over prescribing harmful and addictive drugs. Insurance companies “pick up the tab,” passing the cost onto policyholders, taxpayers and the general public.
What is Workers’ Compensation Fraud?
Workers’ compensation fraud is a California insurance fraud in connection with workers’ compensation benefits.
“Workers’ compensation” is a system of insurance that provides medical care and payments for lost income to workers who are injured on the job. Fraud committed in connection with workers’ compensation insurance can lead to harsh criminal penalties.
Acts that are considered workers’ compensation fraud in California include:
- Knowingly making or presenting a false or fraudulent material statement for the purpose of either obtaining or denying workers’ compensation benefits;
- Making a false or fraudulent statement about eligibility for benefits in order to discourage an injured worker from claiming benefits;
- Knowingly aiding and abetting, or participating in a conspiracy to commit, workers’ compensation fraud
- Preparing or submitting multiple claims for payment of a health care benefit covered by workers’ compensation insurance, all for the same injury;
- Submitting a claim for a health care benefit covered by workers’ comp that was not actually used
- Soliciting, referring or accepting any business from a person, knowing that s/he intends to commit workers’ comp fraud.
Examples
Examples of people who could be charged with California workers’ compensation fraud:
- A man claims to have debilitating back pain due to a fall down the stairs at his office and collects workers’ comp payments for lost income. In reality his back pain is minor, and he is working a new job under the table while also collecting benefits.
- An employer lies about the circumstances of an employee’s accident at work in order to prevent that employee from getting workers’ compensation benefits (which would raise the employer’s premium for workers’ comp insurance).
- A doctor specializes in treating patients injured in the workplace and regularly submits bills to workers’ comp insurance for treatments that the patients did not actually need or receive.
Penalties
Most forms of workers’ compensation fraud are considered “wobblers.” This means that they may be charged as either misdemeanors or felonies under California law.
The potential felony prison sentence for most forms of workers’ compensation fraud is two (2), three (3) or five (5) years. Felony fines can go up to one hundred fifty thousand dollars ($150,000), or twice the amount of the fraud (whichever is greater).
In most cases, workers’ comp fraud as a misdemeanor carries a potential county jail sentence of up to one (1) year.
Legal Definition of Workers’ Compensation Fraud in California
There are several different California laws that address workers’ compensation fraud. These are:
Insurance Code 1871.4
Insurance Code 1871.4 is California’s main workers’ comp fraud statute. The legal definition of workers’ compensation fraud under this law is doing any of the following:
- Making, or causing to be made, a knowingly false or fraudulent material statement or representation for the purpose of obtaining or denying any workers’ comp benefits;
- Presenting, or causing to be presented, a knowingly false or fraudulent written or oral material statement in support of, or in opposition to, a claim for workers’ comp benefits;
- Knowingly aiding or abetting or conspiring with anyone else to commit any act of workers’ compensation fraud; or
- Making or causing to be made a knowingly false or fraudulent statement with regard to entitlement to benefits, with the intent to discourage an injured worker from claiming benefits or pursuing a claim.
Workers’ compensation benefits
“Workers’ compensation” is a form of private insurance policy that employers are required to pay for in California. If a worker is injured on the job, the insurance company will pay him/her benefits for:
- Medical care;
- Temporary disability (that is, payments to make up for lost wages if s/he is unable to work while recovering);
- Permanent disability (payments to make up for lost wages if s/he is not able to work again after the accident); and/or
- Death benefits (payments to the worker’s spouse, children or other dependents if s/he dies from a work-related injury or illness).
Workers’ compensation is what is known as a “no-fault” system. This means that the injured employee does not have to prove that the injury was someone else’s fault in order to receive benefits.
Example: Betty works as a word processor for a large law firm. The firm provides ergonomic chairs, but Betty refuses to use hers; instead she brings in a folding chair from home and sits on that.
Betty eventually acquires severe carpal tunnel syndrome from all the typing she has to do at work. She ends up needing to take several months off of work, and receive physical therapy, in order to recover.
Betty’s injury was arguably her own fault, not her employer’s, because she wouldn’t use their ergonomic chair.
But her injury is still covered by the employer’s workers’ compensation insurance policy because it is a “no-fault” system. The insurer pays her benefits for her therapy and lost wages.
Statement or representation
A “statement or representation” includes, but is not limited to, the following:
- An oral or written statement or representation by the claimant;
- A notice;
- A proof of injury;
- A bill for services;
- Payment for services;
- Hospital or doctor records;
- X-ray or test results;
- Proof of medical-legal expenses; or
- Any other evidence of loss, injury, expense or payment.
Example: Catherine works as a cashier in a liquor store. She suffers injuries to her face and neck when she is injured in an attempted robbery.
Catherine receives workers’ compensation benefits to cover treatment by Darren, a chiropractor who is a friend of hers. She and Darren realize that they can make a little profit by submitting inflated bills to the workers’ comp insurer
So Darren, with Catherine’s knowledge, submits bills for more frequent treatments than she actually receives.
Those bills for services count as “statements” under Insurance Code 1871.4, and both Catherine and Darren are guilty of workers’ compensation fraud.
“Material” statement or representation
A statement is considered “material” if it conveys information on subjects that:
- Are germane or reasonably relevant to the insurer’s investigation of the claim; and
- Could bear directly and importantly on the investigation and evaluation of the claim.
Example: Vern injures his knee in a car accident unrelated to his work. Then he is hit by an electric cart at his workplace, injuring his knee again.
Vern eventually applies for and receives workers’ compensation benefits for his injury at work.
He does not let the doctors or the insurance company know that he had an earlier, non-work-related injury to his knee.
Information about the prior injury could have supported a reduction or even a denial of benefits, if it turned out that it was partially responsible for Vern’s knee problems after his injury at work.
Therefore it was material to the insurer’s investigation of the claims—and Vern is guilty of workers’ comp fraud for not disclosing the prior injury.
False or fraudulent
A false or fraudulent statement is any statement that is untrue, or any statement or concealment of a material fact that is intended to induce a person to act to his/her detriment.
As the example of Vern above shows, knowing concealment of a material fact is considered a form of false or fraudulent statement or representation.
There are a variety of forms that false or fraudulent statements can take under workers’ compensation law. Applicants for benefits (that is, injured employees) can make a false or fraudulent statement by:
- Faking an injury;
- Lying about the extent of an injury;
- Claiming that a non-work-related injury is work-related;
- Failing to disclose a prior injury;
- Denying having filed previous claims;
- Collecting benefits for the same injury from more than one employer; and
- Illegally working while receiving workers’ comp benefits (“double dipping”).
Example: Henry works for a city water department. After work on Fridays, he and his colleagues go to a nearby basketball court to play basketball.
One day Henry injures his knee during the basketball game. He goes back to the water department yard, reports the injury, and claims it happened to him while he was working. Later he applies for workers’ compensation benefits for the injury.
Henry is guilty of workers’ compensation insurance fraud for trying to pass off a non-work injury as a work injury.
Employer Fraud
Employers can also commit Insurance Code 1871.4 workers’ comp fraud by making false or fraudulent statements or representations. Common forms of workers’ compensation fraud by employers include:
- Lying to their insurance company about the number of employees;
- Misrepresenting an employee’s job duties; and
- Lying to an employee about the extent of benefits to discourage him/her from submitting a claim.
Example: Maria is the owner of an appliance store. George, one of her employees, injures himself while moving a heavy appliance.
Maria tells George that he is not covered under her workers’ compensation policy because he has only been working for her for a few months.
This is untrue, and Maria knows it—but she doesn’t want her premiums to go up because of George’s application for benefits.
Maria is guilty of workers’ compensation fraud under Insurance Code 1871.4.
Penal Code 550 PC
Penal Code 550 PC describe several forms of California workers’ compensation fraud that overlap with California health care fraud. This law makes it a crime to do any of the following:
- Knowingly make or cause to be made any false or fraudulent claim for payment of a health care benefit covered by workers’ comp insurance;
- Knowingly submit a claim for a health care benefit covered by workers’ comp insurance that was not used by the claimant; or
- Knowingly present multiple claims for payment of the same workers’ comp health care benefit, with an intent to defraud.
This form of workers’ compensation fraud can be committed by employees/applicants—but it is also sometimes committed by doctors and other medical professionals who provide treatment covered by workers’ compensation insurance.
Doctors who are convicted of this and other kinds of workers’ compensation fraud may lose their medical license in addition to standard criminal penalties.
Penal Code 549 PC
Under California Penal Code 549, a business owner or employee can commit workers’ compensation fraud by:
- Soliciting, accepting or referring any business to or from any person or entity,
- With the knowledge that, or with reckless disregard for whether, that person or entity intends to commit workers’ comp fraud.21
Often this form of workers’ compensation fraud is charged against doctors, chiropractors or other health care providers involved in a scheme of commercial bribery and/or kickbacks that is designed to take advantage of the workers’ compensation system.
Penal Code 549 PC
Under California Penal Code 549, a business owner or employee can commit workers’ compensation fraud by:
- Soliciting, accepting or referring any business to or from any person or entity,
- With the knowledge that, or with reckless disregard for whether, that person or entity intends to commit workers’ comp fraud.21
Often this form of workers’ compensation fraud is charged against doctors, chiropractors or other health care providers involved in a scheme of commercial bribery and/or kickbacks that is designed to take advantage of the workers’ compensation system.
False or fraudulent
A false or fraudulent statement is any statement that is untrue, or any statement or concealment of a material fact that is intended to induce a person to act to his/her detriment.
As the example of Vern above shows, knowing concealment of a material fact is considered a form of false or fraudulent statement or representation.
There are a variety of forms that false or fraudulent statements can take under workers’ compensation law. Applicants for benefits (that is, injured employees) can make a false or fraudulent statement by:
- Faking an injury;
- Lying about the extent of an injury;
- Claiming that a non-work-related injury is work-related;
- Failing to disclose a prior injury;
- Denying having filed previous claims;
- Collecting benefits for the same injury from more than one employer; and
- Illegally working while receiving workers’ comp benefits (“double dipping”).
Example: Henry works for a city water department. After work on Fridays, he and his colleagues go to a nearby basketball court to play basketball.
One day Henry injures his knee during the basketball game. He goes back to the water department yard, reports the injury, and claims it happened to him while he was working. Later he applies for workers’ compensation benefits for the injury.
Henry is guilty of workers’ compensation insurance fraud for trying to pass off a non-work injury as a work injury.
Employer Fraud
Employers can also commit Insurance Code 1871.4 workers’ comp fraud by making false or fraudulent statements or representations. Common forms of workers’ compensation fraud by employers include:
- Lying to their insurance company about the number of employees;
- Misrepresenting an employee’s job duties; and
- Lying to an employee about the extent of benefits to discourage him/her from submitting a claim.
Example: Maria is the owner of an appliance store. George, one of her employees, injures himself while moving a heavy appliance.
Maria tells George that he is not covered under her workers’ compensation policy because he has only been working for her for a few months. This is untrue, and Maria knows it—but she doesn’t want her premiums to go up because of George’s application for benefits.
Maria is guilty of workers’ compensation fraud under Insurance Code 1871.4.
Penal Code 550 PC
Penal Code 550 PC describe several forms of California workers’ compensation fraud that overlap with California health care fraud. This law makes it a crime to do any of the following:
- Knowingly make or cause to be made any false or fraudulent claim for payment of a health care benefit covered by workers’ comp insurance;
- Knowingly submit a claim for a health care benefit covered by workers’ comp insurance that was not used by the claimant; or
- Knowingly present multiple claims for payment of the same workers’ comp health care benefit, with an intent to defraud.
This form of workers’ compensation fraud can be committed by employees/applicants—but it is also sometimes committed by doctors and other medical professionals who provide treatment covered by workers’ compensation insurance.
Doctors who are convicted of this and other kinds of workers’ compensation fraud may lose their medical license in addition to standard criminal penalties.
Penal Code 549 PC
Under California Penal Code 549, a business owner or employee can commit workers’ compensation fraud by:
- Soliciting, accepting or referring any business to or from any person or entity,
- With the knowledge that, or with reckless disregard for whether, that person or entity intends to commit workers’ comp fraud.21
Often this form of workers’ compensation fraud is charged against doctors, chiropractors or other health care providers involved in a scheme of commercial bribery and/or kickbacks that is designed to take advantage of the workers’ compensation system.
Penalties for Workers’ Compensation Fraud in California
Insurance Code 1871.4 penalties
Workers’ compensation fraud under Insurance Code 1871.4 is what is known as a wobbler. This is a crime that may be charged as either a misdemeanor or a felony, depending on:
- The circumstances of the charges; and
- The defendant’s criminal history.
When it is charged as a California misdemeanor, Insurance Code 1871.4 workers’ compensation fraud carries the following penalties:
- Misdemeanor (summary) probation;
- Up to one (1) year in county jail;
- A fine of up to one hundred fifty thousand dollars ($150,000) or double the amount of the fraud, whichever is greater; and/or
- Restitution to any parties who were victims of the fraud.
When this form of California workers’ compensation fraud is charged as a felony, the potential penalties are:
- Felony (formal) probation;
- Two (2), three (3) or five (5) years in county jail under California’s realignment program;
- A fine of up to one hundred fifty thousand dollars ($150,000) or double the amount of the fraud, whichever is greater; and/or
- Restitution to any parties who were the victims of the fraud.
Penal Code 550 penalties
Workers’ comp fraud in relation to health care benefits under Penal Code 550 is also a wobbler. The potential misdemeanor penalties under this law are:
- Misdemeanor probation;
- Up to one (1) year in county jail; and/or
- A fine of up to ten thousand dollars ($10,000).
And the felony penalties for this form of workers’ compensation fraud include:
- Felony probation;
- Two (2), three (3) or five (5) years in county jail; and/or
- A fine of up to fifty thousand dollars ($50,000) or double the amount of the fraud, whichever is greater.
The exception is if the total amount of the fraud is nine hundred fifty dollars ($950) or less (this includes the aggregate of multiple claims over a period of twelve (12) consecutive months).
In that case, PC 550 workers’ compensation insurance fraud is always a misdemeanor. The potential penalties are up to six (6) months in county jail, and/or a fine of up to one thousand dollars ($1,000).
Penal Code 549 penalties
PC 549 workers’ comp fraud—soliciting, accepting or referring business from someone knowing they intend to commit workers’ compensation fraud—is a wobbler for the first offense, and a felony for the second and subsequent offenses.
As a misdemeanor, this offense is punishable by up to one (1) year in county jail, and/or a fine of up to fifty thousand dollars ($50,000) or double the amount of the fraud, whichever is greater.
As a felony, it carries a potential jail sentence of sixteen (16) months, two (2) years or three (3) years, and a fine of up to fifty thousand dollars ($50,000) or double the amount of the fraud, whichever is greater.
2.4. Workers’ compensation fraud and professional discipline in California
California doctors, nurses and pharmacists who are accused of being involved in workers’ compensation fraud naturally need to be concerned about professional discipline.
For California doctors, any criminal conviction for an offense that is “substantially related” to the qualifications, functions, or duties of a physician can trigger professional discipline.32 Many forms of workers’ compensation fraud (for example, billing for services not actually rendered) could be deemed to fall into this category.
Nurses can also face nurse discipline and license revocation in some cases as a result of a workers’ compensation fraud conviction.
Pharmacists are another class of professionals that need to worry about the effect of a workers’ comp fraud charge on their professional license.
2.5. Civil penalties for workers’ comp insurance fraud
California law also provides for hefty civil fines for certain forms of workers’ compensation fraud.
These fines apply to parties who do any of the following:
- Willfully misrepresent any fact in order to obtain workers’ compensation insurance at a lower rate than the proper rate (this form of workers’ comp fraud is committed by employers);
- Present or cause to be presented any knowingly false or fraudulent statement in support of, or in opposition to, any claim for workers’ compensation benefits, for the purpose of either obtaining or denying those benefits;
- Knowingly solicit, receive, offer, pay, or accept any unlawful rebate, refund, commission or other compensation for soliciting or referring clients for services covered by workers’ compensation insurance;
- Knowingly operate or participate in a service that, for profit, refers patients to obtain medical or medical-legal services covered by workers’ comp; or
- Knowingly assist or conspire with anyone else to do any of the above.
Any of the above facts will lead to:
- A civil penalty of at least four thousand dollars ($4,000) and up to ten thousand dollars ($10,000) for each illegal claim for compensation; and
- An assessment of up to three (3) times the amount of the medical treatment or medical-legal expenses paid by a workers’ compensation insurer as a result of the fraud.
Plus, if you have a prior felony conviction for workers’ compensation fraud under Insurance Code 1871.4 or Penal Code 549, you will face an additional civil penalty of four thousand dollars ($4,000) for each item or service with respect to which the fraud occurred.
Legal Defenses to Workers’ Comp Fraud Charges
If you are charged with California workers’ compensation fraud, you and your criminal defense attorney may want to consider the following legal defenses:
You did not act with knowledge or fraudulent intent
You are not guilty of workers’ compensation fraud unless you acted with either:
- Knowledge that a particular statement or behavior was false or fraudulent; or
- Fraudulent intent.
Many times a careless mistake on your part will be flagged as potential fraud by an insurance investigator—and reported to the authorities.
But the burden is on the prosecution to prove, beyond a reasonable doubt, that you knew you were submitting a false or fraudulent statement, and did not simply make a mistake.
A skilled criminal defense attorney may be able to cast enough doubt on this assertion to lead to charges being dropped—or a not-guilty verdict in a jury trial.
There is insufficient evidence that you committed workers’ compensation fraud
Many workers’ comp insurance cases revolve around a complicated set of facts. Often these facts involve highly technical and sometimes conflicting medical diagnoses, doctor’s reports, and other evidence that can be difficult for defendants and juries to make sense of.
But prosecutors may not take advantage of this complexity and ambiguity to convict someone unjustly.
It is a good criminal defense attorney’s job to find the weaknesses in the prosecution’s case—and to help you collect the strongest evidence for your innocence.
