Legislative Update

Immunity for fraud fighters … stronger workers-comp protections … public adjuster licensing … counterfeit-airbag protections … and protecting kids from being murdered for life insurance. These were among the 33 new state fraud laws that went onto the books in 2018.

A record 119 anti-fraud bills were filed all told. Many will need another go-around to be enacted in 2019 — if they get another chance. Still, the record totals are an indicator of substantial interest in stopping insurance fraud crimes in many states.

And in perhaps the year’s biggest surprise, Michigan gained a much-needed fraud bureau after years of legislative roadblocks. Outgoing Gov. Rick Snyder created the unit via executive order.

Some useful fraud bills regretfully were defeated:

  • Protections against storm-chasing contractors failed in New York and Ohio. Both likely will return in 2019.
  • Blocking scams involving overpriced and medically useless compound creams was vetoed by Pennsylvania’s governor.

Some bills deserved defeat, and were rightfully blocked:

  • Restricting use of license-plate reader data in Massachusetts.
  • Stopping across-the-board cuts in funding in several states also were defeated.

Wave of consumer privacy bills could surface in 2019

The U.S. may be verging on a wave of state and federal laws protecting consumer privacy and securing data against breaches. Consumer demand for security of their personal data is rising after headline-making breaches of healthcare databases, and other damaging hacks.

South CarolinaOhio and California were the nation’s vanguard states with new cybersecurity laws in 2018. In fact, South Carolina and Ohio were the first states to adopt the NAIC model cybersecurity act.

More states could climb onboard in 2019. It could be a watershed year. If the legislative wave catches hold, millions of Americans will be better protected from costly medical-ID scams and traditional ID theft.

Partnering again proved important to our success. Across the nation, our strategic partners such as NCOIL, NCSL, IASIU, NICB and Honda North America played valued roles in working with us to protect citizens and insurers from insurance crime.

The year ahead holds great promise for more progress. Every state legislature will convene in 2019. Newly elected lawmakers will be anxious to introduce new bills. The Coalition is ready with our 2019 legislative priorities.

Assignment of benefits. We’ll seek to protect homeowners from shady contractors who hijack repair claims to lodge false claims and lawsuits behind the homeowner’s back. Similar reforms are needed for auto-glass claims in some states. Watch for reform bills in at least four states. Florida is ground zero for AOB cons involving contractors and auto glass. It’ll be a priority state.

Storm chasers. Five states are expected to see storm-chaser bills geared to stop shady contractors from scamming homeowners after natural disasters. Often the contractors are unlicensed and inept. They may steal homeowner down payments. They inflate repair claims, or skip town after doing few repairs or substandard work.

Immunity. Expanding immunity case reporting to include protections for reporting to state medical and chiropractic boards in Texas.

Fraud-bureau funding. Increased fraud-bureau funding in Nevada, Washington and South Carolina are on tap. Funding of Louisiana’s fraud bureau also will be docketed — the unit’s funding is scheduled to sunset next year.

Update model fraud law. Updating the Coalition’s landmark model fraud lawwill be a priority. Insurance fraud is a specific crime under the model. It’s the most-comprehensive insurance-fraud act ever developed.

Yet technology and the insurance industry are rapidly changing, so our model will change too. Dozens of states have passed fraud laws based wholly or largely on the Coalition’s act. The updated model will become the new standard for states seeking to modernize their core fraud law.

We’ll partner with NCOIL on the model updates, and invite Coalition members to offer input on recommended updates. Stay tuned for more details in the months to come.

Privacy & cybersecurity. Tightening cybersecurity and protecting consumer privacy rights will be hotly debated in states, and on Capitol Hill. What’s in it for the fraud fight? To name just some … healthcare hacks are setting up costly medical ID thefts that defraud health policies and wreck consumer victims’ credit. The privacy of consumer data is paramount, though so is the need for a robust fraud fight. So both needs must be carefully balanced when reform bills are on the line.

America is seeing a sharp rise of cyber-crimes and data breeches. Consumer concerns also are growing about potential invasive misuse of artificial intelligence. So expect many states to debate bills covering privacy and data security. The NAIC’s model or California’s new law could be a widely used guide in other states.

AOB’s … bad-faith liability of insurer employees … and reforming the corporate practice of medicine. They’re all targets of major court cases for 2019. The Coalition is filing amicus briefs to support the fraud fight in these precedent-setting court cases around the U.S.

These briefs spotlight the Coalition’s amicus curia program. These “friend of the court” briefs educate judges on important cases pending in their courts. Amicus briefs are filed by non-parties in cases. The analysis and arguments help guide the court in reaching the correct decision for the fraud fight. Briefs are being filed in these cases, and more are possible:

  • Carothers v. Progressive Insurance Company (New York Court of Appeals)

What’s at stake. Challenges to the state’s law barring corporate practice of medicine, and permitting insurers to stop payments when they reasonably suspect PIP fraud.

The case. Lower courts found Dr. Andrew Carothers was the illegal sham owner of a chain of imaging centers in the New York City area. The centers made bogus PIP claims. More than 38,000 suspicious scans were done before insurers wised up and stopped paying the claims. Carothers couldn’t even name his employees, knew little about the clinics’ finances, and made a fraction of the money his “secretary” and “landlord” received as the real — and illegal — clinic owners. Carothers sued 53 insurers and lost. He’s appealed to New York’s highest court.

Coalition’s position. Uphold New York anti-fraud laws to protect consumers from bogus medical services, and defend auto insurers from fraudulent billing. We also disagree with Carothers’ assertion that stop-payment provisions outlined in the precedent-setting Malella case were abused. Oral arguments should happen in 2019.

  • Keodalah v. Allstate (Supreme Court of Washington State)

What’s at stake. Insurer employees could be personally sued under Washington’s bad-faith statute. More insurer employees thus might approve bogus claims to avoid personal reprisal suits.

The case. Plaintiff filed a bad-faith suit when Allstate denied a relatively small uninsured-motorist claim after a traffic crash in Seattle. Individual insurer employees can be personally named in bad-faith lawsuits under the state’s Insurance Code. That law imposes a duty on “all persons” in the insurance transaction to act in good faith, the state Court of Appeals dangerously ruled.

The Coalition will file its amicus brief this month. PCI, AIA and NAMIC have filed a brief as well. The case is scheduled for oral argument in February.

Coalition’s position. Unintended and adverse impacts on consumers and insurers will follow if the decision is upheld. If adjusters, SIU investigators or other insurer employees fear being personally sued, even clearly fraudulent claims may be paid rather than be referred for investigation or have coverage revoked. Fewer case referrals thus would go the state insurance department. This would roll out a welcome mat to scammers, giving scammers a much-lower chance of being caught. Consumers would pay in higher premiums, and the state would lose insurers as crucial sources of case referrals.

  • Security First (5th DCA) vs. Ark Royal (4th DCA) (Florida Supreme Court)

What’s at stake. Should an insurance policy require all named policyholders — not just one — to agree to an assignment of benefits for it to be valid? Requiring all named insureds will cut down on AOB fraud, many claim.

The case. Two appellate courts reached opposite answers, forcing the Florida Supreme Court to decide. Policy provisions requiring all policyholders to sign an AOB violates the state’s law, the 5th District found. Insurers and their policyholders are free to contract for such provisions, the 4th District found. The result is even more confusion over Florida’s never-ending AOB debate. Residents in one district follow one law, and obey another law in another district. The rest of the state is left hanging, trying to guess who’s right.

Coalition’s position. We’ll support the decision in the 4th District. This is a consumer-protection issue. Insureds whose rights to a claim and any lawsuit should have a voice in making the decision and avoiding scammers. At the end of a claim an insurer must list all policyholders on the check. Things shouldn’t be different at the start of the claim. And if policyholders extinguish their right both to make a claim and sue their insurer by signing an AOB, that should be a joint decision and not made by a single insured.

Briefing on the case will occur in 2019, with oral arguments hopefully later in the year. After 7 years of failed attempts at reforms, state legislators may also try to reform AOBs when Tallahassee opens for it brief session in March.

These law firms are assisting the Coalition with the amicus briefs: Mura & StormThenell Law Group and Rolfes-Henry.

The Coalition encourages members to send high-quality cases to consider for amicus briefs. Cases should involve an important precedent that would affect anti-fraud efforts around the U.S. Please send cases to Matthew Smith for review by our Amicus Committee.

The so-called “blue wave” didn’t appear on election night last November. Exactly how the voting will affect the fraud fight will clarify as 2019 unfolds.

The Coalition is less concerned about a blue or red wave. Instead, we’re looking to form a bipartisan anti-fraud wave — throughout the U.S.

This crime isn’t defined by red or blue leanings. In fact, 84 percent of Americans are concerned about the impact and cost of insurance fraud, says the Coalition’s latest consumer research.

That strong consumer backing can help earn legislator support for fraud bills and other measures. As the Coalition often tells legislators: “Today, 84 percent of your constituents probably won’t agree on every issue. But they do support anti-fraud efforts.”

General election impact. Four states elected new insurance commissioners — California, Oklahoma, Georgia and Kansas. Insurance commissioners are governor-appointed in many states. In Tennessee, the new governor appointed outgoing NAIC president Julie Mix McPeak as commissioner. Other states likely will appoint new commissioners.

Some 20 states elected new governors, and 16 more re-elected their chief executives.

Voters gave control to Republicans in 62 legislative chambers, and handed Democrats a majority in 37 chambers. We also saw seven chambers change party control: Democrats captured the state Senate in New YorkColoradoMaine and New Hampshire. Dems also took ahold of the House of Representatives in Minnesota and New Hampshire. Republicans captured the House in Alaska.

Regardless, the Coalition will work with all decision-makers — federal and state, legislative and executive, red and blue — to enact strong fraud laws.

Will new conservative federal judges affect fraud cases?

Federal courts can dramatically affect insurance-fraud laws — plus how this crime is investigated, prosecuted and decided in court. The courts determine if federal laws and regs are constitutional, and often address the same issues with state laws before them.

Federal courts also decide RICO cases — an important tool in fighting fraud rings. In addition, federal courts often interpret state statutes and regs in disputes between insurers and policyholders from differing states.

Federal district courts handle more than 50,000 cases a year — many fraud-related. The U.S. Senate has approved 84 conservative Trump-nominated judges for federal court positions.

This shift to more-conservative courts could have an impact on fraud cases in 2019. Whether positive or negative remains to be seen. Broadly, however, conservative courts traditionally lean toward stronger anti-crime laws with stiffer penalties. Liberal-leaning courts tend toward stronger consumer protections such as privacy rights.

Two circuit courts of appeal — one step below the U.S. Supreme Court — may pivot to a more-conservative view with new Trump appointments confirmed by the Senate. The 11th Circuit (Florida, Georgia & Alabama) is tied between Republican and Democrat appointees. Yet with Trump-filled vacancies, that court will tilt toward conservative in 2019. The 3rd Circuit, normally a more-liberal court covering Pennsylvania, Delaware and New Jersey, is within one seat of being tied. Both circuits handle far-reaching decisions affecting fraud.

And of course the U.S. Supreme Court made a major shift with the appointments of conservative justices Neil Gorsuch and Brent Kavanaugh. While few insurance-fraud cases reach that level, lower courts often tailor their rulings to reflect the legal trends from the High Court.

Regardless of political persuasions, many of these newly lifetime-appointed judges are in their 30s and 40s. Their impact thus will be felt for decades to come. With 60 of the nation’s 150 federal appellate judges at retirement age, expect yet more changes. The impact on state and federal insurance-fraud laws will only be known over time.