"Fighting insurance fraud is a complex and time-consuming task," said Commissioner Poizner. "Luckily, we have hundreds of the most dedicated sworn police officers at the Department of Insurance who fight insurance fraud every day. This proposal would severely limit their ability to go after career criminals, making simple and complex illegal enterprises much harder to prosecute -- and in the process let criminals off the hook."
This change in the classification of crimes will have at least three unintended consequences related to fighting insurance fraud, including:
1. Search warrants can only be served in felony cases. If types of insurance fraud are deemed a misdemeanor, search warrants cannot be issued and executed.
2. The statute of limitations is much shorter for misdemeanors. For a felony, the statute of limitations is at least three years from the date the crime was discovered. For a misdemeanor, the statute of limitation is one year from the date of the crime - in many cases the crime is not uncovered until years after the act occurred, rendering prosecution impossible.
There are a number of recent, high-profile cases that could not have been prosecuted under the new proposal.
On April 30, Commissioner Poizner and Orange County District Attorney Rackauckas announced arrests in connection with a $38 million workers' compensation fraud scheme - the largest in the history of the state. A husband and wife were charged with 106 felony counts including conspiracy to commit a crime, grand theft, insurance fraud, filing a false tax return, willfully failing to file or filing fraudulent tax returns, misrepresenting facts to State Compensation Insurance Fund, making fraudulent statements, making false statements to discourage an injured worker from claiming benefits, misrepresenting facts to a workers' compensation insurance company, and failing to file a return with the intent to evade tax.
On April 15, Commissioner Poizner announced the arrests of couple in a $6.3 million workers' compensation fraud scheme. Bell Building Maintenance Company allegedly purposefully misrepresented the number of employees working for the janitorial company in an effort to reduce the proper rate of workers' compensation insurance premium. The criminal investigation was launched in September of 2006 based upon a referral from State Fund. According to payroll reports allegedly submitted to State Fund by Kim, from 2000 to 2005, the only employees of the company consisted of the owner and his wife. As a result, the company was only required to pay the minimum amount of premium to receive a workers' compensation insurance policy during this period. However, the investigation revealed that, in reality, Bell Building Maintenance Company was a much larger operation that employed hundreds of janitors servicing numerous private companies and public entities in Los Angeles, Ventura, Orange, San Bernardino and Riverside counties.
Both of these cases began as premium fraud investigations. From that investigation, additional insurance fraud-related crimes were discovered through the execution of search warrants. Had the current proposal become law, these two cases may not have been discovered and prosecuted.
"The costs of insurance fraud are ultimately paid for by consumers," said Commissioner Poizner. "I hope the policymakers carefully consider the unintended consequences of this action and ultimately remove this provision from the budget proposal. California should not send criminals the message that they have a free pass for illegal activity because of the state's budget woes."