New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The office of General Counsel issued the following informal opinion on June 25, 2001, representing the position of the New York State Insurance Department.

Re: Applicability of insurance fraud provisions of N.Y.Penal Law § 176.05 (McKinney 1999 & Supp 2001) to Self-Insured Municipalities.

Questions Presented:

1. Do the insurance fraud provisions of the N. Y. Penal Law § 176.05 (McKinney 1999 & Supp 2001) apply to fraudulent insurance claims against a self-insured municipality?

2. Are there any specific requirements of a self-insured municipality that is the victim of insurance fraud?

Conclusions:

Yes, the insurance fraud provisions of the N. Y. Penal Law § 176.05 (McKinney 1999 & Supp 2001) apply to self-insured municipalities. Furthermore, in addition to any criminal report, a self-insurer who suspects insurance fraud may in accordance with N.Y. Ins. Law § 405 (McKinney 2000) report same to the Frauds Bureau of the New York State Insurance Department.

No. Neither the insurance fraud provisions of the Penal Law nor the Insurance Law distinguish between insurance companies and self-insured municipalities for purposes of determining if one is a victim of insurance fraud.

Facts:

The inquirer is employed by a municipality in New York State which is totally self-insured. The city has available a fund earmarked for the defense and payment of claims against the municipality. Examples of the types of claims that the city is liable for are slip and fall claims and negligence actions against municipal employees. The inquirer attended a seminar on insurance fraud and is curious as to whether and, how the insurance fraud provisions of the N. Y. Penal Law § 176.05 (McKinney 1999 & Supp 2001) would apply to a self-insured municipality.

Analysis:

1. The N.Y. Penal Law § 176.05 (McKinney 1999 & Supp 2001) states:

A fraudulent insurance act is committed by any person who, knowingly and with intent to defraud presents, causes to be presented, or prepares with knowledge or belief that it will be presented to or by an insurer, self insurer, or purported insurer, or purported self insurer, or any agent thereof, any written statement as part of, or in support of, an application for the issuance of, or rating of a commercial insurance policy, or certificate or evidence of self insurance for commercial insurance or commercial self insurance, or a claim for payment or other benefit pursuant to an insurance policy or self insurance program for commercial or personal insurance which he knows to: (i) contain materially false information concerning any fact material thereto; or (ii) conceals, for the purpose of misleading, information concerning any fact material thereto. (emphasis added).

Prior to 1996, N.Y. Penal Law § 176.05 did not include self-insurers. N.Y. Penal Law § 176.05 was amended by the 1996 New York Laws Chapter 635 to include self-insurers. Based on the language of the above statute a self-insured municipality may be the victim of insurance fraud.

In addition to the criminal laws, a self-insurer who is the victim of insurance fraud may avail itself of the civil remedies of the New York Insurance Laws. The law states that self-insurers may report anyone suspected of insurance fraud to the Superintendent of Insurance who is authorized to pursue a civil action against the suspect.

N.Y. Ins. Law § 405 (McKinney 2000) states in relevant part:

(a) any person licensed pursuant to the provisions of this chapter, and any person engaged in the business of insurance in this state who is exempted from compliance with the licensing requirements of this chapter, …, who has reason to believe that an insurance transaction may be fraudulent… within thirty days after determination by such person that the transaction appears to be fraudulent, send to the insurance frauds bureau on a form prescribed by the superintendent, the information requested by the form and such additional information relative to the factual circumstances of the transaction and the parties involved as the superintendent may require. The insurance frauds bureau shall accept reports of suspected fraudulent insurance transactions from any self insurer, including but not limited to self insurers providing health insurance coverage or those defined in section fifty of the workers’ compensation law, and shall treat such reports as any other received pursuant to this section. emphasis added.

(b) the insurance frauds bureau shall review each such report and undertake such further investigation as it deems necessary and proper to determine the validity of the allegations.

Furthermore, the New York Insurance Law confers immunity upon persons who in the absence of fraud or bad faith report a suspected insurance transaction to law enforcement officials and/or to the Insurance Frauds Bureau. N.Y. Ins. Law § 406 (McKinney 2000).

2. Lastly, neither the insurance fraud provisions of the Penal Law nor the Insurance Law distinguish between insurance companies and self-insured municipalities for purposes of determining if one is a victim of insurance fraud.

For further information you may contact Senior Attorney Adiza J. Mohammed at the New York City Office.