Workers Compensation Fraud

Workers' Compensation Fraud Attorney

What is Workers' Compensation Fraud?

Workers' compensation fraud includes deceptive or dishonest activities related to the state's workers' compensation system. A wide variety of conduct is covered by this type of fraud. It includes false claims, medical doctor billing fraud, diagnosis fraud and false reporting by companies of worker classification and hours worked.

It is a felony to:

Make or cause someone else to make a claim that is false or fraudulent. There has to be an intent to do this and the statement has to be important (material).
Knowingly assist, conspire with, or solicit any person to commit an unlawful act of workers’ compensation insurance fraud. (This ties in all participants including those with minor roles in the fraud.)
Make or cause 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.

General categories of Workers Compensation Fraud are:

Medical Provider Fraud

Medical provider fraud would include false billing such as adding services not provided; adding time spent so that higher CPT codes are used; using cappers to find patients, paying kickbacks to lawyers providing clients or writing reports that are untrue to encourage more referrals of patients.

Injured Employee Fraud

Employee fraud means fake injuries, injuries suffered outside of work but attributed to work, but also other frauds such as failing to disclose prior injuries or awards for permanent disability, working outside the job or on home projects while receiving temporary disability benefits, or making false statements about the extent of their disability or limitations.

Employer or Claims Adjuster/Administrator Fraud

Claims adjuster or administrator fraud can include of discouraging an employee from filing or pursuing a claim sometimes by misrepresenting the rules for making a claim. Other frauds include backdating documents in an attempt to avoid penalties for delays in benefit payments or to support an unjustified denial of a claim.

Attorney Fraud

Attorney fraud can include using runners and kickbacks to get clients, encouraging doctors to write false reports, coaching clients to claim injuries not actually suffered, or other acts that insurance carriers deem improper.

Workers Compensation Prosecutions are State Funded

The State of California has established a specialized Workers' Compensation Fraud Program. Local counties have access to state funds to establish dedicated Worker’s Compensation fraud divisions. Alameda County, Napa County, Contra Costa County and Riverside County are examples of counties having dedicated WC fraud offices. Sonoma County just received a $340,000 state grant to set up a WC fraud office. There is a financial incentive to bring prosecutions because more money follows. This protects jobs and “kingdoms”.

What California Penal Code sections relate to Workers Compensation Insurance Fraud?

Insurance Code Section 1877.3(b)(1) requires that insurers report suspected fraud to the California Department of Insurance. This is often the gateway for an insurance company to trigger a state or county investigation. Because the State Department of Insurance is the first responder in terms of getting the forms, many of these fraud investigations have both a state and local component.

Penal Code Sections 548-551 specifically address insurance fraud. Penal Code section 550 is the catch-all that allows very broad factual allegations to be spun into a crime. This section is often misused by prosecutors and subject to challenge as applied to a specific case. The Horowitz law office has challenged many PC 550 actions on constitutional grounds, fair notice and vagueness. Daniel Horowitz also has an excellent record presenting the vagueness issue to a jury. (A jury can find that no reasonable person would have understood their conduct to be criminal and on that basis vote to acquit.)

Landmines

The fraud area is crowded with other statutes that pile on and complicate simple fraud allegations. For example, if a doctor is charged with insurance fraud, Penal Code section 23 lets the Medical Board through the Attorney General seek a license suspension or restriction even before any of the charges are proven. Businesses can have their working capital seized and frozen so they have no choice but to shut down (Asset Forfeiture). There are some protections including the right to some type of hearing but “some type of hearing” is our way of warning you that “due process” and a truly fair hearing is what you are entitled to by law but do not always receive.

Federal Workers' Compensation Fraud Investigations

State laws such as Penal Code section 550 are not the only laws that apply to Workers Compensation cases. The federal government has statutes that have different elements of proof and which can be used against a defendant.

Federal charges for fraud often take the form of wire fraud and mail fraud allegations.

The federal actions can arise from reporting outside the insurance company universe. For example, the IRS recently issued an Alert! instructing banks to report business structures and business activities that might signal sophisticated Workers Compensation fraud activity in the Construction Industry.

The increased use of IRS violations is not limited to a single federal jurisdiction. The Department of Justice in 2021 announced “Two Men Plead Guilty To Fraudulent Scheme To Evade Payroll Taxes And Workers’ Compensation Requirements In Construction Industry”. Put differently, the federal focus on Workers Compensation fraud is not new and it will continue.

Federal Fraud Cases including Workers Compensation Fraud cases have criminal and civil asset forfeiture aspects that can severely damage you financially even before you are convicted.

Learn About Federal Asset Forfeiture

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State Workers Compensation Fraud

California is particularly aggressive in teaming state agencies with insurance fraud departments to bring Workers Compensation fraud charges against employees, employers and attorneys who represent injured workers. The Riverside County District Attorney is well funded and brings many of these cases. San Francisco recently brought a case against a prominent physician and medical practice. Contra Costa County has a special Workers Compensation Fraud unit that works with state agencies. In 2023 it charged Atlas Pavers and Centrox Construction with fraud based upon the misclassification of workers. A similar case was charged in 2020. That case was filed by the Contra Costa County District Attorney's office working in conjunction with the state Fraud Division of the California Department of Insurance and Criminal Investigation Division of the Employment Development Department. This case involved charges against Viking Pavers company. When looking at Contra Costa cases we see the patterns of investigative focus. Riverside California is focused on broader issues and has been prosecuting Workers Compensation lawyers and companies doing business with the lawyers for WC fraud.

For an example of the charging document in a Workers Compensation fraud case you can view Contra Costa County District Attorney Jeremy Seymour's filing in PEOPLE vs. MAUROSAN MILHOMEN, JORGE DASILVA NEUKIRCHEN. This filing very detailed it reflects hundreds of hours of investigation by the district attorney's office.

Daniel Horowitz has been defending these white collar fraud cases for decades and he understands the politics and subtle mechanics of charging, investigating and defending these cases. Few attorneys have taken these complex cases to trial. Daniel settles many, obtains dismissals but also has a successful track record defending Workers Compensation at trial.

What is a Typical Sentence for Workers' Compensation Fraud?

Defenses to Insurance Fraud

Worker’s compensation fraud and general insurance fraud cases require an intent to violate the law. Accidents, misunderstandings are not crimes but willful ignorance is a type of criminal intent. See Ninth Circuit Model Instruction on Willful Ignorance.

Foremost is the juxtaposition of mistake vs. intent. To prove a lack of intent to defraud the defense can point to complex and confusing regulations and prior payment of the claim without protest. There are legal defenses especially when state prosecutors bring fraud charges using California Penal Code section 550 allegations. Recently we obtained a dismissal of a Workers Compensation Fraud case (with prejudice) on both statute of limitations and due process grounds.

Major Workers Compensation Fraud Case Dismissed February 2024

Penalties for Insurance Fraud

Insurance fraud prosecuted as a misdemeanor in California may result in a sentence of up to one year in county jail and a fine of up to $10,000. Insurance fraud is usually prosecuted as a felony and then penalty for each violation (and there can be dozens) can result in a term of imprisonment for two, three, or five years. Restitution is money owed to repay the victim and that can be unlimited in amount.

More specialized statutes can lead to larger and additional penalties. In a felony prosecution of insurance fraud for worker's compensation benefits, the fine might increase up to $150,000 or an amount that is double the value of the defrauded amount, depending on which penalty is greater.

Large dollar amounts of losses can lead to enhanced (greater) sentences.

Specialized Workers Compensation Fraud Enforcement

What is the Workers Compensation Fraud Assessment Commission (FAC)?

The Fraud Assessment Commission (FAC) is a unit of the State of California responsible for funding fraud prosecutors statewide. It meets four times a year and spends millions of dollars to fund the investigation and prosecution of fraud cases. This creates a financial incentive for prosecutor’s offices to establish fraud sections that win cases to justify continued or increasing funding.

Forfeiture for Fraud Claims

Fraud charges usually include forfeiture allegations. These tack on civil type penalties at the end of a criminal case. So if you lose you face jail or prison and huge monetary losses imposed by the forfeiture statute. What surprises many of our clients is that at the moment of your arrest your assets are also being seized. Your bank accounts are frozen, your office is raided and stripped of files and computers. You are “innocent until proven guilty” but you are financially ruined without a fair hearing. Once everything is seized if you have funds left to hire an attorney you can petition for the release of some funds. Sometimes a stipulated agreement can be reached. Here is an example of a forfeiture stipulation in a case filed by the Contra Costa County District Attorney. It is not specific to that county and is typical of agreements made throughout the State of California.

Forfeiture & Stipulation Order Viking Pavers Case

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What is Insurance Code section 1871.6?

Insurance Code section 1871.9 is the Scarlet Letter of the Workers Compensation world. It mandates the publication of the names and details of persons or companies convicted of Worker’s Compensation fraud.

The law specifically requires the Department of Insurance to make postings for convictions of Insurance Code section 1871.4, Insurance Code section section 11760 or Insurance Code section 11880, Labor Code section 3700.5 or sections 487 or 550 of the Penal Code. This posting is limited to convictions specifically related to a violation that involves Workers Compensation insurance, services or benefits.

Learn more: The Criminal Process Explained by the California Courts with Comments by Daniel Horowitz (lawyersinlafayette.com)

What are Examples of Workers Compensation Fraud

There are many creative ways to either defraud the Workers Compensation system or to be doing business normally and honestly yet be charged with a crime because an insurance company has filed a report with the state.

Common areas of insurance fraud that we see filed are:

Employee Fraud such as completely faking (rare) or exaggerating the extent of an injury to receive more benefits. The exaggeration of injuries is a common area for fraud prosecutions.

Our recent workers compensation fraud victory in Orange County involved claims by the prosecution that our clients paid kickbacks in exchange for case referrals. Our attorney client was completely innocent and charges were dismissed by the court in 2024. Typical workers compensation fraud cases (not necessarily handled by our office are described below.)

Types of Cases Targeted in 2023 for Fraud Prosecution

Horowitz Workers Compensation Fraud Win in Orange County

The Bison HR Workers Compensation Fraud Case

Dr. Anthony Dinh Workers Compensation Fraud Case

Off Work Injury Claimed as an “On the Job” Injury

Working while receiving disability benefits. Related to this the self work prosecution where a person on disability is seen painting their house, doing tasks off the job that they claim they cannot do on the job.

Employer Fraud such as down rating the type of work employees do to reduce premiums or reducing the employee count to likewise reduce premiums.

Healthcare Provider Fraud includes over treating and exaggerating injuries to justify unnecessary visits and billings.

Referral Schemes including the payment by doctors of referral fees to attorneys, capping which is payment by lawyers to non-lawyers in exchange for the referral of clients.

Our criminal defense lawyers represent doctors, workers and employers in cases involving insurance fraud. We have defended insurance fraud in cases from Riverside County to Tehama County and many places in between.

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