In this article, Brinda Dubey pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the legal actions which can be taken up by the insurance companies against fraudulent insurance claims.

What is an Insurance Fraud?

The Indian Insurance Act does not contain definition for ‘insurance fraud’. Neither have any specific laws connected to insurance fraud been spelled out in the Indian Penal Code,1860(IPC). The Indian Contract Act,1872 (ICA) also doesn’t have any specific laws pertaining to insurance fraud. Even though sections related to forgery or fraudulent acts can be applied in the IPC, it does not succeed to deter the commission of the fraud. Insurance fraud occurs when people deceive an insurance company in order to collect money to which they are not entitled.

The Insurance Regulatory and Development Authority (IRDA) has on several occasions taken up the  International Association of Insurance Supervisors’ (IAIS) definition, “an act or omission intended to gain dishonest or unlawful advantage for a party committing the fraud or for other related parties.”

The Federation of Indian Chambers of Commerce & Industry define insurance fraud as, “The act of making a statement known to be false and used to induce another party to issue a contract or pay a claim.This act must be wilful and deliberate, involve financial gain, done under false pretenses and is illegal.”

Insurance fraud refers to any duplicitous act performed with the intent to obtain an improper payment from an insurer. Insurance fraud is committed by individuals from all walks of life. Law enforcement officials have prosecuted doctors, lawyers, chiropractors, car salesmen, insurance agents and people in positions of trust. Anyone who seeks to benefit from insurance through making inflated or false claims of loss or injury can be prosecuted.’’

Types of Insurance Fraud

The Insurance Regulatory and Development Authority of India which is the apex body and overseeing the business of Insurance in Inda sets out these 3 broad categories of fraud –

1. Policyholder Fraud and/or Claims Fraud – Fraud against the company in the purchase and/or execution of an insurance product, including fraud at the time of making a claim.
2. Intermediary Fraud – Fraud perpetuated by an insurance agent/Corporate Agent/intermediary/Third Party Administrators (TPAs) against the company and/or policyholders.
3. Internal Fraud – Fraud/ misappropriation against the company by its Director, Manager and/or any other officer or staff member (by whatever name called).

Claims Related Fraud

Policy holders may generally commit these kind of frauds :

• Hiding a pre-existing condition: most individual health policies give a definite waiting period for a pre-existing condition/disease. The policyholder by falsifying the report of a pre-policy health check up, conceal this fact.
• Fabricated documents to meet terms and conditions of the Insurance: Youthful and Healthy people are an obvious choice for insurance by the companies.Any person with a different attribute, for example, a person aged, may not necessarily face rejection of his application but may be charged more premium. In this case people try to conceal age or chronic diseases.Faking disability also comes under this.
• Duplicate bills of exchange: Submission of forged or inflated bills is also fraud, especially when no expenses have been undertaken.The objective of health insurance, to cover the medical expenses incurred when one has diseases or requires surgery, is defeated then.An insurance policy is not supposed to be profitable.
• Withholding information of multiple policies: It is the responsibility of the insured to inform all the other insurers of the existing policies whether group, individual to prevent the making of multiple claims on an issue and make a profit out of it
• Participating in fraud rings: A person might collude with another like an agent or doctor or providers to make a false claim, for example, alter information at their bequest to make a claim.
• Orchestrated accident: A person might stage an accident so that they can call for compensation for their medical and hospital expenses.

As the social health insurance takes a steady upward come, the victims of health insurance might be more in nature.

Current Action against fraud

• No fraud Management policy has been properly documented or implemented till date by the various insurance regulatory authorities or the government.
• These are the various actions which can be taken when it comes to insurance fraud and the actions are limited to :

1. Rejection of claims of serious fraud – in all cases brought out in the court if the guilt is found out, the claim is outright rejected
2. Fraud can also lead to cancellation of policy in serious fraud cases, however, this does not generally happen in abuse or misdeclaration.
3. There are only limited actions which can be taken against the agents due to lack of a comprehensive legal framework to punish the same.
4. Most of the insurance companies do not have an underwriting as a part of their disclosures or documents, about what action will be taken against the consumers in case of misdeclaration or non declaration of material information.

Setbacks

Due to the mounting backlog of pending cases in the judicial machinery of our state, taking legal action against fraud is not a common occurrence and fraud of amounts not big enough are let go off as opposed to the heavy investment of time and energy in pursuing the same.

Even if legal remedies are taken or help of the court is availed due to various reasons and the design and process of the law sometimes make the recovery of the money lost by fraud are a rare occurrence.

Legal Provisions under Indian Penal Code,1860

The provisions which can be applicable in such cases are –

1. Section 205. False personation for purpose of act or proceeding in suit or prosecution.—Whoever falsely personates another, and in such assumed character makes any admission or statement, or confesses judgment, or causes any process to be issued or becomes bail or security, or does any other act in any suit or criminal prosecu­tion, shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both.
2. Section 420. Cheating and dishonestly inducing delivery of property.—Whoever cheats and thereby dishonestly induces the person de­ceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.
3. Section 464 Making a false document. —³⁴¹ [A person is said to make a false document or false electronic record— First —Who dishonestly or fradulently—

(a) makes, signs, seals or executes a document or part of a document;

(b) makes or transmits any electronic record or part of any electronic record;

(c) affixes any ³⁴² [electronic signature] on any electronic record;

(d) makes any mark denoting the execution of a document or the authenticity of the³⁴² [electronic signature],with the intention of causing it to be believed that such document or part of document, electronic record or ³⁴² [electronic signature] was made, signed, sealed, executed, transmitted or affixed by or by the authority of a person by whom or by whose authority he knows that it was not made, signed, sealed, executed or affixed;

• Or Secondly — Who, without lawful authority, dishonestly or fraudu­lently, by cancellation or otherwise, alters a document or an electronic record in any material part thereof, after it has been made, executed or affixed with ³⁴² [electronic signature] either by himself or by any other person, whether such person be living or dead at the time of such alteration; or
• Thirdly — Who dishonestly or fraudulently causes any person to sign, seal, execute or alter a document or an electronic record or to affix his ³⁴² [electronic signature] on any electronic record knowing that such person by reason of unsoundness of mind or intoxication cannot, or that by reason of deception practised upon him, he does not know the contents of the document or electronic record or the nature of the alteration.]

4. Section 405. Criminal breach of trust.— Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits “criminal breach of trust’’.

As seen above from the comprehensive and elaborate explanations/definitions all these sections under this law can be used to persecute in case of insurance fraud however due to the time and cost involved, parties generally refrain.

Legal Remedies under The Indian Contract Act, 1872

1. Misrepresentation within the meaning of Section 18of the ICA
2. The contract of insurance is also void in as per Section 10 read with Section 14(4) and Section 18 of the ICA generally in cases of fraud.
3. As per Section 20of the Indian Contract Act, 1872, the agreement is void where both parties are under mistake as to matter of fact. Some factors are essential for insurance cover.

Other measures which can be taken

Steps such as having a comprehensive fraud and abuse management policy which covers types of fraud and abuse alongside with policies, procedures, and controls, company action being documented and implementing a review mechanism should be taken by insurance companies also so that they are also in a position to take legal action.

Sharing of knowledge and data should be more prevalent with the victims of fraudulent insurance claims, this data should include fraud patterns and case studies, fraud customer list and intermediaries, fraudulent providers and investigators etc.

Most importantly awareness should be brought about the due legal process to be followed before reporting a case.Reporting to external bodies such as Medical Council of India, IRDA, and corporate Human Resources can also be tried.

Conclusion

There has been a growing instance of fraudulent insurance claims and the Supreme Court also in January 2017 has stressed on the need for framing guidelines with the suggestions of the states and the insurance companies to rule out such cases. In some cases claims are also filed wrongly under different acts.It is important to evolve an efficient legal framework and take recourse to the existing one as well to prevent such plunder of the money of the public.

Sources

1. https://www.indiafirstlife.com/downloadPDF/Anti-Fraud-Policy/Anti-Fraud-Policy_22-01-2014.pdf
2. com
3. Cases on State Consumer Disputes Redressal Commission
4. Insurance institute of India