1. Federal Criminal Liability: Prison Time and Restitution
Federal insurance fraud prosecutions typically arise when fraudulent claims cross state lines, involve healthcare programs funded by the federal government, or utilize federal financial channels. Federal prosecutors possess extensive resources to investigate mail, wire, and healthcare fraud schemes.
18 U.S.C. § 1347 Penalties and Federal Sentencing Guidelines
Under 18 U.S.C. § 1347, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program carries a prison sentence of up to 10 years per count. If the violation results in serious bodily injury, the maximum statutory prison term increases to 20 years; if the violation results in death, the sentence can extend to life imprisonment.
Federal courts determine sentences under the United States Sentencing Guidelines (USSG), primarily evaluating the calculated loss amount, the degree of planning, and the defendant's specific role in the alleged offense. Prosecutors frequently pair § 1347 charges with mail fraud (18 U.S.C. § 1341) and wire fraud (18 U.S.C. § 1343), each carrying separate maximum sentences of 20 years per count.
Mandatory Restitution to Insurers and Victims
In federal criminal convictions, the Mandatory Victims Restitution Act (MVRA), codified at 18 U.S.C. § 3663A, requires the sentencing court to order full restitution to identified victims, including private insurance carriers and government-sponsored insurance programs. Unlike civil judgments, restitution obligations resulting from federal criminal convictions cannot be discharged through bankruptcy under 11 U.S.C. § 523(a)(13).
Restitution orders apply jointly and severally across co-defendants, exposing each participant to full liability for the financial loss proven by the government.
2. State-Level Prosecution: California Penal Code §§ 548–550
California enforces strict state-level insurance fraud statutes. State prosecutions are typically handled by district attorneys' offices or the California Attorney General in conjunction with the California Department of Insurance (CDI).
Wobbler Offenses: Misdemeanor Vs. Felony Charging Decisions
Some California insurance fraud offenses under California Penal Code (PC) § 550 are classified as "wobblers," while others are felonies. A wobbler is an offense that prosecutors can charge as either a misdemeanor or a felony, depending on the monetary value of the claim and the defendant's prior criminal history.
- Claims Exceeding $950: Certain fraudulent claims exceeding $950 within a 12-month period may be charged as felonies or misdemeanors. Felony convictions under PC § 550 carry imprisonment terms of two, three, or five years, alongside fines up to $50,000 or double the amount of the fraud, whichever is greater.
- Claims Below $950: Claims of $950 or less can be misdemeanors, carrying up to six months in county jail and fines of up to $1,000.
- Specific Statutory Offenses: PC § 548 (injuring or abandoning property to defraud an insurer) and PC § 549 (soliciting or referring business for fraudulent insurance claims) carry separate felony sentencing enhancements for repeated offenses.
Sentencing Exposure in California State Courts
California state courts follow statutory sentencing triads (lower, middle, or upper term) based on aggravating and mitigating factors. The table below outlines primary statutory violations and exposure under the California Penal Code:
| Statute | Description | Charge Classification | Statutory Penalties |
|---|---|---|---|
| PC § 548(a) | Injuring, destroying, or abandoning insured property | Felony | 2, 3, or 5 years in state prison; fine up to $50,000 |
| PC § 549 | Solicitation or referral of fraudulent claims | Wobbler (1st Offense)
Felony (Subsequent) | Misdemeanor: Up to 1 year jail
Felony: 16 months, 2, or 3 years prison |
| PC § 550(a) | Presenting false or fraudulent insurance claims | Wobbler (Threshold $950) | Misdemeanor: Up to 1 year jail
Felony: 2, 3, or 5 years prison; fine up to $50k or 2x fraud value |
PC § 548(a)
- DescriptionInjuring, destroying, or abandoning insured property
- Charge ClassificationFelony
- Statutory Penalties2, 3, or 5 years in state prison; fine up to $50,000
PC § 549
- DescriptionSolicitation or referral of fraudulent claims
- Charge Classification
Wobbler (1st Offense)
Felony (Subsequent)
- Statutory Penalties
Misdemeanor: Up to 1 year jail
Felony: 16 months, 2, or 3 years prison
PC § 550(a)
- DescriptionPresenting false or fraudulent insurance claims
- Charge ClassificationWobbler (Threshold $950)
- Statutory Penalties
Misdemeanor: Up to 1 year jail
Felony: 2, 3, or 5 years prison; fine up to $50k or 2x fraud value
3. Civil Exposure: Insurance Company Clawback Actions
In addition to criminal prosecution, individuals and businesses accused of insurance fraud face civil enforcement litigation brought directly by insurance carriers or state regulators.
Insurer Recovery of Paid Claims Plus Treble Damages
Under the California Insurance Frauds Prevention Act (IFPA), codified at California Insurance Code § 1871.7, private parties or insurers can file Qui tam civil actions on behalf of the state against any person who engages in insurance fraud.
Civil liabilities under Insurance Code § 1871.7 include:
- Statutory Penalties: Mandatory civil penalties ranging from $5,000 to $10,000 per fraudulent claim filed.
- Treble Damages: An assessment of up to three times the amount of each claim for compensation paid by the insurance carrier.
- Clawback Recovery: Full restitution of historically paid claims over the duration of the fraudulent activity.
Attorney'S Fees and Investigation Costs Shifted to Defendant
Unlike general civil litigation where parties bear their own costs, California Insurance Code § 1871.7(g) explicitly allows prevailing insurers or state enforcement agencies to recover reasonable attorney's fees, expert witness fees, and total investigation costs from the defendant. These shifted costs frequently equal or exceed the base financial claim.
4. When to Retain Counsel: Red Flags and Early Intervention
Early intervention before formal indictment allows defense attorneys to interact with investigators, manage subpoenas, and preserve evidence.
Investigator Contact and Carrier Examinations under Oath (EUO)
Insurance carriers routinely use policy-mandated Examinations Under Oath (EUO) to investigate suspect claims. Statements made during an EUO are taken under penalty of perjury and are routinely shared with law enforcement agency investigators. An insured or corporate representative facing fraud allegations must evaluate Fifth Amendment protections and contractual policy obligations with legal counsel before attending an EUO or responding to investigator inquiries.
Preserving Evidence and Attorney-Client Privilege
Upon learning of an inquiry, companies and individuals must issue formal legal holds to preserve physical records, electronic files, and communication logs. Conducting internal reviews under attorney-client privilege helps assess financial exposure accurately while preventing intentional evidence destruction, which can independently trigger misdemeanor charges under California Penal Code § 135.
14 Sep, 2026
