During the 1920s, most states, including California, accepted a new social insurance program known as workers' compensation. In California, workers' compensation insurance is a no-fault system. Injured employees need not prove the injury was someone else's fault in order to receive workers' compensation benefits for an on-the-job injury. The National Insurance Crime Bureau estimated in the year 2000, workers' compensation insurance fraud was the fastest-growing insurance scam in the nation, costing the industry $5 billion per year by what many people consider a victimless crime. Often white-collar criminals, including doctors and lawyers, dupe the system through fraudulent activity and insurance companies "pick up the tab," passing the cost onto policyholders, taxpayers and the general public.
The Workers' Compensation Fraud Program was established in 1991 through the passage of Senate Bill 1218 (Chapter 116). The law made workers' compensation fraud a felony, required insurers to report suspected fraud and established a mechanism for funding enforcement and prosecution activities. Senate Bill 1218 also established the Fraud Assessment Commission to determine the level of assessments to fund investigation and prosecution of workers' compensation insurance fraud. The funding comes from California employers who are legally required to be insured or self-insured. The total aggregate assessment for Fiscal Year 2006-07 is $40,977,541.
The investigation of Workers' Compensation Fraud very often involves difficult and lengthy investigations. These investigations have resulted in convictions and the reduction of a number of medical and/or legal workers' compensation mills. Since Fiscal Year 2003-04, the CDI has participated as a member of the "Underground Economy Strike Force," per Assembly Bill 202. The Fraud Division continues to focus its efforts in that area of the Underground Economy known as employer misrepresentation or Premium Fraud. Participation on the Strike Force helps the Fraud Division and district attorneys investigate and prosecute the premium fraud cases which most significantly impact the California economy and business climate.
An aggressive anti-fraud campaign by the Department, the district attorneys, the insurance industry and California employers continues to play a substantial role in reducing crime and helps lower workers' compensation premiums for employers statewide.
During Fiscal Year 2006-07, the Fraud Division received 5,933 SFCs, assigned 724 new cases, made 401 arrests and submitted 483 cases to prosecuting authorities. Potential Loss amounted to $222,916,515.
In Fiscal Year 2006-07, the district attorneys reported a total of 549 arrests, which also included the majority of Fraud Division arrests. During the same time frame, district attorneys prosecuted 1,115 cases with 1,224 suspects, resulting in 499 convictions while many cases are still pending in court. Restitution of $24,953,650 was ordered in connection with these convictions and $8,639,562 was collected during Fiscal Year 2006-07. The total chargeable fraud was $260,292,381, representing only a small portion of actual fraud since many fraudulent activities had not been identified or investigated.
Effective January 1, 2005, Assembly Bill 2866 (Frommer) enacted Insurance Code Section 1871.9 requiring the posting of all workers' compensation fraud convictions to the CDI website.
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Per section 1871.9, the department shall post all of the following information on its Internet Web site for each person, as defined in Section 19, convicted of a violation of this article (1871.4), Section 11760 or 11880, Section 3700.5 of the Labor Code or Section 487 or 550 of the Penal Code, if the violation involved workers' compensation insurance, services or benefits:
(a) The name, case number, county or court and other identifying information with respect to the case. (b) The full name of the defendant. (c) The city and county of the defendant's last known residence or business address. (d) The date of conviction. (e) A description of the offense. (f) The amount of money alleged to have been defrauded. (g) A description of the punishment imposed, including the length of any sentence of imprisonment and the amount of any fine imposed.
The information required to be posted under this section shall be maintained on the department Web site for a period of five years from the date of conviction or until the department is notified in writing by the person that the conviction has been reversed or expunged.
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