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INSURANCE FRAUD - A PROSECUTOR'S PERSPECTIVE

Comments Presented to the 1998 Choice Point Fraud Seminar By James C. Backstrom Dakota County Attorney January 29, 1998

Insurance fraud is a huge problem - one which results in billions of dollars of loss annually to insurance companies. In 1995, it was estimated that there was over $85 billion dollars in insurance claim fraud that occurred in the United States. That includes over $20 billion dollars estimated to be lost annually in property and casualty insurance fraud. These total losses add up to a 1995 estimate of more than $1,030 taken from each American family in the form of higher premiums, taxes to deal with the problem and increases in the costs of goods and services. In Minnesota alone, more than 2.4 billion dollars was estimated to have been lost to insurance claim fraud in 1995.1 Insurance fraud is clearly a big business and one thing we all need to be concerned about is the seeming public apathy that insurance fraud is no big deal. This apathy at times, unfortunately, even finds its way into our criminal justice system. One recent national poll indicated that 23% of the public believe its acceptable to pad an insurance claim.2 That's simply amazing. There seems to be a great willingness among normally law abiding people to tolerate low level insurance fraud - inflating claims to recover an insured's deductible, making misrepresentations of accidents, submitting claims for prior damage, falsifying receipts - these types of misrepresentation happen all the time and many are never uncovered. Unfortunately, even with those cases that find their way into court, there are often frustrations for many of us in prosecution and law enforcement, that these cases simply aren't viewed seriously enough. Sentencing guidelines for these crimes are low and judges are sometimes reluctant to order restitution to cover an insurance company's losses. Why is this so? It stems in part I'm sure from the basic perception by a good many people, as I mentioned above, that at least the "soft" types of insurance fraud are nothing to be too concerned about. This same misconception is what I believe has made it difficult at times to obtain restitution orders to insurance companies and meaningful sanctions for offenders convicted of these types of offenses. But it is important to keep in mind that it's not just the decisions of a few judges that we need to be concerned about in this respect. Just last year, Minnesota Sentencing Guidelines lowered the recommended penalties for fraud and theft related crimes in Minnesota -- sentences that are, in my opinion, too low already. This was certainly a troubling change that was driven by concerns of overcrowded prisons and the high public costs associated with building more incarceration facilities. Concerns that are quite frankly founded based upon faulty logic and inappropriate reasoning in my opinion.

__________________________________________________________________ James C. Backstrom has been the Dakota County Attorney in Minnesota since 1987. He previously served as an Assistant County Attorney for nine years and as President of the Minnesota County Attorneys Association. He currently is a VicePresident of the National District Attorneys Association and co-chairs that Association's Juvenile Justice Advisory Committe. Brent Wartner, Special Assistant Dakota County Attorney, assisted in preparing these materials.

It makes no sense to have a system of laws for property crimes which do not carry meaningful sanctions in terms of incarceration - at least for repeat offenders. It's important to keep in mind that we are talking about crimes here that the Legislature has designated as felonies - serious violations of law which do not carry with them much in terms of meaningful sanctions. I don't think that's sound public policy. I believe the vast majority of our citizens would be amazed to learn that you can steal up to $2,500, or defraud an insurer of $2,500 up to 12 separate times and you won't set foot inside a state prison. Additionally, it takes up to six prior offenses for theft or insurance fraud crimes between $2,500 - $35,000 before prison time is recommended under Minnesota's Sentencing Guidelines. Now, I'm not trying to suggest that we should lock these felony theft offenders or insurance frauders up forever. I certainly am not troubled by minimal sentences for such offenders the first time they run afoul of the law - but six to twelve times? By the time someone reaches more than three prior felony theft or fraud cases, they've become a career criminal in my book and they should be treated accordingly. Such treatment includes some significant period of incarceration so maybe they'll get the message that this type of behavior may not be something they want to try to make a living at for the rest of their lives. When we examine where we are with sentencing policy in our state and where we may be heading, I have some grave concerns. I'm not sure how many of you were aware how close we came several years ago to cutting in half the criminal history points for the more serious felony theft and fraud related offenders in Minnesota who steal between $2,500 - $35,000. As you know, our system of sentencing guidelines is based upon a two-track analysis of the seriousness of the crime and the prior criminal history of the defendant. If you cut the criminal history points of a felony theft offender in half, it will take twice as long for these individuals to find their way into prison. Under a 1994 proposal by our State's Sentencing Guidelines Commission, an offender could conceivably have had 12 separate prior felony theft or fraud convictions between $2,500 - $35,000 before they would have ever set foot in a state prison. The Minnesota's County Attorney's Association and other law enforcement groups strongly opposed this change and we managed to kill it. But, as I mentioned above, just last year, the Guidelines Commission adjusted the time served portion of the guideline's grid - lowering slightly the presumptive incarceration time for crimes of this nature. This type of pressure is going to continue. Just last fall the Minnesota Citizens Council for Crime and Justice came up with a proposal to address their belief that we incarcerate too many people in prison in our State. This group not only generated some media interest - but it points out that there are a good number of people out there that believe we should look for alternatives to incarceration for most property offenders in Minnesota. Well, I'm here to tell you that the prosecutors of this state don't share that belief. We issued our own report on sentencing issues to make sure the people of our state got an accurate picture of the facts. I'm all for trying alternative sanctions for first time offenders and maybe even second time offenders in certain situations, but not for career criminals - and you have to be a career criminal before you are going to prison in Minnesota for property crimes. We can ill afford to make it more difficult to punish career criminals in our State. We can and should look for some cost effective alternatives to maximum security facilities to house these offenders, but we should not simply decide that these crimes don't warrant meaningful punishment. One such cost effective alternative we can look to, as the Minnesota's County Attorneys pointed out in our recent position paper on sentencing, is building medium security incarceration facilities for these property offenders. Not everyone needs to be locked

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up in a maximum security prison. We should also consider double bunking these type of criminals to save costs associated with their incarceration. I'd like to now discuss some issues surrounding restitution and the recent changes in Minnesota law pertaining thereto, as well as some other important changes to Minnesota's insurance fraud statute. Obtaining restitution for a crime victim's losses also lies at the core of holding offenders accountable for their actions. Insurance fraud is obviously costly to the insurance industry and I have long had concerns that not enough of an effort is undertaken by the criminal justice system to force defendants to pay back the money they have stolen from the victims of property crimes. By victim I mean not only the insured but also the insurance companies who usually have suffered the greatest financial loss. Regretfully, as I mentioned earlier, some judges are at times reluctant to order restitution to cover an insurance company's losses and instead cover only the out-of-pocket expenses of the person who was insured - requiring the defendant to only pay back the deductible amount of an insured person's losses as their total obligation for restitution. The rational behind this thinking is often that it is unfair to burden a defendant with a debt that he or she is financially unable to pay, or that it would be too much of a "hardship" to require the defendant to pay back such a large amount of money. The judge may also rationalize that the insurance company can always seek a civil judgment against the defendant for any additional losses it incurred. All of you in the insurance industry, of course, realize that a civil action is not always as effective as a criminal restitution order - the incentive to pay back the money does not exist to some people unless they are facing jail time. The message that insurance companies are being negatively effected by a lack of court-ordered restitution needs to be communicated to judges, legislators and other sentencing policy professionals. In the Dakota County Attorney's Office, we have always maintained an active stance toward recovering "all" restitution to a victim of a crime. In fact, one of the cases we prosecuted resulted in one of the highest restitution amounts ever awarded in the State of Minnesota - $147,251.27. That case did not involve insurance fraud - it involved an Algerian defendant who was convicted of depriving another of custodial or parental rights. 3 Although the defendant in this case was ordered to pay full restitution for all of the victim's losses at our request, he was only required to pay $200 per month, which was based upon his current ability to pay. This case, which was appealed to the Minnesota Supreme Court is important to the insurance industry because it stands for the proposition that a defendant may be ordered to pay complete restitution even if the amount is beyond his or her lifetime ability to pay-off a debt, as long as the court ordered payments are not more than the defendant's monthly disposable income. More importantly, the case sends a message that a defendant should be required to pay "complete" restitution to the victim of a crime. Despite a criminal defendant's current inability to pay off complete restitution, there's always the chance the defendant could come into a large inheritance or win the lottery and that's why full restitution orders like this are important. Being aggressive in seeking restitution orders from a court in all criminal cases, including insurance fraud, is something I strongly believe in. In the case of insurance fraud and theft by swindle, the insurance company should be viewed as a victim of the crime just as much as the citizen the insurance company insures. In order to insure "complete" restitution to all victims of crime - including insurance companies, which we have

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unfortunately not always been able to obtain, I proposed legislation in 1993 to amend the Minnesota restitution statute (Minn. Stat. §611A.04) to protect an insurance company's right to restitution, even in those situations where the insurance company is pursuing a civil action on the restitution against the defendant. This proposal became law in 1994. Now the law is clear that a prospective civil action involving the alleged crime shall not be used by the court as a basis to deny a victim's right to obtain court-ordered restitution. The law also was changed at our request to prohibit courts from refusing to enforce an order for restitution against an offender who is on probation solely on the grounds that the order has been docketed as a civil judgment. Both of these provisions protect an insurance company's right, as a victim of a crime, to seek court-ordered restitution and at the same time to seek a civil judgment against a defendant. For these reasons, judges are now prohibited from not awarding restitution to insurance companies in criminal cases. An additional restitution problem that all victims have, particularly insurance companies, is that presently defendants are being allowed to challenge determinations of court-ordered restitution amounts months and years after sentencing. I have also proposed an amendment in the 1998 legislative session to put a 30 day time limit on requests for restitution hearings. If passed, requests for restitution hearings by defendants beyond the time limit would be barred. Additionally, I also supported the major revision of the insurance fraud statute in 1996 which was proposed by the insurance industry (Minn. Stat. §609.611). Prior to 1997, it would be rare to find any prosecutor's office that charged cases under the old insurance fraud statute - the theft statutes would be used because of the simple fact that the penalties were greater. Under the new law, the penalties for insurance fraud were equalized with Minnesota's theft statutes,4 and the definitions of the type of conduct constituting insurance fraud was broadened substantially. The language now covers all of the creative methods individuals have devised to fraudulently obtain money from insurance companies5 Because of these two changes, you will now begin seeing more charges of actual insurance fraud rather than thefts by swindle being filed across our State. Last year in Dakota County, we charged five cases under this newly revised insurance fraud statute. This new insurance fraud legislation also included additional language to further clarify that restitution must be ordered to insurance companies6 and that restitution is to be in addition to a fine or imprisonment and not in lieu thereof. This language in the insurance fraud statute combined with the language of the general restitution statute, that I have previously described above, sends a powerful message to the criminal justice system, and judges in particular, that restitution to the insurance companies should be ordered. While its too early to see the long term effect of these recent legislative changes pertaining to restitution in insurance fraud matters, I certainly hope that the insurance companies will begin to see higher amounts of restitution being paid back to them in cases where a person has been caught committing insurance fraud. As a final note concerning the insurance fraud statue, I wanted to point out the provision dealing with the statute of limitations. Under the standard statute of limitations provision in Minnesota, a complaint shall be filed in the proper court within three years after the commission of the offense. Insurance fraud often is not discovered for several years - e.g. a reported stolen vehicle is located years later, in the possession of the person who reported it stolen. Also, it can take three years just for all the involved agencies in an complex insurance fraud investigation to gather the necessary paperwork. Under the normal statute of limitations, such crimes could not be prosecuted. In 1993, I

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proposed an amendment to the insurance fraud statute which provided that the statute of limitations would not begin to run until the time that the fraud was discovered. The legislature adopted this language but also added a provision that such an action must be commenced no later than seven years after the fraud occurred. The newly amended insurance fraud statute maintains this same exception. Thus, we have up to seven years to discover the criminal act and three years from the date of discovery to initiate prosecution in an insurance fraud case, provided that the three years is within the total seven year limitation. Also, its important to keep in mind that under Minnesota law, the statute of limitations for criminal actions only applies to a person who is an inhabitant or resident of the State of Minnesota. This is helpful where a person commits insurance fraud in Minnesota but leaves the state. The statute of limitations is in effect tolled until the person returns or prosecution of the case is begun. This exception is rarely applicable to a case but it is nice to know it is available if needed. Issues Associated With Prosecuting Insurance Fraud Types of Evidence Needed 1) Evidence of a fraudulent insurance act: - We usually need physical evidence of the papers and documents submitted to the insurance company by the claimant. - We must identify who completed the form (i.e. we need to verify the identity of the applicant). - One way to assist investigators and prosecutors in this regard is to tape record the interview with the applicant to preserve a record of who submitted the claim, what they claimed and why they felt entitled to reimbursement. 2) Evidence of intent to defraud for the purpose of pecuniary gain. - We need proof that the information the claimant submitted was false and the claimant knew it was false at the time he/she submitted it. - Video tapes of the scenes where alleged slip and falls occurred can be useful. - We always look for credible independent witnesses who can provide information on what really happened prior to at the time when the fraud occurred. 3) Evidence of location where the insurance fraud took place - i.e. where the person submitted the claim or concealed information. - A prosecutor must be able to prove the crime occurred within their jurisdiction and during a particular span of time to be able to file criminal charges. - This is often the location of the insurance agent's office. - It is best to have a claimant come in person to receive a payment on a claim that appears questionable. This helps with later identification of the claimant and clears up any questions as to the jurisdiction of where the insurance fraud was committed. 4) Value - We also must be able to prove the value of the loss. - This is an issue mostly in situations involving the loss of a tangible item other than money such as a car. We need to have an accurate estimate of the value of the item or services received by the claimant.

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- Proving value in theft cases isn't always as easy as it might sound. Defense attorneys in theft cases often raise issues surrounding the value of the item stolen. They often argue that value of property stolen from a victim must be the value of equivalent used property. It is no great secret as to why defense attorneys raise these issues. They are trying to get the value of the property below the felony threshold of $500. This is not in the interests of justice. A crime victim who has lost property must replace it at his/her expense. Also, certain court decisions have complicated this whole issue of the proof of the value of stolen items by suggesting that the value of equivalent replacement property cannot simply be determined by the prices at which one particular store or merchant sells the property, but can always be claimed to be lower if the defense can find someone to sell the merchandise cheaper or at a wholesale price. Crime victims must pay retail and not wholesale value to replace stolen property and should not be obligated to check at multiple stores to obtain the best possible price. Another issue of concern as to proving the value in a theft case has been for temporary thefts. For a temporary theft, the theft statute defines "value" as the value of the use of property while the owner was deprived of its possession or any damage which it sustained. This becomes a problem when a defendant steals a $20,000 or $30,000 car and eventually abandons it without significant damage. It becomes exceedingly difficult to measure the value of the loss of the use of the vehicle without an expert witness from a car rental agency or a similar witness. In addition, it is questionable whether this measure of value is appropriate when the perpetrator steals expensive property such as a car. To address these three problems relating to proof of value, I have proposed some legislative changes in 1998. These changes if passed will: 1) amend the definition of "value" in the theft statue to specify that it means the retail value of new equivalent property at the time of the theft or the cost of replacement of the property with equivalent goods within a reasonable time of the theft; 2) further define "value" as excluding wholesale prices; and 3) define "value" to be the retail value of the property stolen even if it was taken only for a short period of time. Obstacles to Prosecution Two general categories of obstacles to prosecution are: (1) public apathy toward the crime of insurance fraud, and (2) lack of resources. Up front, one must recognize that the current trend in society is to accept insurance fraud as a method to get even with the insurance companies for high premiums. A social stigma for committing insurance fraud does not always exist. The lack of a social stigma effects prosecution of insurance fraud cases because fewer people come forward to report these crimes and, thus, there is less opportunity for a police investigation. Also, when an insurance fraud case is discovered and prosecuted, those same people who do not view insurance fraud as a crime may be part of the twelve people seated on the jury in an insurance fraud case. Conviction of a crime like insurance fraud, which is essentially a paper based crime, is difficult enough to prove - the additional burden of convincing the jury that the conduct is in fact criminal is something no prosecutor looks forward to having to meet. The failure of the public to recognize insurance fraud as a serious crime significantly impacts prosecution of these types of cases. It is important for prosecutors, law enforcement officials and the insurance industry to make attempts to educate the public that insurance fraud must be taken seriously. By doing so we may avoid this situation of being forced to communicate that message in a trial when it may be too late. The public needs to be constantly

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reminded of the impact of insurance fraud on society as a whole in order to assist prosecution efforts in these types of cases. The second major category of obstacles to prosecution is the lack of resources to deal with this problem at every level in the criminal justice system. Investigation of insurance fraud takes a tremendous amount of police investigatory time - time many departments may not want to spend because they do not believe any of the people who may be convicted will serve any significant jail time anyway. Thus, many times, the prosecutor does not have all the evidence needed to go forward with a strong insurance fraud case. Uncovering and obtaining evidence in insurance fraud cases can be very time consuming and costly. For example: 1) The police must undercover evidence of intent to defraud the insurer - the best way to do this is to interview the suspect and obtain a statement which includes some type of admission of guilt or intent to defraud - the interview process takes a tremendous amount of time for the police department but if it is not done the quality of the case presented to the jury suffers. 2) In a false slip and fall case, if no admission is obtained, the police investigation must uncover evidence that the suspect either never fell (may be proven by a video tape that was recorded in the store), never received treatment for the injuries, or never sought treatment from a bogus doctor. As you can imagine, proof that a doctor is willingly performing unnecessary medical care to assist in an insurance fraud scam is very difficult and costly to obtain. Often the only way to fight this type of deception is for the police department to engage in an elaborate sting operation. Again, a lack of resources prevents most departments from doing this type of investigation. 3) A lack of witnesses to the crime of insurance fraud or the inability to locate the witnesses is another obstacle that prosecutors face. Police departments make every effort to investigate false insurance fraud cases in a timely manner, but if follow up investigation is not done quickly, witnesses disappear and cannot be located. The lack of testimony from a person who can directly explain to the jury that the defendant is involved in an insurance scam for money, often makes prosecution difficult. Lack of resources is also an obstacle to prosecution when it comes to the penalty portion of an insurance fraud case. As I previously discussed, some judges are reluctant to spend limited resources putting persons convicted of insurance fraud behind bars, because the judge may rationalize that the space and money should be spent on violent offenders. As I have already pointed out to you, this logic is flawed. The insurance industry itself has attempted to assist in overcoming these obstacles to prosecution. First, with regard to the issue of public apathy, groups such as the National Insurance Crime Bureau and the Coalition Against Insurance Fraud, have been making every effort to educate the public about the costs of insurance fraud to everybody's pocket book. Getting the word out is important - if the social stigma of insurance fraud is increased, prosecution cases get stronger and the penalties against offenders will be easier to obtain. Second, private insurance fraud organizations provide invaluable investigatory assistance to police. The efforts of special agents working with the insurance industry make the investigation of insurance fraud cases easier for local police departments

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because such special agents have already done much of the leg work that is so time consuming and costly for the police departments to do themselves. These same special agents are also a good source of expert witnesses for the prosecution of insurance fraud cases. Many times, insurance fraud cases are complex, such as auto theft fraud with a vehicle identification number switch, and there is a need to explain to the jury how the crime is committed. Special agents from private insurance fraud organizations assist the prosecution in that role. Solutions to Insurance Fraud In order to combat the insurance fraud problem we are facing, changes need to be made. First, the public attitude and perception of insurance fraud needs to be changed. The insurance industry has already recognized the importance of this and has made a start, but every organization effected by insurance fraud must assist in the effort. The public needs to be informed through seminars, public meetings, and pamphlets that there are costs associated with insurance fraud. The public needs to be told in no uncertain terms that the average American family is losing over a thousand dollars a year because of insurance fraud in the form of higher premiums, taxes, and the increase in the cost of goods and services. Further, the public needs to know that there is a willingness to prosecute offenders and that sanctions will be imposed on those who participate in this type of criminal behavior. One great method of getting the public's assistance in insurance fraud cases is through the development of tip hotlines for fraud. Prosecutors, law enforcement officials and the insurance industry should work together to establish such tiplines and get the message out to the public of their availability. The public will often respond to a problem if they are challenged and provided with a mechanism in which to assist. The tiplines provide such a mechanism. Second, in order to back up the claims that insurance fraud will be prosecuted and adequate sanctions will be imposed on those who participate, the sentencing guidelines in Minnesota need to be amended to require increased prison time for repeat property crime offenders. The best method of stopping these career criminals is to make sure they get more severe incarceration sanctions and are not free to set up one insurance fraud scam after another. Additional facilities may be needed to incarcerate such career criminals. It should be kept in mind that these facilities can be medium and not maximum security facilities to be more cost effective. Double bunking of property offenders in prison and local jails can also save significant costs for housing these offenders. A recent study by Harvard Economist Steven D. Levitt published in the May 1996 issue of The Quarterly Journal on Economics, showed that prisons are among the best of public investments. Dr. Levitt concluded that for each 1,000 inmate increase in the prison population, the following annual reductions in crime would occur: Murder Rape Assault Robbery Burglary Larceny Auto Theft 4 53 1,200 1,100 2,600 9,200 700

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He concluded, based upon his analysis of these seven crime categories, that the annual amount of monetary damage the average criminal would cause if on the loose was $53,900. Subtracting from this the estimated annual cost of incarcerating an offender in the United States, i.e. $30,000, results in an average net benefit per year for each criminal behind bars of $23,900. Dr. Levitt also acknowledged that the true benefits of crime reduction from incarcerating criminals are likely to exceed this total since it reflects only seven crime categories and "thus omits benefits from reduction in other illegal activities such as drug offenses, arson, fraud and driving under the influence."7 Third, additional funding for police investigations of insurance fraud needs to be obtained. As the Twin Cities metropolitan area continues to grow, the number of insurance fraud cases will grow as well, and police budgets need to be increased to reflect both complexity of investigating these cases and the growth in the problem, in order to effectively combat it. Fourth, aggressive tracking of habitual insurance fraud offenders will assist in preventing their leaving one state only to set up shop in a new area. A reporting method needs to be developed that will target people who commit fraud in county after county or state after state. These people are typically ring leaders of insurance fraud and need to be stopped and they can't be stopped if we don't know where they are. Finally, prosecution efforts to combat the large organized fraud scams that cross county or state boundaries need to be coordinated. United States Attorneys can assist in multi-state prosecution efforts and local prosecutors can work together to coordinate prosecutions within their jurisdictions. An example of such a coordinated approach is already underway for major property offenders in the five largest metro-area Minnesota counties, i.e. Hennepin, Ramsey, Dakota, Anoka and Washington counties. Under this pilot program which will be beginning in 1998, a single prosecutor will be assigned to handle prosecution of an offender committing multiple theft crimes within these jurisdictions. This responsibility will be rotated among the five County Attorney's offices involved in this program. Team Effort Prosecution of insurance fraud is a team effort. A prosecutor's office cannot do it alone. The effort starts with the public - people have to become involved and take a stance against insurance fraud. The public has a moral obligation to report to police any person they believe is participating in an insurance fraud scam. The police and private insurance fraud organizations can then use this information to investigate the crime and determine who is committing the insurance fraud and how. Insurance companies need to continue to be vigilant and screen out suspicious insurance claims and track habitual claimants. A prosecutor's office must continue to work with the police and develop strong cases against those individuals who have violated the insurance fraud laws. Finally, judges must take a stance and sentence people to serious jail time when they are convicted of this type of theft, especially repeat offenders. Working together, a team effort can help to reduce the insurance fraud problem.

admin/gen/insurance fraud 1

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1 2 3

Estimates calculated by the Coalition Against Insurance Fraud. Roper Poll conducted on behalf of the National Insurance Crime Bureau.

The simple facts of the case are that the defendant who was in the process of a divorce, took his children who were visiting his home in Indiana, to Algeria in violation of a court order. The defendant informed the mother of the children that they would not be returning to the United States and she should not expect to see them again. The mother attempted to retrieve the children through official channels, but legal counsel in Minnesota, France, and Algeria, informed her that there are no international treaties honoring her parental rights that would be applicable to Algeria, and under Algerian law, the children would not be permitted to leave the country without their father's consent. Accordingly, the mother, a Minnesota resident, hired a team of former CIA and FBI special forces agents to recover her children from Algeria. Eventually, the forces were successful but at a great financial cost to the mother. The Court eventually obtained custody of defendant after he returned to the United States and, thereby, at the request of the Dakota County Attorney's Office and the mother, ordered that defendant pay the cost of recovering the children. In the end, the defendant claimed to earn only six and a half dollars an hour and, therefore, the Court ordered him to pay $200.00 a month until the debt was paid off. In other words, the defendant would be court ordered to pay restitution until infinity. To protect this victim's right to restitution, the Dakota County Attorney's Office argued this case all the way to the Minnesota Supreme Court. The Dakota County Attorney's Office argued that a victim of a crime is entitled to complete restitution - regardless of the amount. The Minnesota Supreme Court agreed. State v. Maidi, 537 N.W.2d 280 (Minn. 1995). Under the old insurance fraud statute, the statutory maximum penalty was three years imprisonment and a fine of not more than $5,000, or both if the value was under $20,000, or five years imprisonment and a fine of not more than $10,000, or both if the value was $20,000 or greater. For comparison sake, the theft statue (where our office charged any case involving insurance fraud prior to the 1996 amendment to the statute because of the increased penalty) had the following penalties: (1) five years imprisonment and fine of $10,000 or both if value under $2,500; (2) ten years imprisonment and fine of $20,000 or both if value over $2,500; and (3) twenty years imprisonment and fine of $35,000 or both if value over $35,000. Now, the insurance fraud statue (after the 1996 amendments) adopts the sentencing provisions of the theft statute and a person charged with insurance fraud can be sentenced according to the theft penalties described above.

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Previously, the insurance fraud statute essentially stated that whoever damages, removes or conceals property with intent to defraud an insurer shall be guilty of the crime of insurance fraud. Also it provided that if someone filed a false claim to an insurer for stolen or lost property, knowing the claim to be false, they would be guilty of the crime defrauding an insurer. This was not a very exhaustive or complex list of the type of conduct that society and the insurance industry in particular are interested in prohibiting. The amended statute provides an exhaustive list of prohibited conduct. Essentially, the amended statute provides an expanded list of conduct that shall be considered insurance fraud. See Minn Stat. §609.611. The statute now specifically states that "a person convicted of a violation of this section [insurance fraud] must be ordered to pay restitution to persons aggrieved by the violation. Restitution must be ordered in addition to a fine or imprisonment but not in lieu of a fine or imprisonment." The Effect of Prison Population Size on Crime Rates: Evidence from Prison Overcrowding Litigation, Steven D. Levitt, The Quarterly Journal of Economics, May, 1996, published for Harvard University, page 346.

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