SB 378--
Session of 1997
By Committee on Ways and Means

9 AN ACT concerning insurance; relating to insurance fraud; prohibiting 10 certain acts and prescribing penalties therefor; repealing K.S.A. 40- 11 417 and K.S.A. 1996 Supp. 40-2,118. 12 13 Be it enacted by the Legislature of the State of Kansas: 14 Section 1. As used in sections 1 through 6, and amendments thereto: 15 (a) ``Action'' shall include nonaction or failure to take action. 16 (b) ``Authorized agency'' or ``authorized agencies'' means: 17 (1) The office of the commissioner of insurance; 18 (2) the office of the attorney general; 19 (3) the office of state fire marshal; 20 (4) the office of a district or county attorney; 21 (5) all law enforcement agencies; and 22 (6) all official firefighting agencies. 23 (c) ``Fraudulent insurance act'' means an act committed by any per- 24 son who, knowingly and with intent to defraud, presents, causes to be 25 presented or prepares with knowledge or belief that it will be presented 26 to or by an insurance company, purported insurance company, broker or 27 any agent thereof, any written statement as part of, or in support of, an 28 application for the issuance of, or the rating of an insurance policy for 29 personal or commercial insurance, or a claim for payment or other benefit 30 pursuant to an insurance policy for commercial or personal insurance 31 which such person knows to contain materially false information con- 32 cerning any material fact thereto; or conceals for the purpose of mislead- 33 ing, information concerning any material fact thereto. 34 (d) ``Insurance company'' means all corporations, companies, associ- 35 ations, societies, persons or partnerships writing contracts of insurance, 36 indemnity or suretyship in the state of Kansas upon any type of risk or 37 loss, including the Kansas fair access to insurance requirements, FAIR, 38 plan. 39 (e) ``Relevant'' means information having any tendency to make the 40 existence of any fact that is of consequence to the investigation or deter- 41 mination of the issue more probable or less probable than it would be 42 without the evidence. 43 Sec. 2. (a) There is created within the insurance department a fraud SB 378

 1  unit. It shall be the duty of this unit, subject to the approval of the com-
 2  missioner, to:
 3    (1)  Make investigations within or outside the state of Kansas when
 4  the fraud unit has reason to believe that any person has violated or is
 5  about to violate any provision of the Kansas insurance fraud act, or any
 6  rule and regulation or order thereunder;
 7    (2)  require or permit any person to file a statement in writing, under
 8  oath or otherwise as the commissioner determines, of all the facts and
 9  circumstances concerning the matter to be investigated; and
10    (3)  publish information concerning any violation of the Kansas insur-
11  ance fraud act, or any rule and regulation or order thereunder.
12    (b)  The commissioner may appoint special investigators to aid in in-
13  vestigations conducted pursuant to the Kansas insurance fraud act. Such
14  special investigators shall have authority to serve subpoenas and all other
15  process. To encourage uniform interpretation and administration of this
16  act and effective insurance regulation and enforcement, these special in-
17  vestigators may request cooperation with any federal, state or municipal
18  agency including law enforcement entities.  The cooperation authorized
19  by this section includes but is not limited to, the following:
20    (1)  sharing and exchanging information and documents subject to the
21  restrictions of the Kansas open records act, K.S.A. 45-215 et seq., and
22  amendments thereto, and federal and state laws regarding the protection
23  of trade secrets;
24    (2)  sharing and exchanging information, including criminal back-
25  ground history, with law enforcement officers as defined by K.S.A. 74-
26  5602, and amendments thereto;
27    (3)  assisting officials of investigative or law enforcement agencies or
28  other authorized agencies who are investigating a fraudulent insurance
29  act and who request assistance from the commissioner; and
30    (4)  assisting law enforcement officials in conducting searches and sei-
31  zures.
32    (c)  For the purpose of any investigation or proceeding under this
33  section, the commissioner or any officer designated by the commissioner
34  may administer oaths and affirmations, subpoena witnesses, compel such
35  witnesses' attendance, take evidence and require the production of any
36  books, papers, correspondence, memoranda, agreements or other docu-
37  ments or records which the commissioner deems relevant or material to
38  such investigation. However, no person complying with subsection (c)
39  shall be prosecuted or subjected to any penalty or forfeiture for providing
40  evidence in the manner described in K.S.A. 40-2413, and amendments
41  thereto.
42    (d)  In case of the failure or refusal of any person to comply with any
43  subpoena, interrogatory or request for production of documents issued
SB 378

 1  hereunder, or to testify to any matter regarding which such person may
 2  be lawfully questioned, any court of competent jurisdiction, upon appli-
 3  cation by the commissioner, may issue to that person an order requiring
 4  the person to appear before the commissioner, or the officer designated
 5  by the commissioner, to produce documentary evidence if so ordered or
 6  to give evidence concerning the matter under investigation or in question.
 7  Any failure to obey the order of the court may be punished by the court
 8  as a contempt of court.
 9    (e)  The commissioner may issue, and apply to enforce, subpoenas in
10  this state at the request of an insurance commissioner or insurance ad-
11  ministrator of another state if the activities constituting an alleged viola-
12  tion for which the information sought would be a violation of the Kansas
13  insurance fraud act, if such activities had occurred in this state.
14    (f)  The commissioner may refer such evidence as may be available
15  concerning violations of the Kansas insurance fraud act, hereunder to the
16  United States attorney, attorney general, or the proper county or district
17  attorney, who may in the prosecutor's discretion, with or without such a
18  reference, institute the appropriate criminal proceedings under this act.
19  Upon receipt of such reference, the United States attorney, attorney gen-
20  eral or the proper county attorney or district attorney may request that a
21  duly employed attorney of the commissioner prosecute or assist in the
22  prosecution of such violations or violations on behalf of the state or federal
23  government. Upon approval of the commissioner, such employee shall be
24  appointed a special prosecutor for the United States attorney, attorney
25  general, the proper county attorney or district attorney. Such special pros-
26  ecutor shall have all the powers and duties prescribed by law of assistant
27  United States attorneys, assistant attorneys general or assistant county or
28  district attorneys and such other powers and duties as are lawfully dele-
29  gated to such special prosecutor by the United States attorney, attorney
30  general, county attorney or district attorney.
31    (g)  The commissioner or the commissioner's authorized agent, may
32  notify the appropriate professional licensing board or disciplinary body of
33  evidence of a fraudulent insurance act involving professionals.
34    (h)  The commissioner or the commissioner's authorized agent, may
35  notify the appropriate professional licensing board of evidence of gross
36  overutilization of heath care services.
37    Sec. 3.  (a) Any authorized agency, in writing, may require an insur-
38  ance company to release to the requesting agency any or all relevant
39  information or evidence deemed important to the authorized agency
40  which the company may have in its possession, relating to any suspected
41  violations of the Kansas insurance fraud act. Materials shall be deemed
42  important if it is within the sole discretion of the authorized agency to
43  request such material. Relevant information may include, but not be lim-
SB 378

 1  ited to:
 2    (1)  Pertinent insurance policy information relevant to a loss or claim
 3  under investigation and any application for such policy;
 4    (2)  premium payment records;
 5    (3)  history of previous claims made by the insured;
 6    (4)  information relating to the investigation of an application, a loss
 7  or claim, including statements of any person, proof of loss and any other
 8  evidence relevant to the investigation; and
 9    (5)  information relating to any financial gain by the agent or broker
10  relating to a policy or claim.
11    (b) (1)  For the purpose of notification and investigation, an insurance
12  company, its employees or agents, who in good faith believe that insur-
13  ance fraud, has been or is being committed, shall report the suspected
14  insurance fraud to any authorized agency. This notice shall be in writing
15  and contain all relevant materials.
16    (2)  When an insurance company provides any one of the authorized
17  agencies with notice of suspected fraudulent insurance acts, it shall be
18  sufficient notice for the purpose of this act.
19    (3)  Any person who has a good faith belief that a fraudulent insurance
20  act will be, is being, or has been committed, may furnish and disclose any
21  information in such person's possession concerning such act to any au-
22  thorized agency, insurance company, its employees or agents or the na-
23  tional insurance crime bureau for the purpose of detecting, prosecuting
24  or preventing insurance fraud.
25    (4)  An insurance company, its employees, or agents are immune from
26  civil action, civil penalty or damages when in good faith that insurance
27  company, its employees or agents cooperate with, furnishes evidence,
28  provides or receives information regarding a suspected fraudulent insur-
29  ance act.
30    (5)  No person shall be subject to civil liability for any cause of action
31  by virtue of reporting a suspected fraudulent insurance act if:
32    (A)  The report was made to any authorized agency, insurance com-
33  pany, such company's employees or agents, or the national insurance
34  crime bureau; and
35    (B)  the person reporting the suspected insurance fraud acted in good
36  faith when making the report.
37    (6)  No person employed by or authorized by an insurance company
38  whose activities include the investigation of or reporting of a suspected
39  fraudulent insurance act who furnishes, discloses or requests information
40  regarding a suspected fraudulent insurance act to persons employed by
41  other insurance companies acting in the same capacity shall be subject to
42  civil liability for libel, slander or any other cause of action arising from
43  the furnishing, disclosing or requesting of such information if such person
SB 378

 1  acts in good faith.
 2    (7)  Nothing contained in this subsection shall abrogate or impair the
 3  rights or powers created under subsection (a) of section 2.
 4    (8)  Notwithstanding any other provision in this section, a person, in-
 5  surance company, such company's employees or agents, are not immune
 6  from civil action, civil penalty or damages under this section if that person,
 7  insurance company, such company's employees or agents, commits the
 8  fraudulent insurance act that is the subject of the information.
 9    (c)  Any authorized agency provided with information concerning any
10  fraudulent insurance acts, pursuant to K.S.A. 40-2,119, and amendments
11  thereto, may release or provide such information to any other authorized
12  agencies.
13    (d)  Any insurance company providing information to the insurance
14  department shall have the right to request relevant information relating
15  to such loss, claim or application for insurance from the insurance de-
16  partment.
17    (e)  If an insurance company has a good faith belief that a fraudulent
18  insurance act has been committed in connection with an insurance claim,
19  and has properly notified the fraud unit of its suspicions, such notification
20  shall toll any applicable time period in any unfair claims practices statute
21  or related rule and regulation or any action on the claim against the in-
22  surance company, until 30 days after determination by the fraud unit of
23  the insurance department and notice to the insurance company that the
24  fraud unit will not recommend action on the claim.
25    (f)  As used in this section, ``authorized agency'' or ``authorized agen-
26  cies'' shall include the United States attorney's office, the federal bureau
27  of investigation and any other federal agency.
28    Sec. 4.  (a) Except as otherwise provided in subsection (c) or (d) of
29  section 3, and amendments thereto, any authorized agency or insurance
30  company, described in section 1 or section 3, and amendments thereto,
31  which receives any information furnished pursuant to this act, shall hold
32  the information in confidence until such time as its release may be re-
33  quired pursuant to a criminal, civil or administrative proceeding.
34    (b)  Any authorized agency or its personnel, may be required to testify
35  in any litigation in which the insurance company at interest is named as
36  a party.
37    Sec. 5.  (a) Except as otherwise specifically provided in K.S.A. 21-
38  3718 and 44-5,125 and amendments thereto, a fraudulent insurance act
39  is a severity level 6 nonperson felony, if the amount involved is $25,000
40  or more; a severity level 7, nonperson felony, if the amount is at least
41  $5,000 but less than $25,000; a severity level 8, nonperson felony, if the
42  amount is at least $1,000 but less than $5,000; a severity level 9, nonper-
43  son felony, if the amount is at least $500 but less than $1,000; and a class
SB 378

 1  C nonperson misdemeanor, if the amount is less than $500.
 2    (b)  It is unlawful to fail to release information or evidence pursuant
 3  to subsection (a) of section 3 or to fail to give notice and to provide
 4  material developed from an inquiry into a loss or claim as provided in
 5  subsection (b) of section 3. Any such violation is a class C nonperson
 6  misdemeanor
 7    (c)  In addition to any other penalty, a person who violates the pro-
 8  visions of this act shall be ordered to make restitution to the insurer or
 9  any other person or entity for any financial loss sustained as a result of
10  such violation. Except as provided in K.S.A. 40-418 and K.S.A. 40-2205,
11  and amendments thereto, an insurance company shall not be required to
12  provide coverage or pay any claim involving a fraudulent insurance act.
13    (d)  No prosecution for any crime under this act may be commenced
14  more than five years after the alleged violation. A prosecution is com-
15  menced when a complaint or information is filed, or an indictment re-
16  turned, and a warrant thereon is delivered to the sheriff or other officer
17  for execution. A prosecution shall be deemed to have been commenced
18  if the warrant so issued is executed without unreasonable delay.
19    (e)  Nothing in this act limits the power of the state to punish any
20  person for any conduct which constitutes a crime by statute.
21    Sec. 6.  Sections 1 through 5 shall be known and may be cited as the
22  Kansas insurance fraud act.
23    Sec. 7.  K.S.A. 40-417 and K.S.A. 1996 Supp. 40-2,118 are hereby
24  repealed.
25    Sec. 8.  This act shall take effect and be in force from and after its
26  publication in the statute book.