California is one of only two states in the country with a whistleblower or qui tam statute that addresses fraud committed against private insurers. The California Insurance Frauds Prevention Act (IFPA), § 1871.7 of the California Insurance Code, allows members of the public to file private qui tam suits against anyone who commits insurance fraud in the state.

The IFPA combats fraud committed against insurers by individuals, organizations, companies, and particularly fraud concerning health insurance. The IFPA provides for fines against fraudsters ranging from $5,000 to $10,000 per violation in addition to damages of three times the amount of money the fraud cost its victims. Examples of insurance fraud covered by the IFPA include:

• Fraudulent billing or overbilling of health insurance companies by hospitals and medical specialists;

• Submitting multiple insurance claims for the same health care service; and

• Providing kickbacks to recruit patients or clients.

Just like the federal False Claims Act, the IFPA allows individuals to sue those who commit insurance fraud covered by California law. However, unlike traditional qui tam actions, under the IFPA it is not necessary that the government suffer harm due to the fraud. Insurance fraud usually harms a large number of people, and insurance companies frequently cite insurance fraud losses when raising rates for policyholders. Thus, individuals who sue fraudulent actors under the IFPA are acting on behalf of themselves and every one of their fellow policyholders and for the State of California. (For example, the Act states that healthcare insurance fraud likely increases national healthcare costs by “billions of dollars annually.”)

The IFPA is unique in that it intends to prevent fraud committed against private insurance companies primarily because health care fraud causes losses in premium dollars and increases health care costs unnecessarily. And the IFPA has a broader reach than the federal False Claims Act.  It prohibits any claim that is in “some manner deceitful” or is the result of “conduct that is done with an intention to gain an unfair or dishonest advantage.” Under this interpretation, the IFPA casts a wide net of potential exposure, especially where a violation may occur even when an insurance claim is ultimately unpaid.

In an IFPA qui tam action, “any interested person” files a civil suit in the name of the State of California. The complaint and all related evidence are filed under seal with the relevant superior court and served to the local district attorney and the state insurance commissioner. They have 60 days to decide whether or not to intervene in the case. If either the district attorney or the commissioner decides to intervene, government attorneys may take over and lead the prosecution, or they may allow the relator to continue to do so and serve in a supportive role. In this scenario, the relator would be entitled to collect between 30 and 40 percent of all subsequent recoveries from the defendant, even if the case settles before final judgment. The state will calculate the “total recovery” using the total assets remaining after reimbursing both the relator and itself for reasonable attorneys’ fees, costs, and expenses incurred during the case. Conversely, if the government declines to intervene, the relator would have the option to proceed with the case alone and be entitled to between 40 and 50 percent of any eventual recovery.

The IFPA also broadly protects employees from retaliation for filing or even supporting an IFPA qui tam action: the Act states that employees suffering retaliation for their involvement in reporting insurance fraud “shall be entitled to all relief necessary to make the employee whole.” Specifically, the IFPA requires the employer to reinstate the employee with the same seniority the employee would have had if not for suffering the retaliation, pay the employee twice the amount of backpay he or she is due—plus interest, and compensate the employee “for any special damages sustained as a result of the discrimination,” including attorneys’ fees and reasonable litigation costs.