California-Title 10-SIU requirement

Chapter 5. Insurance Commissioner

Subchapter 9. Insurance Fraud

Article 2. Special Investigative Units

Amend 2698.30. Definitions.

As used in this article, the following definitions shall apply:

(a) “Act” means any violation of California Code of Regulations, Title 10, Chapter 5,

Section 2698.30-42, inclusive.

(b) “Authorized governmental agency (agencies)” shall have the same meaning as used in the

Insurance Frauds Prevention Act (IFPA).

responsibilities include the investigation, adjustment, settlement, and resolution of claims.

(d) “Commissioner” means the Insurance Commissioner of the State of California.

(e) “Communication” includes the referral of suspected insurance fraud to the Department of

Insurance and providing information and documents requested by the Fraud Division.

(f) “Contracted entity” means any entity with which an insurer contracts to perform SIU or

integral anti-fraud personnel duties or functions on behalf of the insurer. “Contracted entity”

includes subcontractors and sub-subcontractors contracted to perform SIU or integral anti-fraud

personnel duties or functions on behalf of the insurer. The term “contracted entity” does not

include the insurer’s affiliates, or subsidiaries, with which the insurer contracts to perform SIU or

integral anti-fraud personnel duties or functions on behalf of the insurer. “Contracted entity”

does not include entities with whom an insurer, or another of the insurer’s contracted entities,

contracts to provide an expert opinion on a medical, technical, or scientific topic, or perform a

discreet, specific investigative task such as surveillance, accident reconstruction, background

checks, scene inspections, social media checks, interviews, witness canvassing, Arising Out of

Employment/Course of Employment (AOE/COE) investigations, activity checks, or database

vendor services including, but not limited to, ISO ClaimSearch, LexisNexis, and Accurint, on behalf of the insurer in connection with the insurer’s performance of its SIU or integral antifraud personnel duties or functions. However, the immediately preceding sentence

notwithstanding, entities that (1) participate in the claims handling function of the insurer,

(2) make decisions on behalf of the insurer with respect to the insurer’s SIU or integral anti-fraud

functions, or (3) contract with other entities to perform SIU or integral anti-fraud duties or

functions on behalf of the insurer, are included within the meaning of the term “contracted

entity.”

(gf) “Department” means the California Department of Insurance.

(hg) “Fraud Division” means the California Department of Insurance Fraud Division formerly

known as the Bureau of Fraudulent Claims.

(ih) “Hearing” means an adjudicative proceeding initiated by the Insurance Commissioner

pursuant to the provisions of California Insurance Code Ssection 1875.24(d).

(ji) “Inadvertent” means unintentional.

(kj) “Insurer” means every insurer admitted to do business in this state except the following:

(1) Reinsurers.

(2) Title insurers.

(3) Fraternal fire insurers.

(4) Fraternal benefit societies.

(5) Firemen, policemen, or peace officer benefit and relief associations.

(6) Grant and annuity societies.

(7) Home protection.

(lk) “Integral anti-fraud personnel” includes insurer personnel who the insurer has not identified

as being directly assigned to its SIU but whose duties may include the processing, investigating,

or litigation pertaining to payment or denial of a claim or application for adjudication ofor claim

or application for insurance. These personnel may include claims handlers, underwriters, policy

handlers, call center staff within the claims or policy function, legal staff, and other insurer

employee classifications that perform similar duties.

(ml) “Reasonable belief” is a level of belief that an act of insurance fraud may have or might be

occurring for which there is an objective justification based on articulable fact(s) and rational

inferences therefrom.

(nm) “Red flag” or “red flag event” means facts, circumstances, or events which, singly or in

combination, support(s) an inference that insurance fraud may have been committed., and

includes patterns or trends that may indicate fraud, facts or circumstances present on a claim, and

behavior or history of person(s) submitting a claim or application.

(on) “Regulations” means these regulations, California Code of Regulations, Title 10, Chapter 5,

Subchapter 9, Article 2.

(po) “Special Investigative Unit” (SIU) means an insurer’s unit or division that is established to

investigate suspected insurance fraud. The SIU may be comprised of insurer employees or by

contracting with other entities for the purpose of complying with applicable sections of the

Insurance Frauds Prevention Act (IFPA) for the direct responsibility of performing the functions

and activities as set forth in these regulations.

(qp) “Suspected insurance fraud” includes any misrepresentation of fact or omission of fact

pertaining to a transaction of insurance including claims, premium, and application fraud. These

facts may include evidence of doctoring, altering or destroying forms;, prior history of the

claimant, policy holder, applicant, or provider;, receipts;, estimates;, explanations of benefits

(EOBs), medical evaluations or billings;, medical provider notes (commonly known as SOAPE

notes:); Subjective complaint, Objective findings, Assessment, Plan and Evaluation);, Health

Care Financing Administration (HCFA) forms;, police and/or investigative reports;, relevant

discrepancies in written or oral statements and examinations under oath (EUO);, unusual policy

activity; and falsified or untruthful application for insurance. An identifiable pattern in a claim

history may also suggest the possibility of suspected fraudulent claims activity. A claim may

contain evidence of suspected insurance fraud regardless of the payment status.

(rq) “The Insurance Frauds Prevention Act” or “(IFPA)” shall refer to California Insurance Code

sections 1871-through 1879.8.

(sr) “Willful” means a purpose or willingness to commit the act or make the omission referred to

in the California Insurance Code or in these regulations. The Commissioner shall use the factors

set forth at California Code of Regulations, Title 10, Section 2591.3(d)(1)(A-E) to determine

whether or not an act is willful.

NOTE: Authority cited: Sections 1872.4, 1875.24, 1877.3, 1879.5 and 1879.6, Insurance Code;

Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247;

Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d

993; and Garris v. Carpenter (1939) 33 Cal. App. 2d. 649, 653, 92 P.2d 688. Reference:

Sections 1875.20, 1875.21, 1875.24, 1879.5, 9080, 10970, 11400, 11520, 11760, 11880,

12400.1, 12743, 12921(a) and 12926, Insurance Code.

Amend Section 2698.33. SIU and Integral Anti-Fraud Personnel Contracted Responsibilities.

(a) Any contract entered into by an insurer, or an entity under contract with an insurer for the

performance of SIU or integral anti-fraud personnel duties or functions as provided under these

regulations, shall not relieve the insurer of any obligation under these regulations or the IFPA.

(b) Notwithstanding any other provisions of these regulations, a complete and executed copy of

any such agreement, including all attachments, exhibits and amendments thereto, shall be

provided to the Fraud Division upon request by the Fraud Divisionon execution.

(1) Specify all SIU or integral anti-fraud personnel duties and functions to be performed

by the parties to the contract and how the insurer monitors performance of the contract

responsibilities;

(2) Not include provisions that could provide disincentives to the referral and/or

investigation of suspected insurance fraud;

(3) Not include provisions that purport to relieve an insurer of any obligation to comply

with the requirements of these regulations and the IFPA.; and

(4) Expressly include a provision to require the contracted entity to comply with all

applicable provisions of the IFPA and this articlethese regulations.; and

(5) Expressly require the contracted entity to include the following provisions in any

agreement the contracted entity may enter into with any subcontractor to perform SIU or

integral anti-fraud personnel duties or functions for the contracted entity on behalf of the

insurer:

(A) Subcontractor to provide entire agreement to the Fraud Division upon request:

An express provision requiring that the contractor provide to the Fraud Division a

complete and executed copy of any such agreement between the contractor and its

subcontractor, including all attachments, exhibits and amendments thereto, upon

request by the Fraud Division,

(B) Subcontractor to be bound by same requirements as contractor: An express

provision that any such agreement between the contractor and its subcontractor

shall conform to the requirements set forth in subdivisions (c)(1), (c)(2), (c)(3),

and (c)(4) of this Section 2698.33, and

provision that, in the event any subcontractor to the contracted entity contracts

with any other entity or entities to perform SIU or integral anti-fraud personnel

duties or functions on behalf of the insurer, the agreement between the

subcontractor and the entity so contracted (hereinafter a “sub-subcontractor”)

shall contain the following provisions:

1. Sub-subcontractor to be bound by same requirements as contractor and

subcontractor: The express provision described in subdivision (c)(5)(B) of

this section,

2. Sub-subcontractor to provide entire agreement to the Fraud Division

upon request: An express provision identical in substance to the provision

described in subdivision (c)(5)(A) of this section, binding the

subcontractor to provide, upon request by the Fraud Division, the

documents specified in that subdivision (c)(5)(A) but with respect to the

agreement between the subcontractor and its sub-subcontractor, and

3. No further subcontracting: An express provision prohibiting the

sub-subcontractor from permitting, or contracting with, any other entity to

perform the SIU or integral anti-fraud personnel duties or functions which

the sub-subcontractor has contracted with the subcontractor to perform on

behalf of the insurer.

(d) An insurer shall no later than April 1, 2021 ensure that the provisions described in

subdivisions (c)(5)(A) through (c)(5)(C) of this section are included in any and all of its contracts

with contracted entities for the performance of SIU or integral anti-fraud personnel duties or

functions.

NOTE: Authority cited: Sections 1875.23, 1875.24, 1879.5 and 1879.6, Insurance Code; Calfarm

Ins. Co. v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247; Credit

Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d 993;

and Garris v. Carpenter (1939) 33 Cal. App. 2d. 649, 653, 92 P.2d 688. Reference: Sections

1875.20, 1875.21, 1875.24, 1879.5, 12921(a) and 12926, Insurance Code.

Amend Section 2698.34. Communication with the Fraud Division and Authorized Governmental

Agencies.

(a) The insurer and any entity performing the SIU function(s) shall comply with specific

sections of the IFPA regarding communication with the Fraud Division and authorized

governmental agencies.

(b) On written request by the Fraud Division or an authorized governmental agency, an insurer

or its agents, shall release in a timely and complete manner any or all relevant information

deemed important that the insurer may possess relating to any specific incident of insurance

fraud. SuchThe information released pursuant to this subdivision (b) shall include:

(1) Insurance policy information;

(2) Applications;

(3) Policy premium payment records;

(4) History of claims;

(5) Information relating to the carrier’s investigation, including statements, proof and

notice of loss;

(6) Claim file documents;

(7) Claim notes;

(8) Investigation files;

(9) Investigator notes; and

(10) Other information which the Fraud Division or an Aauthorized Ggovernmental

Aagency may deem relevant and important.

than thirty (30) calendar days after the request or, in the event of a request relating to workers’

compensation insurance fraud, sixty (60) calendar days after the request, unless otherwise agreed

to by the Fraud Division or by the other authorized governmental agency making the request.

(d) Information released pursuant to this Section 2698.34 shall be transmitted only as follows,

unless otherwise agreed to by the Fraud Division:

(1) Via the Fraud Division’s electronic portal provided for this purpose;

(2) As hardcopy; or

(3) In an electronic file.

For purposes of this subdivision (d)(3):

(A) If the file is password-protected, the password must be provided to the Fraud

Division and must not expire.

(B) If the file is encrypted, the insurer shall provide Fraud Division with any

materials necessary in order for the encrypted information to be accessed by the

Fraud Division.

(ec) A single written request shall be considered sufficient to compel production of all

information deemed relevant by the requesting governmental agency relating to any specific

insurance fraud investigation. The single request is applicable throughout the duration of the

investigation and is applicable to the requested records of the insurer named in the request and

the records of all persons, agents, and brokers employed by and conducting business on behalf of

the insurer.

NOTE: Authority cited: Sections 1872.4, 1875.24, 1877.3, 1879.5 and 1879.6, Insurance Code;

Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247;

Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d

993; and Garris v. Carpenter (1939) 33 Cal. App. 2d. 649, 653, 92 P.2d 688.

Reference: Sections 1872.3, 1873, 1874.2, 1874.4, 1875.4, 1875.20, 1875.21, 1875.24, 1877.1,

1877.2, 1877.3, 1877.4, 1877.5, 1879.5, 12921(a) and 12926, Insurance Code.

Amend Section 2698.35. Detecting Suspected Insurance Fraud.

(a) An insurer’s integral anti-fraud personnel are responsible for identifying suspected insurance

fraud during the handling of insurance transactions and referring it to the SIU as part of their

regular duties.

(b) The SIU shall establish, maintain, distribute, and monitor written procedures to be used by

the integral anti-fraud personnel to detect, identify, document, and refer suspected insurance

fraud to the SIU. The written procedures shall include a listing of the red flags to be used to

detect suspected insurance fraud for the insurer. The red flags listed pursuant to the immediately

preceding sentence shall be specific to each line of insurance, or each insurance product,

transacted in or issued by the insurer.

insurance transaction against red flags and other criteria that may indicate possible fraud.:

(1) Patterns or trends of possible fraud;

(2) Red flags;

(3) Events or circumstances present on a claim;

(4) Behavior or history of person(s) submitting a claim or application; and

(5) Other criteria that may indicate possible fraud.

NOTE: Authority cited: Sections 1875.24, 1879.5 and 1879.6, Insurance Code; Calfarm Ins. Co.

v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247; Credit Ins. Gen.

Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d 993; and Garris

v. Carpenter (1939) 33 Cal. App. 2d. 649, 653, 92 P.2d 688. Reference: Sections 1875.20,

1875.21, 1875.24, 1879.5, 12921(a) and 12926, Insurance Code.

Amend Section 2698.36. Investigating Suspected Insurance Fraud.

(a) The SIU shall establish, maintain, distribute, and adhere to written procedures for the

investigation of possible suspected insurance fraud. An investigation of possible suspected

insurance fraud shall include:

(1) A thorough analysis of a claim file, application, or insurance transaction, that

includes consideration of factors indicating insurance fraud.

(2) Identification and interviews of potential witnesses who may provide information on

the accuracy of the claim or application.

(3) Utilizing one or more industry-recognized databases identified by the SIU as

appropriate for use in fraud investigations involving the particular line of insurance in

question.

(4) Preservation of documents and other evidence obtained during an investigation.

(5) Writing a concise and complete summary of the entire investigation, which is

specific to the investigation at hand, is separate from any other document prepared in

connection with the investigation, and includesing the investigators’s findings regarding

the suspected insurance- fraud and the basis for their findings. The summary shall answer

the following questions:

(A) What facts caused the reporting party to believe insurance fraud occurred or

may have occurred?

(B) What are the suspected misrepresentations and who allegedly made them?

claim or insurance transaction?

(D) Who are the pertinent witnesses to the alleged misrepresentation, if there are

pertinent witnesses?

(E) What documentation is there of the alleged misrepresentation, if

documented?

(F) In addition, the summary prepared pursuant to this subdivision (a)(5) shall

include a statement as to whether or not the investigation is complete.

(b) Each investigation of suspected insurance fraud shall include performing at least the

procedures specified pursuant to subdivision (a) of this Section 2698.36, to the extent they are

applicable.

from integral anti-fraud personnel, including automated or system-generated referrals. A credible

referral of suspected insurance fraud is one that includes a red flag or red flags. However, the

first sentence of this subdivision (c) notwithstanding, in the event that upon a preliminary review

the SIU determines that it is reasonably clear that the red flag or red flags contained in the

referral is not or are not the result of suspected insurance fraud, the SIU need not open an

investigation. In the event that the SIU refrains from opening an investigation pursuant to the

immediately preceding sentence, the SIU shall document in the claim file or SIU investigation

file the reasons supporting its conclusion that the red flag or red flags contained in the referral is

not or are not the result of suspected insurance fraud.

NOTE: Authority cited: Sections 1875.24, 1879.5 and 1879.6, Insurance Code; Calfarm Ins. Co.

v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247; Credit Ins. Gen.

Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d 993; and Garris

v. Carpenter (1939) 33 Cal. App. 2d. 649, 653, 92 P.2d 688. Reference: Sections 1875.20,

1875.21, 1875.24, 1879.5, 12921(a) and 12926, Insurance Code.

Amend Section 2698.37. Referral of Suspected Insurance Fraud.

(a) The SIU shall provide for the referral of acts of suspected insurance fraud to the Fraud

Division and, as required, district attorneys.

(b) Referrals shall be submitted in any insurance transaction where the facts and circumstances

create a reasonable belief that a person or entity may have committed or is committing insurance

fraud.

(d) The SIU shall complete as much of its investigation as is reasonable prior to the time the

referral is made to the Fraud Division. Each referral of suspected insurance fraud shall indicate

whether the investigation is complete or further investigation is needed.

(ed) The requirements of this section do not affect the immunity granted under California

Insurance Code section 1872.5 or other such similar codes contained in the Insurance Frauds

Prevention Act.

(fe) The requirements of this section do not diminish statutory requirements contained in the

Insurance Frauds Prevention Act regarding the confidentiality of any information provided in

connection with an investigation.

NOTE: Authority cited: Section 1708, Civil Code; Sections 1872.4, 1874.6, 1875.24, 1875.4,

1877.3, 1877.5, 1879.5 and 1879.6, Insurance Code; Calfarm Ins. Co. v. Deukmejian (1989) 48

Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247;