Illinois Insurance Fraud: Laws, Penalties, and Reporting

Insurance fraud in Illinois is treated as a serious offense that can lead to both criminal prosecution and civil liability. The state has multiple statutes addressing fraudulent insurance claims, enhanced penalties for repeat or aggravated conduct, and specific rules that govern how suspected fraud is reported and investigated.

This article explains how Illinois defines insurance fraud, the range of penalties, how civil actions and whistleblower suits work, and what insurers and policyholders should know about reporting obligations and best practices.

Core Legal Framework Governing Insurance Fraud in Illinois

Illinois relies on several key laws to address fraud involving private insurers, self-insured entities, and, in some circumstances, governmental bodies.

• Criminal insurance fraud statute: 720 ILCS 5/17-10.5 establishes the criminal offense of insurance fraud and sets out how the crime is defined and punished.
• Civil Insurance Claims Fraud Prevention Act: 740 ILCS 92 (Insurance Claims Fraud Prevention Act) creates civil remedies, including treble damages, and a mechanism for whistleblower lawsuits.
• Related insurance code provisions: Sections of the Illinois Insurance Code and regulatory bulletins guide how insurers participate in fraud detection and how, and when, suspected fraud is reported to law enforcement or state agencies.

Together, these laws allow Illinois to pursue fraud both as a crime and as a civil wrong, often resulting in restitution, fines, and long-term consequences for those found liable.

How Illinois Defines Criminal Insurance Fraud

Under 720 ILCS 5/17-10.5, a person commits insurance fraud when they use deception to obtain or attempt to obtain control over the property of an insurance company or a self-insured entity through a false insurance claim.

In simplified terms, the statute focuses on the following elements:

• Knowingly obtaining, attempting to obtain, or causing to be obtained
• Control over the property of an insurance company or self-insured entity
• By deception, typically through a false claim or causing a false claim to be made
• With the intent to permanently deprive the insurer or self-insured entity of its property

False claims can arise in many contexts, including property damage, auto accidents, health care services, workers’ compensation, or claims involving governmental entities where the underlying loss or injury is misrepresented.

Examples of conduct that may constitute insurance fraud

• Staging a car accident and submitting claims for non-existent injuries.
• Inflating the value of damaged property beyond its actual worth.
• Billing for medical procedures that were never provided or medically unnecessary.
• Claiming the loss or theft of property that was never owned or never lost.

What matters for criminal liability is the combination of deceptive conduct, a false or misleading claim, and the intent to obtain money or benefits that the claimant is not legally entitled to receive.

Criminal Penalties for Insurance Fraud in Illinois

Illinois uses the value of the property obtained or attempted to be obtained to determine the severity of criminal insurance fraud charges.

In addition to potential prison terms, courts may impose fines (often up to $25,000 for felony cases) and order restitution to the victim insurer or self-insured entity.

Aggravated insurance fraud and health care fraud

• Aggravated insurance fraud can occur when fraudulent acts are repeated over time, such as committing multiple fraudulent transactions within a defined period. Under Illinois law, aggravated insurance fraud is treated as a serious offense and may be charged as a Class 1 felony regardless of the property value involved.
• Health care insurance fraud involving false claims submitted to health insurers may be charged as a Class A misdemeanor or, in more serious situations, as a felony, depending on the circumstances and the total amount at issue.

These enhanced classifications reflect the state’s interest in deterring organized or repeated fraudulent schemes, particularly where the conduct affects many claimants or results in large financial losses.

Civil Liability Under the Insurance Claims Fraud Prevention Act

Illinois does not rely solely on criminal prosecution to address insurance fraud. The Insurance Claims Fraud Prevention Act (740 ILCS 92) creates a separate civil cause of action that can be used by insurers, self-insured entities, governmental entities, and in some instances whistleblowers to recover losses.

Under this Act, a person who engages in deceptive conduct to obtain or attempt to obtain property from an insurer, self-insured entity, or governmental entity through false claims can be held civilly liable for enhanced damages.

Civil damages and remedies

• Treble damages: If property is wrongfully obtained through a fraudulent claim, the defendant may be ordered to pay three times the value of the property wrongfully obtained.
• Double damages for attempts: If no property is actually obtained, but the defendant attempted to obtain property by deception, the Act authorizes an award of twice the value of the property that was targeted.
• Attorneys’ fees and costs: Successful plaintiffs, including insurers or governmental entities, may recover reasonable attorneys’ fees and litigation costs from the defendant.

The Act also contains a deterrent provision: if an insurer or self-insured entity brings an action in bad faith, the entity itself may be liable to the targeted defendant for double the claimed value plus reasonable attorneys’ fees.

Whistleblower Lawsuits and Qui Tam Actions

Illinois is one of the few states that allows private individuals to file civil lawsuits on behalf of the state to address fraud involving private insurance companies.

Under the Insurance Claims Fraud Prevention Act, an individual or company can act as a whistleblower and bring a lawsuit in the name of the State of Illinois against those who have defrauded private insurers.

Key features of Illinois insurance fraud whistleblower actions

• Qui tam mechanism: Whistleblowers file civil suits under seal, providing evidence of fraud to the Illinois Attorney General, who then decides whether to intervene in the case.
• State intervention: If the Attorney General joins the case, the state litigates alongside the whistleblower. If the state declines, the whistleblower and their counsel can pursue the case independently.
• Financial rewards: Defendants found liable may face treble damages and civil penalties of roughly $5,000 to $10,000 per fraudulent claim, plus attorneys’ fees and costs.

Whistleblower share of recoveries

• When the state intervenes: the whistleblower typically receives at least 30% of the total recovery in Illinois, which is higher than the minimum share under many traditional false claims statutes.
• When the state does not intervene: the whistleblower may receive at least 40% of the recovery, reflecting the greater risk and effort involved in litigating without state support.

Funds recovered in these actions are generally used by the state to support further investigation and prosecution of insurance fraud, rather than being returned directly to the defrauded insurers.

Reporting Suspected Insurance Fraud in Illinois

Reporting rules in Illinois distinguish between voluntary cooperation with fraud detection programs and mandatory reporting in limited contexts. The Illinois Department of Insurance (IDOI) has clarified these obligations in official bulletins.

No general mandatory reporting to a fraud bureau

Illinois does not have a general statutory requirement for insurers to report all suspected insurance fraud cases to a central fraud bureau or to the Department of Insurance.

• The Insurance Code does not create a broad obligation for routine reporting of suspected fraud to IDOI or a designated third party.
• Participation in industry fraud detection and reporting programs is voluntary, unless another specific statute or regulatory order applies to a particular type of insurance or scenario.

When an insurer wants criminal investigation of suspected fraud, it must ensure that information is reported to the appropriate law enforcement agency, such as the Illinois Attorney General or local State’s Attorney.

Mandatory reporting in certain situations

Although there is no broad fraud bureau requirement, some statutes do require specific types of reporting. For example, insurers may be obligated to report certain suspected criminal or fraudulent acts to the Illinois Attorney General or relevant county State’s Attorney under mandatory reporting provisions.

• These obligations apply to defined categories of criminal or fraudulent conduct and are typically triggered when an insurer has reasonable grounds to believe a violation has occurred.
• Insurers should review the relevant statutes and bulletins carefully to ensure compliance with any targeted reporting requirements that apply to their lines of business.

Practical Guidance for Policyholders and Insurers

Given the potential for criminal prosecution, civil liability, and regulatory scrutiny, both policyholders and insurance companies should take preventive measures to reduce the risk of insurance fraud and its consequences.

Best practices for policyholders

• Provide complete and accurate information when purchasing insurance and filing claims.
• Keep documentation, such as receipts, repair invoices, and medical records, to support legitimate claims.
• Avoid exaggerating losses, injuries, or expenses; any misrepresentation can be treated as fraud.
• Consult legal counsel if you are unsure whether certain claim details or supporting documents are sufficient or accurate.

Best practices for insurers and self-insured entities

• Implement internal fraud detection protocols, including claim review procedures and data analytics.
• Train staff to recognize red flags such as inconsistent narratives, repetitive claims, or suspicious billing patterns.
• Coordinate with law enforcement or the Attorney General’s office when significant or organized fraud is suspected.
• Ensure that any civil action under the Insurance Claims Fraud Prevention Act is brought in good faith to avoid potential bad-faith liability.

Frequently Asked Questions About Illinois Insurance Fraud Laws

1. Is every inaccurate statement in an insurance claim considered fraud?

Not necessarily. Under Illinois law, fraud generally requires knowing deception and intent to obtain property or benefits that the claimant is not entitled to. Honest mistakes or clerical errors are usually distinguished from intentional misrepresentation, though repeated or reckless inaccuracies may draw closer scrutiny.

2. Can I go to jail for small-dollar insurance fraud in Illinois?

Yes. If the value of property obtained or attempted to be obtained is $300 or less, the offense may be charged as a Class A misdemeanor, which can carry up to one year in jail. Even low-value fraud can result in criminal records, fines, and restitution orders.

3. How does civil liability differ from criminal insurance fraud?

Criminal cases focus on punishment, such as imprisonment and fines, and are prosecuted by the state under 720 ILCS 5/17-10.5. Civil actions under the Insurance Claims Fraud Prevention Act seek monetary recovery and enhanced damages (double or treble) for insurers or governmental entities. A single set of facts can give rise to both criminal charges and civil lawsuits.

4. Who can file a whistleblower lawsuit under the Insurance Claims Fraud Prevention Act?

Any individual or company with evidence of fraud against private insurers in Illinois may qualify as a whistleblower and file a qui tam action under the Act. Policyholders, employees, competitors, and other insiders can bring cases, subject to specific procedural requirements and review by the Attorney General.

5. Are insurers required to report all suspected fraud to the Illinois Department of Insurance?

No. The Illinois Insurance Code does not impose a universal duty to report all suspected insurance fraud to a central bureau or directly to the Department of Insurance. However, certain statutes and regulatory guidance require reporting specific categories of suspected criminal conduct to law enforcement or the Attorney General, so insurers should review their obligations carefully.

6. What financial penalties can defendants face in whistleblower cases?

Defendants in whistleblower actions under the Insurance Claims Fraud Prevention Act may be ordered to pay three times the fraudulent claims’ value and penalties of roughly $5,000 to $10,000 per false claim, along with attorneys’ fees and costs. These penalties are in addition to any criminal sanctions that may be imposed in parallel proceedings.

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medha deb

 

Medha Deb is an editor with a master's degree in Applied Linguistics from the University of Hyderabad. She believes that her qualification has helped her develop a deep understanding of language and its application in various contexts.

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