In California and Illinois, It Pays to Report Insurance Fraud
Insurance fraud affects everyone, not just insurance companies. Insurance is the instrument we use to manage risk, whether it is in health, home, property, or life. Fraudsters may tell themselves that they are only cheating an unsympathetic insurance company, but their actions raise everyone’s costs. To cover the price of fraud, insurance companies raise premiums, increase out-of-pocket costs, and cut back on coverage provided to their policyholders.
Moreover, it is not just small-time crooks who commit insurance fraud. Some large corporations and organized cartels commit a lot of fraud. The Coalition Against Insurance Fraud, which includes insurance companies, government agencies, and consumer groups, published a report stating that the cost of insurance fraud in the United States is $308.6 billion a year.
The government pays for a lot of this fraud, particularly healthcare fraud—but not all healthcare fraud is against the government. When fraudsters bill for healthcare that is not provided, or pay kickbacks to get claims paid, they are often defrauding government health insurance programs like Medicare or Medicaid. But they are also often defrauding private health insurance plans as well.
If you want to report someone for defrauding the federal government, you have a powerful tool: you can file a qui tam lawsuit under the False Claims Act. Many states have passed their own False Claims Acts, covering fraud against state Medicaid programs, or the state government generally.
However, two states—California and Illinois—have enacted laws that empower people to file qui tam lawsuits regarding fraud against private insurers. The California Insurance Fraud Prevention Act (IFPA) [1] and Illinois Insurance Claims Fraud Prevention Act (ICFPA) [2] authorize whistleblowers to file lawsuits on behalf of the government against those who have defrauded private insurance companies.
Any individual person or company can be a whistleblower under these laws, including any policyholder. The laws do not just apply to healthcare: when passing IFPA, the California legislature specifically identified not just fraud on health insurance, but fraud on auto insurance and workers’ compensation insurance [3].
These are powerful laws, in some ways more powerful than the False Claims Act that inspired them. Both laws have similar procedures to the False Claims Act: the whistleblower must file the lawsuit secretly under court seal and provide all his or her evidence to the state government. The lawsuit remains under seal while the government investigates the whistleblower’s allegations and decides whether to take over the lawsuit. Both laws also have comparable penalties for fraudsters as the False Claims Act, including three times the damages suffered by the defrauded insurance company, and large fines for each fraudulent claim.
However, both the Illinois and California laws have much larger potential rewards to the whistleblower: both guarantee a minimum of 30% of the amount recovered if the state government intervenes in the lawsuit (and up to 40% under the California law) [4], which is twice the minimum reward guaranteed under the False Claims Act. Under both state laws, if the state government does not intervene, whistleblowers are guaranteed 40% of any recovery if they pursue the lawsuit without the government.
It is also important to note that the money the government recovers under these laws does not go back to insurance companies [5]. The money is instead used by the state government [6] to pay for insurance fraud investigation, prosecution, and prevention.
Although the two private insurance fraud laws are not used as often as the False Claims Act, there have been some large settlements, and the whistleblowers have been handsomely rewarded as a result. In 2025, automotive glass repair company Safelite settled auto insurance fraud claims brought by a whistleblower under both the California and Illinois laws for $31 million. California has had success with health insurance fraud, settling with Essilor Laboratories in 2022 ($23 million); Abbvie in 2020 ($24 million); and Bristol Myers Squibb in 2016 ($30 million).
With so much risk in our lives managed by private insurance, it is critical that whistleblowers come forward to report insurance fraud. The California and Illinois laws are potent instruments for deterring fraud and protecting whistleblowers.
[1] Cal. Ins. Code § 1871.7.
[2] 740 Ill. Comp. Stat. 92.
[3] Cal. Ins. Code § 1871.
[4] Cal. Ins. Code § 1871.7(g)(1)(a)(i).
[5] Cal. Ins. Code § 1871.7(g)(1)(a)(iv).
[6] 740 Ill. Comp. Stat. 92/25.
