California Legislature—2013–14 Regular Session

Assembly Bill No. 2663

Introduced by Assembly Member Dababneh

February 21, 2014

An act to amend Section 1871.7 of the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 2663, as introduced, Dababneh. Fraud prevention.

Existing law prohibits knowingly employing runners, cappers, steerers, or other persons to procure clients or patients to perform or obtain services or benefits under workers’ compensation coverage or to procure clients or patients to perform or obtain services or benefits under a contract of insurance or that will be the basis for a claim against an insured individual or his or her insurer. Existing law makes every person who violates these prohibitions liable for a civil penalty of not less than $5,000 and not more than $10,000.

This bill would adjust those civil penalties to not less than $10,000 and not more than $25,000.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 1871.7 of the Insurance Code is amended
to read:

1871.7.  

(a) It is unlawful to knowingly employ runners,
cappers, steerers, or other persons to procure clients or patients to
perform or obtain services or benefits pursuant to Division 4
(commencing with Section 3200) of the Labor Code or to procure
clients or patients to perform or obtain services or benefits under
a contract of insurance or that will be the basis for a claim against
an insured individual or his or her insurer.

(b) Every person who violates any provision of this section or
Section 549, 550, or 551 of the Penal Code shall be subject, in
addition to any other penalties that may be prescribed by law, to
a civil penalty of not less than begin delete five end delete begin insert ten end insert thousand dollars begin delete ($5,000) end delete
begin insert ($10,000) end insert nor more than begin delete ten end delete begin insert twenty-five end insert thousand dollars begin delete ($10,000) end delete
begin insert ($25,000) end insert , plus an assessment of not more than three times the
amount of each claim for compensation, as defined in Section 3207
of the Labor Code or pursuant to a contract of insurance. The court
shall have the power to grant other equitable relief, including
temporary injunctive relief, as is necessary to prevent the transfer,
concealment, or dissipation of illegal proceeds, or to protect the
public. The penalty prescribed in this paragraph shall be assessed
for each fraudulent claim presented to an insurance company by
a defendant and not for each violation.

(c) The penalties set forth in subdivision (b) are intended to be
remedial rather than punitive, and shall not preclude, nor be
precluded by, a criminal prosecution for the same conduct. If the
court finds, after considering the goals of disgorging unlawful
profit, restitution, compensating the state for the costs of
investigation and prosecution, and alleviating the social costs of
increased insurance rates due to fraud, that such a penalty would
be punitive and would preclude, or be precluded by, a criminal
prosecution, the court shall reduce that penalty appropriately.

(d) The district attorney or commissioner may bring a civil
action under this section. Before the commissioner may bring that
action, the commissioner shall be required to present the evidence
obtained to the appropriate local district attorney for possible
criminal or civil filing. If the district attorney elects not to pursue
the matter due to insufficient resources, then the commissioner
may proceed with the action.

(e) (1) Any interested persons, including an insurer, may bring
a civil action for a violation of this section for the person and for
the State of California. The action shall be brought in the name of
the state. The action may be dismissed only if the court and the
district attorney or the commissioner, whichever is participating,
give written consent to the dismissal and their reasons for
consenting.

(2) A copy of the complaint and written disclosure of
substantially all material evidence and information the person
possesses shall be served on the district attorney and commissioner.
The complaint shall be filed in camera, shall remain under seal for
at least 60 days, and shall not be served on the defendant until the
court so orders. The local district attorney or commissioner may
elect to intervene and proceed with the action within 60 days after
he or she receives both the complaint and the material evidence
and information. If more than one governmental entity elects to
intervene, the district attorney shall have precedence.

(3) The district attorney or commissioner may, for good cause
shown, move the court for extensions of the time during which the
complaint remains under seal under paragraph (2). The motions
may be supported by affidavits or other submissions in camera.
The defendant shall not be required to respond to any complaint
filed under this section until 20 days after the complaint is unsealed
and served upon the defendant.

(4) Before the expiration of the 60-day period or any extensions
obtained under paragraph (3), the district attorney or commissioner
shall either:

(A) Proceed with the action, in which case the action shall be
conducted by the district attorney or commissioner.

(B) Notify the court that it declines to take over the action, in
which case the person bringing the action shall have the right to
conduct the action.

(5) When a person or governmental agency brings an action
under this section, no person other than the district attorney or
commissioner may intervene or bring a related action based on the
facts underlying the pending action unless that action is authorized
by another statute or common law.

(f) (1) If the district attorney or commissioner proceeds with
the action, he or she shall have the primary responsibility for
prosecuting the action, and shall not be bound by an act of the
person bringing the action. That person shall have the right to
continue as a party to the action, subject to the limitations set forth
in paragraph (2).

(2) (A) The district attorney or commissioner may dismiss the
action notwithstanding the objections of the person initiating the
action if the person has been notified by the district attorney or
commissioner of the filing of the motion, and the court has
provided the person with an opportunity for a hearing on the
motion.

(B) The district attorney or commissioner may settle the action
with the defendant notwithstanding the objections of the person
initiating the action if the court determines, after a hearing, that
the proposed settlement is fair, adequate, and reasonable under all
the circumstances. Upon a showing of good cause, the hearing
may be held in camera.

(C) Upon a showing by the district attorney or commissioner
that unrestricted participation during the course of the litigation
by the person initiating the action would interfere with or unduly
delay the district attorney’s or commissioner’s prosecution of the
case, or would be repetitious, irrelevant, or for purposes of
harassment, the court may, in its discretion, impose limitations on
the person’s participation, including, but not limited to, the
following:

(i) Limiting the number of witnesses the person may call.

(ii) Limiting the length of the testimony of those witnesses.

(iii) Limiting the person’s cross-examination of witnesses.

(iv) Otherwise limiting the participation by the person in the
litigation.

(D) Upon a showing by the defendant that unrestricted
participation during the course of the litigation by the person
initiating the action would be for purposes of harassment or would
cause the defendant undue burden or unnecessary expense, the
court may limit the participation by the person in the litigation.

(3) If the district attorney or commissioner elects not to proceed
with the action, the person who initiated the action shall have the
right to conduct the action. If the district attorney or commissioner
so requests, he or she shall be served with copies of all pleadings
filed in the action and shall be supplied with copies of all deposition
transcripts, at the district attorney’s or commissioner’s expense.
When a person proceeds with the action, the court, without limiting
the status and rights of the person initiating the action, may
nevertheless permit the district attorney or commissioner to
intervene at a later date upon a showing of good cause.

(4) If at any time both a civil action for penalties and equitable
relief pursuant to this section and a criminal action are pending
against a defendant for substantially the same conduct, whether
brought by the government or a private party, the civil action shall
be stayed until the criminal action has been concluded at the trial
court level. The stay shall not preclude the court from granting or
enforcing temporary equitable relief during the pendency of the
actions. Whether or not the district attorney or commissioner
proceeds with the action, upon a showing by the district attorney
or commissioner that certain actions of discovery by the person
initiating the action would interfere with a law enforcement or
governmental agency investigation or prosecution of a criminal
or civil matter arising out of the same facts, the court may stay
discovery for a period of not more than 180 days. A hearing on a
request for the stay shall be conducted in camera. The court may
extend the 180-day period upon a further showing in camera that
the agency has pursued the criminal or civil investigation or
proceedings with reasonable diligence and any proposed discovery
in the civil action will interfere with the ongoing criminal or civil
investigation or proceedings.

(5) Notwithstanding subdivision (e), the district attorney or
commissioner may elect to pursue its claim through any alternate
remedy available to the district attorney or commissioner.

(g) (1) (A) (i) If the district attorney proceeds with an action
brought by a person under subdivision (e), that person shall, subject
to subparagraph (B), receive at least 30 percent but not more than
40 percent of the proceeds of the action or settlement of the claim,
depending upon the extent to which the person substantially
contributed to the prosecution of the action.

(ii) If the commissioner has brought an action or has proceeded
with an action brought by another person under this section on or
after January 1, 2006, the commissioner shall be entitled to
attorney’s fees and costs in addition to any judgment, regardless
of the date that judgment is entered. The court shall determine and
award the commissioner the amount of reasonable attorney’s fees,
including, but not limited to, reasonable fees for time expended
by attorneys employed by the department and for costs incurred.
Any attorney’s fees or costs awarded to the commissioner and
collected shall be deposited in the Insurance Fund. In cases in
which the commissioner has intervened, the commissioner and the
person bringing the claim may stipulate to an allocation. The court
may allocate the funds pursuant to the stipulation if, after the
court’s ruling on objection by the district attorney, if any, the court
finds it is in the interests of justice to follow the stipulation.

(iii) If the commissioner has proceeded with an action, if there
is no stipulation regarding allocation, and if a judgment has been
obtained or a settlement has been reached with the defendants, the
court shall determine the allocation, upon motion of the
commissioner or the person bringing the action, according to the
following priority:

(I) The person bringing the action, regardless of whether that
person paid money to the defendants as part of the acts alleged in
the complaint, shall first receive the amount the court determines
is reasonable for attorney’s fees, costs, and expenses that the court
determines to have been necessarily incurred.

(II) The commissioner shall receive the amount the court
determines for reasonable attorney’s fees and costs.

(III) If the person bringing the suit has paid moneys to the
defendants as part of the acts alleged in the complaint, that person
shall receive the amount paid to the defendants.

(IV) At least 30 percent, but not more than 40 percent, of the
remaining assets or moneys, shall be allocated to the person
bringing the action, depending upon the extent to which the person
substantially contributed to the prosecution of the action.

(iv) Those portions of a judgment or settlement not distributed
pursuant to this subdivision shall be paid to the General Fund of
the state and, upon appropriation by the Legislature, shall be
apportioned between the Department of Justice and the Department
of Insurance for enhanced fraud investigation and prevention
efforts.

(B) Where the action is one that the court finds to be based
primarily on disclosures of specific information, other than
information provided by the person bringing the action, relating
to allegations or transactions in a criminal, civil, or administrative
hearing, in a legislative or administrative report, hearing, audit, or
investigation, or from the news media, the court may award those
sums that it considers appropriate, but in no case more than 10
percent of the proceeds, taking into account the significance of the
information and the role of the person bringing the action in
advancing the case to litigation.

(C) Any payment to a person under subparagraph (A) or under
subparagraph (B) shall be made from the proceeds. The person
shall also receive an amount for reasonable expenses that the court
finds to have been necessarily incurred, plus reasonable attorney’s
fees and costs. All of those expenses, fees, and costs shall be
awarded against the defendant.

(2) (A) If the district attorney or commissioner does not proceed
with an action under this section, the person bringing the action
or settling the claim shall receive an amount that the court decides
is reasonable for collecting the civil penalty and damages. Except
as provided in subparagraph (B), the amount shall not be less than
40 percent and not more than 50 percent of the proceeds of the
action or settlement and shall be paid out of the proceeds. That
person shall also receive an amount for reasonable expenses that
the court finds to have been necessarily incurred, plus reasonable
attorney’s fees and costs. All of those attorney’s fees and costs
shall be imposed against the defendant. The parties shall serve the
commissioner and the local district attorney with complete copies
of any and all settlement agreements, and terms and conditions,
for actions brought under this article at least 10 days prior to filing
any motion for allocation with the court under this paragraph. The
court may allocate the funds pursuant to the settlement agreement
if, after the court’s ruling on objection by the commissioner or the
local district attorney, if any, the court finds it is in the interests
of justice to follow the settlement agreement.

(B) If the person bringing the action, as a result of a violation
of this section has paid money to the defendant or to an attorney
acting on behalf of the defendant in the underlying claim, then he
or she shall be entitled to up to double the amount paid to the
defendant or the attorney if that amount is greater than 50 percent
of the proceeds. That person shall also receive an amount for
reasonable expenses that the court finds to have been necessarily
incurred, plus reasonable attorney’s fees and costs. All of those
expenses, fees, and costs shall be awarded against the defendant.

(3) If a local district attorney has proceeded with an action under
this section, one-half of the penalties not awarded to a private
party, as well as any costs awarded shall go to the treasurer of the
appropriate county. Those funds shall be used to investigate and
prosecute fraud, augmenting existing budgets rather than replacing
them. All remaining funds shall go to the state and be deposited
in the General Fund and, when appropriated by the Legislature,
shall be apportioned between the Department of Justice and the
Department of Insurance for enhanced fraud investigation and
prevention efforts.

(4) Whether or not the district attorney or commissioner
proceeds with the action, if the court finds that the action was
brought by a person who planned and initiated the violation of this
section, that person shall be dismissed from the civil action and
shall not receive any share of the proceeds of the action. The
dismissal shall not prejudice the right of the district attorney or
commissioner to continue the action on behalf of the state.

(5) If the district attorney or commissioner does not proceed
with the action, and the person bringing the action conducts the
action, the court may award to the defendant its reasonable
attorney’s fees and expenses if the defendant prevails in the action
and the court finds that the claim of the person bringing the action
was clearly frivolous, clearly vexatious, or brought primarily for
purposes of harassment.

(h) (1) In no event may a person bring an action under
subdivision (e) that is based upon allegations or transactions that
are the subject of a civil suit or an administrative civil money
penalty proceeding in which the Attorney General, district attorney,
or commissioner is already a party.

(2) (A) No court shall have jurisdiction over an action under
this section based upon the public disclosure of allegations or
transactions in a criminal, civil, or administrative hearing in a
legislative or administrative report, hearing, audit, or investigation,
or from the news media, unless the action is brought by the
Attorney General or the person bringing the action is an original
source of the information.

(B) For purposes of this paragraph, “original source” means an
individual who has direct and independent knowledge of the
information on which the allegations are based and has voluntarily
provided the information to the district attorney or commissioner
before filing an action under this section that is based on the
information.

(i) Except as provided in subdivision (j), the district attorney or
commissioner is not liable for expenses that a person incurs in
bringing an action under this section.

(j) In civil actions brought under this section in which the
commissioner or a district attorney is a party, the court shall retain
discretion to impose sanctions otherwise allowed by law, including
the ability to order a party to pay expenses as provided in Sections
128.5 and 1028.5 of the Code of Civil Procedure.

(k) Any employee who is discharged, demoted, suspended,
threatened, harassed, or in any other manner discriminated against
in the terms and conditions of employment by his or her employer
because of lawful acts done by the employee on behalf of the
employee or others in furtherance of an action under this section,
including investigation for, initiation of, testimony for, or assistance
in, an action filed or to be filed under this section, shall be entitled
to all relief necessary to make the employee whole. That relief
shall include reinstatement with the same seniority status the
employee would have had but for the discrimination, two times
the amount of backpay, interest on the backpay, and compensation
for any special damages sustained as a result of the discrimination,
including litigation costs and reasonable attorney’s fees. An
employee may bring an action in the appropriate superior court
for the relief provided in this subdivision. The remedies under this
section are in addition to any other remedies provided by existing
law.

(l) (1) An action pursuant to this section may not be filed more
than three years after the discovery of the facts constituting the
grounds for commencing the action.

(2) Notwithstanding paragraph (1) no action may be filed
pursuant to this section more than eight years after the commission
of the act constituting a violation of this section or a violation of
Section 549, 550, or 551 of the Penal Code.