What Is Insurance Fraud?

Insurance fraud is knowingly giving an insurer false or misleading information, or hiding a material fact, to collect money or get coverage you would not otherwise get. For a landlord, that includes adding unrelated damage to a real claim, falsely telling the insurer a rental is owner-occupied, leaving prior losses off an application, and staging or setting a loss. State laws make it a crime, often a felony, and the insurer can also deny the claim or void the policy. The crime requires intent, so an honest mistake is not fraud, but a material misstatement can still let the insurer deny a claim.

What counts as insurance fraud for a landlord

Insurance fraud is mostly a matter of state law, and state statutes cover both claims and applications. Florida's statute, Fla. Stat. section 817.234, makes it a crime to present or help prepare a claim statement you know contains false, incomplete, or misleading information, to put false information on an insurance application, or to knowingly conceal a fact material to the application. Florida counts an invoice, an account, and an estimate of property damage as a "statement," so an inflated repair estimate is covered. New York's definition reaches claims under both personal and commercial policies, and false statements on applications for commercial insurance.

The National Association of Insurance Commissioners (NAIC) lists exaggerating a legitimate claim and knowingly giving false information on an application as common forms of policyholder fraud. A disputed claim value is not fraud by itself. If you and the adjuster disagree about what a repair costs, document your number with bids and photos rather than changing the facts of the loss.

Misstating rental use or occupancy

A homeowners policy can cover a primary, secondary, or vacation residence, and some policies cover owner-occupied homes with rental units. Rental use may require added coverage or a landlord policy, depending on the insurer and policy terms. The application answers about occupancy, rental use, and prior losses affect whether the insurer offers a policy and at what price.

Keeping a homeowners policy does not itself establish fraud. Misstating occupancy or rental use on an application can have two consequences:

1. The claim can be denied. Under Fla. Stat. section 627.409, a misstatement on an application can bar recovery if it was fraudulent or material to the risk, or if the insurer would have declined the policy, charged a different premium, or excluded the hazard had it known the truth. The insurer does not have to prove a crime to deny the claim on this basis.
2. It can be prosecuted. A knowing false answer or a concealed material fact can be application fraud under Florida's statute when made with intent to injure, defraud, or deceive the insurer, with or without a claim.

Tell your insurer before the first tenant moves in and ask it to confirm whether your rental arrangement is covered by your homeowners policy, needs added coverage, or requires a landlord policy. The guide to landlord insurance for rental properties explains which policy fits a rental, and how to choose your insurance covers comparing quotes.

Criminal and civil penalties

States grade insurance fraud by the dollar amount involved. Florida and New York are two examples:

Florida's prison terms come from section 775.082, while section 775.083 sets general criminal fines. Other states use their own thresholds, so check your state's insurance fraud statute.

Federal law adds a separate risk for arson. Under 18 U.S.C. section 844(i), maliciously damaging by fire property used in an activity affecting interstate commerce carries a prison term of 5 to 20 years, and more if someone is hurt. The Supreme Court held in Russell v. United States that a two-unit apartment building the owner rented out met that test, so burning your own rental to collect insurance can be a federal crime as well as a state one.

On the civil side, an insurer that finds fraud can deny the claim. In Florida, an insurer harmed by fraud can also sue to recover its damages plus investigation costs and attorney fees once there has been a criminal conviction.

Tenant and contractor schemes to watch for

Some fraud happens around your claim rather than by you, and you can be drawn into it.

Deductible waivers. A contractor offers to "cover" or "absorb" your deductible after a storm, usually by billing the insurer more than the job costs. In Florida, a contractor who knowingly or willfully pays, waives, or rebates any part of a property insurance deductible for repairs, with intent to injure, defraud, or deceive, commits a third-degree felony. If you sign an inflated estimate knowing why it is inflated, the false statement is yours too.

Inflated or fabricated estimates. Watch for estimates that list repairs to areas the loss did not reach, charge for materials not used, or bill for a full replacement when the damage is limited to a section. Get a second bid on any large claim, and compare the scope line by line against your own photos.

Tenant claims. A tenant who fakes a burglary or injury may file against the tenant's own renters policy or against your liability coverage. Keep move-in and move-out photos, maintenance records, and repair invoices so you can show the condition of the unit to an adjuster.

For disaster claims, where these schemes are most common, see how insurance protects you from disasters.

How to report suspected fraud

You can report a contractor, tenant, adjuster, or agent you suspect of fraud through any of these channels:

1. Your insurer's claims department or fraud unit. Tell the adjuster on your claim, in writing, what you saw.
2. Your state insurance fraud bureau. Most states have a fraud bureau that investigates insurance fraud. The NAIC's Online Fraud Reporting System routes reports to the state where the fraud happened, and the NAIC says you can also contact your state insurance department or attorney general.
3. The National Insurance Crime Bureau (NICB). It takes reports of home, auto, liability, and workers' compensation fraud at 1-800-835-6422 or online.

Include names, dates, addresses, amounts, and copies of estimates, invoices, or messages. The Coalition Against Insurance Fraud does not take reports directly but lists these channels.