Whistleblower suits under state insurance fraud laws

In a few states, a private person who knows about insurance fraud can file a lawsuit in the name of the state, ask the government to take it over, and collect a share of the money if it succeeds. This is called a qui tam action (Latin shorthand for suing on behalf of the king as well as yourself). Law-firm commentary from 2016 and 2021 describes California and Illinois as the only two states with such a law aimed at fraud against private insurers; both statutes reach claims under any insurance contract, including auto, and an ordinary driver will almost never be the person who files one.

That last point is worth stating plainly. These laws are written for people who see a scheme from the inside: a billing clerk, a clinic employee, a former claims worker, or an insurer's own investigators. A driver who suspects a staged crash or a padded repair bill has simpler and cheaper options, covered at the end of this article. The rest of the article explains the model, because it shapes how fraud gets policed and, indirectly, what fraud costs everyone in premiums.

What a qui tam suit is and what it adds

Ordinary fraud enforcement runs on three tracks. An insurer's special investigations unit investigates and refers cases. A state fraud bureau or state department of insurance investigates further. A prosecutor decides whether to file criminal charges. Each step depends on government staff and budgets, and a case that does not fit a prosecutor's priorities can stall. Our article on how an insurance fraud case is prosecuted from referral to sentence walks through that pipeline.

A qui tam statute adds a fourth track. It lets an outsider with inside knowledge do the legwork of drafting a complaint and assembling evidence, then hand the government a ready-made case. The government keeps control: it can take over the case, let the outsider proceed alone, or, in some circumstances, end it. In exchange for the risk and cost of coming forward, the private person (called the relator) gets a defined percentage of whatever is recovered.

The model borrows from the federal False Claims Act, which has long worked the same way for fraud against government programs. What makes California's and Illinois's laws unusual is that the "victim" is a private insurer rather than the state treasury. In its 2021 write-up, the law firm Tycko & Zavareei, writing in the National Law Review, noted that California is one of only two states with a whistleblower statute addressing fraud against private insurers. The state is still a real party: it is the plaintiff of record, it receives the civil penalties, and the penalties are meant to cover the cost of enforcement and to blunt the effect of fraud on insurance prices.

California's Insurance Frauds Prevention Act

California's statute is Insurance Code section 1871.7. The text below is drawn from the version posted by California.Public.Law, which reproduces the official code and was marked current as of November 2026. Because statutes get amended, anyone considering a filing should read the live text on the legislature's site, with an attorney.

What is prohibited. Subdivision (a) makes it unlawful to knowingly employ "runners, cappers, steerers, or other persons" to procure clients or patients to obtain services or benefits under an insurance contract, or services that will be the basis for a claim against an insured person or their insurer. In plain terms, it targets paid referral arrangements: someone paid to steer injured people to a particular clinic, lawyer or shop so that claims get generated. The civil penalties in subdivision (b) also attach to violations of Penal Code sections 549, 550 and 551, which are California's criminal insurance-fraud provisions, so the civil suit can reach conduct beyond referral payments.

What it costs a defendant. Each violator faces, in addition to any other penalties, a civil penalty of $5,000 to $10,000 plus an assessment of up to three times the amount of each claim. The penalty is assessed "for each fraudulent claim presented to an insurance company by a defendant and not for each violation." That per-claim counting is why even a modest scheme can generate large numbers. The statute also says the penalties are remedial rather than punitive and tells the court to reduce them if, taken together with a criminal prosecution, they would become punitive.

Who can sue. Subdivision (e) allows "any interested persons, including an insurer" to bring a civil action "for the person and for the State of California." The action is filed in the state's name. The district attorney or the insurance commissioner can also bring their own civil action under subdivision (d), and the commissioner must first present the evidence to the local district attorney.

Illinois's Insurance Claims Fraud Prevention Act

Illinois enacted a parallel statute, the Insurance Claims Fraud Prevention Act, at 740 ILCS 92. The structure is close to California's. Section 5 bars paying anyone to induce people to procure clients or patients to obtain services or benefits under an insurance contract, and sets the same $5,000 to $10,000 penalty per fraudulent claim plus up to three times the claim amount. Section 15 lets "an interested person, including an insurer" sue for the person and for the State of Illinois, and it uses the same sealed-complaint procedure described below.

The Illinois Supreme Court has addressed who counts as an "interested person." In State ex rel. Leibowitz v. Family Vision Care, LLC, 2020 IL 124754, decided November 19, 2020, the court held that the estate of a former office administrator, who alleged that an optometry practice falsely certified its ownership to a vision-benefit plan, had standing to sue as an interested person because of her nonpublic information about possible wrongdoing. The court also held that the State could partially assign its claim to the relator. You can read the opinion on HallApproved. The case concerned vision insurance, not auto, but the standing holding applies to the statute generally: a relator does not have to be the person who was cheated.

How a suit unfolds step by step

The procedures in California subdivision (e) and Illinois section 15 are nearly identical, and both follow the federal False Claims Act pattern.

1. The relator files under seal. The complaint is filed "in camera" (privately) and stays under seal for at least 60 days. It is not served on the defendant, who does not know it exists.
2. The government gets everything. A copy of the complaint and a written disclosure of "substantially all material evidence and information" the relator has must be served on the local prosecutor and the commissioner (California) or State's Attorney and Attorney General (Illinois).
3. The government decides. Within the 60 days, the prosecutor or commissioner may elect to intervene and proceed. The government can ask the court for more time for good cause. If both a local prosecutor and a state agency want the case, the local prosecutor has precedence.
4. One of two paths follows. If the government proceeds, it takes primary responsibility and is not bound by the relator's acts, though the relator remains a party. If the government declines, the relator has the right to run the case alone, and the court may still let the government step in later for good cause.
5. The defendant is served only after the court orders it, and need not respond until 20 days after the complaint is unsealed and served.
6. No one else can pile on. While the case is pending, no one other than the government may intervene or bring a related action based on the same facts unless another law allows it.

The seal is not a technicality. A fraud ring that learns it is under investigation can move money, destroy records or close up shop. California's statute lets the court stay a relator's discovery for up to 180 days (with extensions) if it would interfere with a criminal or other government investigation, and it stays the civil case entirely while a criminal case on substantially the same conduct is pending at the trial level.

The government's role and the risk of dismissal

A relator does not own the case. This is the part people most often miss.

In California, if the district attorney or commissioner takes over, the government "shall not be bound by an act of the person bringing the action." It can dismiss the case over the relator's objection once the relator has been notified and the court has given the relator a hearing. It can settle over the relator's objection if the court decides after a hearing that the settlement is "fair, adequate, and reasonable." The court can also limit the relator's participation, such as by limiting witnesses or cross-examination, if unrestricted participation would interfere with the prosecution or would be repetitious or harassing. Illinois section 20 contains the same protections for the government. And California's text says an action may be dismissed only if the court and the district attorney or commissioner, whichever is participating, give written consent.

Three other dismissal risks come up in the text:

• Planned and initiated the fraud. If the court finds the relator "planned and initiated the violation," that person is dismissed from the case and gets no share, though the government can continue.
• Public disclosure. Under California subdivision (h), a court lacks jurisdiction over a case based on information already public in a hearing, report, audit or news story unless the government brings it or the relator is an "original source," meaning someone with direct and independent knowledge who gave the information to the government before filing. Illinois reduces the award to no more than 10% when a case rests mainly on public disclosures.
• Frivolous suits. If the government declines and the relator proceeds, a defendant that wins can recover attorney's fees if the court finds the claim "clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment."

There is also a deadline. Under California subdivision (l), a suit cannot be filed more than three years after the facts constituting the grounds were discovered, and in no case more than eight years after the violation. Illinois may set different limits; its text should be read directly.

How much a whistleblower can receive

The percentages are written into the statutes, and they depend on whether the government steps in.

On top of the share, the relator receives reasonable expenses plus attorney's fees and costs, all awarded against the defendant. The rest of the recovery goes to the government. In California, a case the district attorney handles sends half of the penalties not awarded to the private party to the county for fraud investigation and prosecution, and the remainder goes to the state general fund for the Department of Justice and Department of Insurance. Where the commissioner proceeds, the commissioner is entitled to attorney's fees and costs in addition to any judgment.

A worked example

Say a clinic employee reports that a clinic paid a runner for every injured driver delivered to it, and billed insurers for 200 claims connected to those referrals, averaging $2,000 each. These numbers are invented for illustration.

• The minimum penalty at $5,000 per claim is $1,000,000. At the $10,000 maximum it is $2,000,000.
• The assessment of up to three times each claim could add as much as $1,200,000 (3 x $2,000 x 200).
• A court has discretion, may reduce penalties that would be punitive, and many cases settle for much less than the theoretical maximum.

Suppose the case settles for $1,500,000. If the district attorney intervenes, the employee's share would be between $450,000 and $600,000. If the district attorney declines and the employee's lawyers carry the case, it would be between $600,000 and $750,000. In either case the defendant also pays the relator's reasonable legal fees. The employee's lawyers would typically be paid from a private arrangement with the relator, which is outside the statute, so the take-home amount is lower than the headline percentage.

Retaliation protection

People who report fraud from the inside often work for the defendant. California subdivision (k) addresses that: an employee who is "discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against" because of lawful acts in furtherance of a case under the section, including investigating, filing, testifying or assisting, is entitled to relief to make them whole. That relief includes reinstatement with the same seniority, two times back pay, interest, and compensation for special damages including litigation costs and attorney's fees. The employee may sue in superior court. The Illinois Supreme Court's Leibowitz opinion also describes a provision of the Illinois Act protecting employees from retaliation.

A statutory remedy is not a guarantee of a comfortable outcome. Retaliation claims take time, the employer may be a small business with limited assets, and a worker may lose a job long before a court acts. That practical risk is one reason relators typically hire experienced counsel before taking any step.

Who ends up as a defendant, and a real recovery

Because the statutes turn on paid referrals and false claims rather than on a particular line of insurance, defendants vary. The language of California's statute describes runners, cappers and steerers, the kind of people who recruit injured drivers for clinics, attorneys or repair operations. Our guides to auto insurance fraud and staged accidents explain the schemes that those referral networks feed. The same statutes also reach billing practices.

One documented auto-related example is California ex rel. Williams v. Safelite Group, Inc.. According to a February 2025 notice from the relator's law firm, a former Safelite employee filed a qui tam action in San Mateo County on January 5, 2023, and a parallel one in Cook County, Illinois, on January 19, 2023, alleging violations of the California and Illinois insurance fraud statutes tied to billing for windshield molding parts and vehicle cleaning services during COVID-19. The notice says both states declined to intervene, the relator pursued the cases, and the defendants agreed to pay a total of $31 million, including $22,320,000 in the California action and $8,680,000 in the Illinois action. That account comes from the relator's counsel, who had an interest in the outcome; the settlement agreements are attached to it. It shows the pattern: the state passed, the insider carried the case, and the money came back. Our article on auto glass claim fraud: how repair-shop billing schemes work covers how glass billing abuse works in general.

Why most drivers will never use this, and what to do instead

If you notice something that looks wrong, such as a clinic that pressures you to sign blank forms, a shop that offers to inflate an estimate, or a "friend" who suggests a staged crash, you are not the target audience for a qui tam suit. A civil action under these statutes is a complex piece of litigation with sealed filings, government disclosures and often years of waiting.

What you can do is much simpler:

1. Do not take part. A driver who joins a scheme can face criminal charges and denial of claims.
2. Report it to your insurer's fraud line or to the state. Most states have a fraud bureau, and many give reporters legal protection; see how to report insurance fraud, state insurance fraud bureaus: who investigates and how to reach them and mandatory fraud reporting and immunity laws for insurers.
3. If you work at a business engaged in fraud and fear being retaliated against, speak with a licensed attorney in your state before you act. Only an attorney can say whether the facts support a suit and what the limitation periods are.

Even though drivers rarely file these suits, they feel the effects. The statutes themselves say the penalties help alleviate "the social costs of increased insurance rates due to fraud." Whether that goal is met in practice is a question the public record cannot answer for any single driver's premium. See claim padding vs fraud: where the legal line falls for where ordinary exaggeration ends and fraud begins.

Common questions

Can any driver file a qui tam suit?

Under California's statute, "any interested persons" may sue, and in Illinois "an interested person," and the Illinois Supreme Court has read that phrase broadly. But filing requires a detailed complaint and disclosure of evidence, and a lawyer is needed in practice. An individual with no inside knowledge has nothing to disclose.

Does the insurer have to be harmed?

Both statutes expressly name insurers among those who may file, so an insurer that spots a scheme can be the plaintiff. For everyone else, the Illinois Supreme Court in Leibowitz held that the relator need not be the victim and that the State's own injury in its sovereignty from violations of its laws supports the claim. The relevant point is that the state, not the relator, is the party being vindicated.

Do other states have these laws?

The commentary I found from 2016 and 2021 says only California and Illinois do. States change laws, and most state false claims acts cover fraud against the government, not against private insurers. Check your state's insurance code or ask your state's department of insurance.

Is a whistleblower's name kept secret?

The complaint is sealed for at least 60 days, which keeps the defendant from learning of it. After unsealing, the relator is a named party. Anyone worried about exposure should discuss it with counsel first.

What if I think my own insurer committed fraud?

That is a different problem. Conduct such as unreasonably denying claims is handled through a complaint to the state department of insurance or, with an attorney, through a bad faith claim. These fraud statutes are about false claims and paid referrals.

Key takeaways

• California (Insurance Code 1871.7) and Illinois (740 ILCS 92) let private persons sue over insurance fraud in the state's name; commentary from 2016 and 2021 says they are the only two states to do so for fraud against private insurers.
• The complaint is sealed for at least 60 days while the government decides whether to take over; the government can later dismiss or settle even over the relator's objection.
• A relator can receive 30% to 40% of proceeds if the government proceeds and 40% to 50% in California if it declines, with lower awards for cases built on public information.
• Penalties are $5,000 to $10,000 per fraudulent claim plus up to three times the claim; California sets a three-year discovery limit and an eight-year outer limit.
• Drivers should report suspected fraud to their insurer or state fraud bureau rather than expecting to file a qui tam case themselves.