WASHINGTON–A prospective class-action lawsuit has been filed against 12 title insurance companies and two supporting corporations alleging the firms violated antitrust laws by making hidden, illicit costs part of the price of products sold to New York state consumers.

The suit was filed earlier this month in U.S. District Court in Brooklyn on behalf of four named plaintiffs, all New York state residents.

Their action contends that the normal exemption from antitrust laws that applies to insurers should not apply because state insurance regulators are unable to appropriately regulate the pricing of title insurance sold to consumers since the costs are based primarily on agency commissions–costs which regulators do not have authority or ability to assess.

The suit contends that the title insurers colluded on costs before securing rate approvals by the state insurance department.

The reason state regulators can't properly evaluate the title insurance costs, the suit alleges, is because they “chiefly cover kickbacks and other costs” unrelated to the issuance of title insurance.

“These supposed costs are funneled to and through title agents to increase defendants' overall revenues and get them more business,” the suit alleges. “The insurance department does not have regulatory authority over title agents or their activities.”

Amongst the defendants are Fidelity National Title Insurance Company, Chicago Title Insurance Company and Ticor Title Insurance Company.

Also included is LandAmerica Financial Group Inc., a Richmond firm whose activities in Colorado were the subject of several hearings and staff inquiries several years ago by the House Financial Services Committee.

Over the years the activities of title insurers have been investigated by numerous states, which have found evidence that the carriers in order to get business were using a variety of devices to funnel and pay kickbacks to builders, bankers, real estate agents and brokers. This has resulted in the firms paying millions in settlements.

Last month LandAmerica Financial Corp. Group settled with California, agreeing to pay $3.5 million in penalties and refunds to consumers as well as to halt unfair practices in rating and underwriting, according to the California Insurance Department.

Last year First American Title paid $5 million to Florida and in 2006 Fidelity National Title Group Inc. and First American Title, in a settlement with New York, agreed to drop rates 15 percent and pay $4 million in penalties.

Edward Miller, chief counsel and vice president of public policy for American Land Title Association (ALTA), would not comment directly on the suit but said most of the alleged infractions cited are in the past, occurring during the height of the housing market bubble.

“Market forces have helped to clean out some of the bad actors,” Mr. Miller said. He said he thought a variety of factors–including a critical report on the industry by the Government Accountability Agency–”have caused the industry to self-examine many of the marketing techniques that they were using.”

“The industry has undergone some changes since that time,” Mr. Miller said, including “the adoption of consumer initiatives that include principles of fair conduct, something that we released last fall.”

The suit alleges title insurers have acted outside the authority of state regulators to oversee their activities. Title insurers “have done so by improperly including unregulated and unauthorized costs within their collectively set rates,” then embedding the supposed costs within the agency commissions paid to title agents who are not licensed or otherwise subject to regulatory review by the insurance department.

“Indeed, the insurance department has unequivocally recognized and publicly stated that it does not and can not evaluate these agency commissions.”

Since these payments typically account for roughly 85 percent of the total costs that go into the Title Insurance Rate Service Association Inc.'s rate calculation, “defendants have effectively precluded the insurance department from actively supervising or conducting any kind of meaningful review of the collective rate-setting activity.”

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