Probe Sought Of Homebuilder Insurer

The group said it has also asked investigations of Aurora, Col.-based Home Buyers Warranty companies. According to Public Citizen, HBW insures many homebuilders and has designated CAS as the sole legal forum available to "tens of thousands" of new home buyers.

According to Public Citizen, CAS is co-owned by Marshall Lippman, who was disbarred by the state of New York in 1997.

A secretary at CAS in Dallas, Wilma Mayberry, said that no one was available to answer questions yesterday. The firm's Web site listing of "Our Leaders" does not mention Mr. Lippman. The site says the firm offers mediation arbitration and expedited dispute settlement, servicing the construction, real estate, home inspection and home warranty industries.

Public Citizen said CAS has been refusing to comply with California's law requiring disclosure of all arbitration outcomes, citing a letter to Public Citizen signed by CAS's other owner, Lester Wolff.

"Mandatory arbitration is already skewed against consumers even without the involvement of dishonest persons or illegal operations," said Jackson Williams, legislative counsel for Public Citizen.

"When arbitrators are selected by the business defending the lawsuit, the arbitrator's bias will be to rule in the business's favor or award less than full damages," said Mr. Williams. "In this instance, we see that the HBW companies have very low loss ratios, indicating that CAS may allow them to systematically deny or underpay valid claims from homeowners."

Public Citizen said it sent letters to the insurance commissioners in the four states where HBW companies are domiciled–Colorado, Hawaii, Nevada and Virginia–asking that HBW's claims procedures be scrutinized for patterns of unfair practices.

The letter said: "[Mr.] Lippman's position in CAS is analogous to that of a supervisory judge in a court system. If you are one of the many thousands of Americans who buy newly constructed homes each year, Mr. Lippman wields more influence over your life than the Chief Justice of the United States. It is simply shocking that someone with this record of dishonesty has been entrusted by insurers with so much power."

Additional letters were sent to commissioners in 11 states where arbitration clauses are banned from insurance contracts–Arkansas, Georgia, Hawaii, Kentucky, Louisiana, Nebraska, Oklahoma, South Carolina, South Dakota, Virginia and Washington–asking that those laws be enforced against HBW and CAS.

Another letter asked California's commissioner to order HBW and CAS to comply with that state's disclosure law.

According to Public Citizen, CAS makes consumers pay the entire cost of the arbitration process–$500 or more. All other major arbitration providers limit the consumer's filing fee to $375 or less, making the business that selects arbitration pay the biggest share of the cost.

Ken Schrad, a spokesman for Virginia Insurance Commissioner Alfred W. Gross, said Mr. Gross had asked the staff of the bureau's property-casualty consumer services section to look into the matter.

Mr. Williams said he announced his group's concerns during a session at the annual conference of the Insurance Regulatory Examiners Society, which is meeting in Denver.