Three large title insurance groups encompassing nine companies will pay $37.8 million in refunds and penalties to settle charges the firms paid kickbacks to secure business, California Insurance Commissioner John Garamendi announced yesterday.
Meanwhile, investigations of title firms in Washington and other states are continuing.
The agreements with LandAmerica Financial Corp., First American Title Insurance Company and Fidelity National Financial Inc. follow accusations they had made $25.4 million in illegal payments to builders, realtors and lenders in exchange for referrals.
In addition to $12.5 million in penalties, the companies have agreed to pay refunds to consumers totaling $25.3 million for an average refund of over $300, the California Department of Insurance said.
California's action follows investigations and settlements with title firms that began in Colorado.
According to insurance officials, the kickbacks were disguised as payments for reinsurance coverage supplied by captive insurers operated by developers and others who supplied title firms with business.
According to regulators, the risk associated with title coverage is so low that reinsurance is basically unneeded and the reinsurance was simply a vehicle for illegal payments.
The California Department of Insurance, in administrative accusations served on the companies, alleged they paid nearly half of the premium they collected to the firms that supplied them with business.
According to Mr. Garamendi, customers in over 82,000 transactions in recent years were not sent to the lowest cost title insurer, but rather realtors, lenders and builders routinely sent them to the insurer promising them "the biggest kickback."
Under the settlements:
o Fidelity agreed to refund $7.7 million in ceded premiums to customers and pay $5.6 million in penalties and costs.
o First American of Santa Ana, Calif. agreed to refund $15 million in ceded premium and pay $5 million in penalties and cost reimbursement.
o LandAmerica agreed to refund $2.6 million in ceded premium and pay $1.9 million in penalties and cost reimbursement.
Less than two months ago, LandAmerica Financial Group's chief executive officer, Ted Chandler, said that the result of regulatory scrutiny of title companies would be "messy at times, but at the end of the day a lot of good comes from state regulators promulgating clear rules and regulations==and I hope they enforce the hell out of them."
First American yesterday issued a statement, which mentioned that its $15 million refund to California policyholders was part of a February settlement with Colorado to pay $24 million to affected policyholders in eight states.
The company said in February that it terminated all captive reinsurance agreements and thought the Colorado agreement had settled all its issues with regulators.
"We were disappointed that the California Department of Insurance found it necessary to pursue this matter…However, we are pleased to have reached a settlement in this matter without further dispute with the California Department of Insurance," said James J. Dufficy, First American senior vice president and regulatory counsel.
Fidelity said it denied any wrongdoing as part of the settlement.
"We have worked closely with the California Department of Insurance to resolve this issue in an amicable manner," said Peter T. Sadowski, Fidelity's executive vice president and general counsel. "We are happy that this matter is now behind us and we remain committed to vigorous internal compliance policies. We will work informally with the department on issues of mutual interest to minimize the possibility of future misunderstandings regarding acceptable market conduct."
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