The Colorado Department of Insurance may sanction nine real estate title insurers for alleged illegal kickbacks, an action that could have broad national consequences for the industry.

Already, Fidelity National Financial, one of the companies under investigation, has terminated all its captive reinsurance treaties across the country as of Feb. 9, according to Erin Toll, Colorado’s deputy insurance commissioner.

Reinsurance is a key element in the investigation, which involves nine major insurers and one small subsidiary, and has been going on since October. Colorado’s Department of Insurance is readying sanctions against the insurers for alleged illegal kickbacks to home builders, lenders and real estate agents in exchange for guarantees of business.

The practice of kickbacks, or giving or accepting money in exchange for title insurance business, is a violation of Colorado statute and the federal Real Estate Settlement Procedures Act.

The department says the schemes involved reinsurance companies that were used to funnel income back to home builders. In a three-legged arrangement, large home builders allegedly set up affiliated companies to provide reinsurance to title insurance companies.

Toll says the home builders promised the title insurance companies their business if the title companies would use the reinsurers. The title companies then funneled half the title insurance premium payments they got from the builders back to the reinsurers, according to Toll. Since the reinsurers are affiliates of the home builders, the money was in essence returned to them as a kickback, Toll said.

“The amount of the premium the reinsurers are receiving is not commensurate with the risk,” said Toll. “It is grossly disproportionate.” The inordinately high compensation hence constitutes a payment for the referral and violates RESPA, Toll contends.

The companies could be slapped with cease-and-desist orders, subjected to hearings or fined. Or they could simply enter into an agreement to stop the illegal activities of which they are accused, according to Toll, who is conducting the investigation.

The maximum financial exposure of the companies is $2.4 million per company for those said to have entered into illegal arrangements in 1997, Toll said. She expects that the actions will be taken by the end of this month.

“This development could have considerable effect on the U.S. title insurance industry,” said Colleen Garrity, a director of Fitch Ratings in the insurance group.

Fitch Ratings is closely monitoring the potential effects on the U.S. title insurance market, especially in light of current widespread investigations of fraud and anticompetitive practices in the insurance industry, Garrity said.

“The investigations may catalyze extensive changes to industry practices, including the elimination of certain reinsurance arrangements,” Garrity said.

Fidelity National, one of the companies under investigation, has terminated its captive reinsurance treaties across the country, according to Toll.

Fidelity National representatives didn’t return calls seeking comment by press time.

“I think the reaction of Fidelity may be adopted by others,” said James Maher, executive vice president of the American Land Title Association. Maher noted that the individual companies would make their own decisions when the Department of Insurance takes action.

“There certainly is the potential for this to have national implications,” Maher said. “These arrangements are not just Colorado arrangements. They are nationwide, at least in some cases,” he said.

“We contacted HUD in 1999 to ask for guidance with respect to reinsurance arrangements between title companies and builders and RESPA’s possible application to those arrangements. We didn’t get a response until November 2004, and that response wasn’t helpful,” said Maher. The U.S. Department of Housing and Urban Development (HUD) polices compliance with RESPA.

The names of the title insurance companies and home builders involved in the Colorado probe will not be released until the investigation is complete, according to Toll.

Toll, who heads the Colorado investigation, is also vice chair of the title insurance working group for the National Association of Insurance Commissioners. Believing the problem is widespread, the association is encouraging insurance commissioners throughout the nation to investigate the practice.

Other states, including California, are also investigating possible title company kickback schemes.


Send tips or a Letter to the Editor to or call (510) 658-9252, ext. 140.

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