California Insurance Commissioner John Garamendi is issuing subpoenas to parties he believes are involved in kickback activities, the commissioner said Tuesday. Also, he is investigating Fidelity National Title and LandAmerica companies for possible involvement in the alleged scam, Garamendi said.

Garamendi said he has been working with the Colorado and Washington insurance regulators to probe a series of “phony ‘reinsurance’ contracts between title companies and subsidiaries of Realtors, developers and lenders.” The commissioner did not name the companies that would be subpoenaed.

“Under these elaborate schemes, the title insurers agreed to give about half of the premium on title insurance policies to ‘captive’ reinsurance companies created by the other conspirators,” Garamendi said in a statement. “The parent companies of these ‘captives’ would in turn refer business to the title insurer.”

Garamendi said these arrangements were designed to “kick back” a large share of the title insurance premium in exchange for the referral of the customer to the title company.

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

Fidelity National Financial this morning said it has been cooperating with these investigations and providing all the information requested.


“The company intends to continue to cooperate fully with the California Department of Insurance. The company previously announced its voluntary discontinuance of all reinsurance agreements. The amount of premiums ceded to these reinsurers has been approximately $10 million over the existence of these agreements,” Fidelity said in a statement Wednesday.


LandAmerica said it is “extremely concerned,” and believes statements regarding alleged improper conduct are “untrue and misleading.” The company voluntarily ended its reinsurance arrangements in Colorado and said it is in the process of ending them nationwide.


LandAmerica EVP and General Counsel Michelle Gluck in a press statement said the company’s captive reinsurance arrangements have not resulted in any injury to consumers


“LandAmerica’s title insurance rates are the same regardless of whether these reinsurance arrangements are utilized,” Gluck said. “LandAmerica’s agreements with homebuilders, brokers and lenders who have interests in captive insurance companies require disclosure to the consumer that the homebuilder, broker, or lender stands to gain financially under the arrangement and to advise consumers that they can opt out of having the title reinsured by a captive reinsurance company with no difference in cost.”

In a related development, First American Title Insurance Co. agreed to refund about $24 million to consumers nationwide while under investigation by the Colorado Department of Insurance, the Associated Press reported Tuesday. The development was announced Sunday by Colorado Gov. Bill Owens, according to reports. The parent company did not admit liability or wrongdoing.

Earlier this month, Erin Toll, Colorado’s deputy insurance commissioner, announced that the insurance department might sanction nine real estate title insurers for alleged illegal kickbacks, an action that could have broad national consequences for the industry.

Owens told the Associated Press that LandAmerica Financial Group Inc., a Richmond, Va.-based title company under investigation by Garamendi, is also under investigation in Colorado.

Garamendi called on Governor Schwarzenegger to join in the effort to protect consumers. The commissioner said he will hold a public investigatory hearing April 4. He promised other hearings on market concentration and pricing, saying 75 percent of the California market is controlled by 3 companies.

“With the information gathered from these subpoenas, as well as our investigation begun at the end of this year, I will work to put an end to this greedy practice and help reduce title insurance rates,” Garamendi said.

“These arrangements are not just Colorado arrangements. They are nationwide, at least in some cases,” said James Maher, executive vice president of the American Land Title Association, earlier this month.

“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.


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