Fidelity National Financial has reached a settlement with the California Department of Insurance following the agency’s investigation into captive reinsurance practices in the title insurance industry, the company said today.
While admitting no wrongdoing, Fidelity agreed to refund approximately $7.7 million to those consumers whose California property were subject to a captive reinsurance arrangement and will also pay a penalty of $5.6 million.
“We have worked closely with the California Department of Insurance to resolve this issue in an amicable manner,” said Peter T. Sadowski, executive vice president and general counsel for Fidelity. “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.”
The financial impact of the settlement has been accrued for in the first and second quarter financial results of Fidelity, the company said.
California Insurance Commissioner John Garamendi earlier this year launched an investigation into alleged kickbacks paid to captive reinsurance companies controlled by developers, lenders, builders and real estate firms. LandAmerica and Fidelity National, two title insurers that write roughly 60 percent of all the title insurance in California, testified in a daylong investigatory hearing headed by Garamendi in April.
Other companies subpoenaed in the overall investigation include William Lyon Homes, KB Home, RE/MAX, United Home Mortgage Corp., Shea Financial Services and Wells Fargo Home Mortgage, according to the California Insurance Dept.
Garamendi, who is also co-chair of the Title Insurance Working Group within the National Association of Insurance Commissioners, has worked with Colorado and Washington state insurance regulators to probe a series of alleged phony reinsurance contracts between title companies and subsidiaries of real estate agents, developers and lenders.
Under these alleged 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. The parent companies of those captives would in turn refer business to the title insurer.
The alleged arrangements harm consumers by potentially forcing up title insurance rates, according to Garamendi.
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