Nine major title insurance companies agreed to pay $37.8 million in refunds and penalties for alleged illegal rebating in a settlement with California Insurance Commissioner John Garamendi, the commissioner announced today.


In addition to $12.5 million in penalties, the companies will pay refunds to consumers totaling $25.3 million, or an average refund of over $300 for consumers.


“Just sit tight for more information to come,” Insurance Department Spokesperson Norman Williams said as to how consumers should proceed in order to get their refunds. “When the mechanism is set up, we’ll make an announcement as to how the refunds will be distributed.”


There’s a good possibility that the companies will simply mail the refunds to consumers with no further action being necessary, the spokesman said. Williams said, “Whatever the process is, we will monitor the process and receive regular reports from the companies” as refunds are made.


The companies were accused of paying $25.4 million in illegal kickbacks to various lenders, builders and realtors in exchange for the referral of title insurance business. They have settled without admitting wrongdoing.


The nine companies, members of three insurance groups — LandAmerica Financial Corp., the First American Title Insurance Co., and Fidelity National Financial — control roughly 75 percent of the California title insurance market.


Their actions in this case involved more than 82,000 California households that purchased or refinanced a home between 1997 and 2004, Commissioner Garamendi’s office said.


In April, earlier in the investigation, Stewart Title of California was hit with $750,000 in fines and costs for alleged illegal kickbacks to real estate agents.


Garamendi’s investigation is only one of many nationwide sparked by Colorado’s February inquiry into title insurance practices.


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.


California’s Department of Insurance served administrative accusations against the nine companies alleging that they “ceded,” or paid, nearly half of the premium they collected to lenders, builders and realtors in return for the referral of business, Garamendi’s office said.


Following the accusation, the companies agreed to enter into financial settlements and to accept a cease-and-desist order ending the practice, Garamendi’s office announced.


The settlements represent the largest rebating penalties in the department’s history.


The companies also agreed to work with the department on future rate-reductions and improved consumer-information.  “I welcome the commitment of these companies to help me reform the title-insurance industry,” said Commissioner Garamendi.


In April, Commissioner Garamendi held a hearing in Los Angeles to investigate charges of illegal rebating practices in the title-insurance industry.


The department today said it found that these “captive” firms were essentially shell corporations that had no offices, no employees, and no purpose other than to funnel the illegal rebates to their parent companies.


To accomplish this scheme, the title insurers would allegedly cede premium from title policies to these captive reinsurance firms, which were controlled by builders, lenders and developers, according to the department.


The companies attempted to disguise these kickbacks as “reinsurance premiums,” the department said. Losses from insurance claims in the title industry are extremely low – well under 10 percent of premium – and reinsurance is unheard-of for this kind of title insurance, according to the department.


“This reinsurance scheme appears to be nothing more than a form of commercial bribery,” said Commissioner Garamendi, “a blatant breach of trust by title agents, lenders, developers and builders. It skews the market and inflates transaction costs.”


The Commissioner alleged that the record $37.8 million settlement is far more than the amount title insurers illegally rebated to the builders, lenders and Realtors.


A breakdown of the settlements:


  • Fidelity agreed to pay a full refund of ceded premium ($7.7 million) plus $5.6 million in penalties and cost reimbursement; 

  • First American agreed to pay a full refund of ceded premium ($15 million) plus $5 million in penalties and cost reimbursement;

  • LandAmerica agreed to pay a full refund of ceded premium ($2.6 million) plus $1.9 in penalties and cost reimbursement.



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