The California Department of Insurance is seeking $46.7 million in damages and penalties against Stewart Title Guaranty Co. for an alleged captive reinsurance scheme affecting 3,650 homeowners.

California Insurance Commissioner John Garamendi on Monday accused Stewart Title of channeling illegal kickbacks to shell companies created by home builders and lenders in exchange for business.

Garamendi alleges the shell companies had no offices or employees and were created with the sole purpose of receiving kickbacks related to unnecessary “reinsurance” agreements.

According to the Department of Insurance’s accusation, Stewart Title paid up to 50 percent of the premiums on the policies — a total of $443,000 — to the shell companies between 1999 and 2005.

“Consumers and their wallets are being taken to the cleaners by title insurers who inflate their bottom lines through these schemes,” Garamendi said in a prepared statement.

Stewart Title maintains that California has not issued clear guidance on the payment referral fees, and that the allegations by California Insurance Commissioner John Garamendi are “the result of a misunderstanding of Stewart’s business.”

“It is Stewart’s belief that all of its reinsurance purchases were in accordance with guidelines issued by the Department of Housing and Urban Development for reinsuring residential transactions at market rates,” the company said in a press release.

Stewart Title has met with members of Garamendi’s staff to answer the department’s questions about its reinsurance purchases, and is providing additional information to overcome these allegations, the company said.

Last year, Garamendi reached settlements totaling $37.8 million with nine title insurance companies accused of engaging in similar captive reinsurance practices.

In April 2005, the department imposed $750,000 in fines and costs on Stewart Title of California as part of a separate investigation into alleged inducements to lenders and builders. The inducements included vacations and purchases of office supplies, said Norman Williams, a spokesman for the department.

In the latest investigation, opened Nov. 3, 2004, the department is seeking $46.7 million in damages and fines from Stewart Title. Those include $36.5 million in civil penalties, or $10,000 for each title insurance policy allegedly subjected to reinsurance. The department’s accusation also demands that Stewart pay a $2.2 million penalty equal to five times the amount of the alleged illegal rebates, and an $8 million fine based on a tripling of the $2.7 million charged for all settlement services provided.

***

Send tips or a Letter to the Editor to matt@inman.com or call (510) 658-9252, ext. 150.

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Real estate news and analysis that gives you the inside track. Subscribe to Inman Select for 50% off.SUBSCRIBE NOW×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription