First American Title Insurance Co. has quietly agreed to pay $10 million to settle allegations by California regulators that the company illegally drummed up business by making cash payments and other inducements to real estate professionals that included free software, tickets to rock concerts, chartered fishing trips, riverboat dinner cruises, and trips to racetracks and casinos.
The payments and inducements to builders, lenders and real estate agents and brokers totaled $371,490 — including $106,000 in cash payments to Frontier Homes LLC, an Ontario, Calif., builder — according to allegations in a Nov. 6 notice filed by the California Department of Insurance’s legal division.
First American sales managers and sales representatives in San Bernardino County also racked up $265,490 expenses, providing free software, entertainment, gifts, food and beverages and transportation to real estate professionals which regulators said amounted to illegal rebates.
The settlement, signed Dec. 27 by First American Chairman Parker S. Kennedy, resolved 72 complaints against the title insurer without an admission of liability or wrongdoing. First American also agreed to cease marketing, operating or maintaining two marketing software programs, DailyContact and Realty DataLink, which the company allegedly provided to real estate agents and brokers for free as a reward for referrals.
Phone calls to Frontier Homes and the developers of DailyContact and Realty DataLink were not immediately returned Wednesday.
In response to a request for comment by Inman News, First American Title today issued a statement saying the settlement was in keeping with a previously announced plan “to meet with insurance regulators across the nation, to proactively share the details of its corporate compliance program and address and resolve all pre-existing compliance matters. First American is dedicated to maintaining the highest standards of integrity and conduct throughout all of its businesses and in every transaction.”
The California Insurance Code prohibits title insurers, underwritten title companies and controlled escrow companies from paying “any commission, compensation, or other consideration to any person as an inducement for the placement or referral of title business.”
Regulators say First American’s payments to Frontier Homes stemmed from a June 1, 2003, agreement between the two companies, in which First American agreed to pay Frontier $100 for each closed First American title insurance order. Under the agreement, Frontier was to provide transaction coordination services to First American in Riverside, San Bernardino and Los Angeles counties.
The $77,690 First American of San Bernardino County allegedly spent on consulting, licensing and training fees to provide marketing software programs Realty DataLink and DailyContact.com to real estate agents and brokers was also a violation the Insurance Code, the notice said.
Rebecca M. Westmore, an attorney for the California Department of Insurance who worked on the case, said the software “was completely unrelated to the business of title insurance,” and that the programs were set up in order to provide free services to agents and brokers.
According to the DailyContact.com Web site, the software is a direct-mail program developed in a partnership between Eudicor Consulting and First American Title. The software was designed to “Empower your direct sales channels to use their contact lists and knowledge about the customers to personalize contents while protecting your corporate branding.”
Eudicor employees did not immediately return phone calls for comment Wednesday.
Realty DataLink is a contact management and marketing program. Developer Web DataLink lists First American as one of 11 partners on the company’s Web site. A phone call to the company was not immediately returned Wednesday.
Although software developers Eudicor and Web DataLink may continue to provide their services to the real estate industry, the settlement requires First American to “cease and desist statewide its marketing, operation and/or maintenance” of both applications.
First American’s sales force in San Bernardino County also ran afoul of regulators in their efforts to wine and dine real estate professionals. Department of Insurance lawyers characterized as illegal rebates $187,800 in expenditures on food and beverages, accommodations and entertainment, and transportation.
First American employees allegedly purchased food and beverages for real estate professionals’ training meetings, grand openings, open houses, broker caravans, MLS tours and Christmas, Halloween and Cinco de Mayo parties.
The company’s sales reps turned in 179 receipts and invoices for gifts, including Starbucks and Blockbuster Video gift cards, gift certificates for restaurants, department stores and amusement parks, flowers, books, Thomas Guides, gift baskets, computer monitors, cigars, and wine — all illegal, the Department of Insurance alleged.
First American employees also provided transportation for real estate professionals, including limousine rides and chartered bus trips to Realtor award dinners, baseball games, casinos and racetracks.
Accommodations and entertainment expenses claimed as expenses by First American’s sales force allegedly included hotel accommodations, tickets to an NFL game, chartered fishing trips, riverboat dinner cruises, and tickets to see Gwen Stefani, U2, Elton John and Velvet Revolver.
Westmore said First American had a system where real estate agents and brokers could request tickets to specific events, creating a record of who received such perks.
“The real estate agent could fill out a ticket request — you’d sit down and ID the concert or event you wanted to attend, and give it to First American, and it was their job to get them,” Westmore said. “We know who was making the request and who was paying.”
In other instances, First American expense reports identified groups of Realtors who benefited.
Although the Department of Insurance did not name the real estate professionals who were the recipients of First American’s generosity in its accusations, “We are contemplating that in future actions” if similar rebates are uncovered in other investigations, Westmore said.
First American agreed to pay $9,949,500 as a monetary penalty, plus $45,500 to reimburse the state for the costs of its investigation. The investigation was launched in response to written complaints the Department of Insurance received between February and November 2005.
Copies of the accusation and settlement are available to the public on the Department of Insurance’s Web site, but neither has been publicized.
Outgoing Insurance Commissioner John Garamendi, who was elected lieutenant governor Nov. 7, approved the settlement with First America on Jan. 3. Settlements of such magnitude are usually announced at press conferences.
Garamendi spokesman Norman Williams said the lack of publicity of the settlement “was simply a timing issue.” Garamendi was sworn in as lieutenant governor on Jan. 8, “and there was not time to put together a press event. Certainly he wants Californians to know these companies are being held accountable for what they have done.”
In one of his final acts as insurance commissioner, Garamendi on Jan. 5 submitted a proposal to slash title insurance rates by 25.6 percent, claiming that there is a lack of competition in the industry. Title insurers dispute that claim, and question the insurance commissioner’s legal authority to set rates.
The California Office of Administrative Law is reviewing the proposal, which would be implemented by Garamendi’s successor, Silicon Valley entrepreneur Steve Poizner.
Poizner told Inman News when he was sworn into office on Jan. 8 that he had not yet taken a position on Garamendi’s proposed $1 billion-a-year rate reduction.