LandAmerica Financial Group Inc. has agreed to pay up to $3.5 million in penalties and refunds to consumers to settle allegations by California regulators that three title insurers under the company umbrella overcharged — or in some cases, undercharged — consumers.

The settlement was the result of an examination conducted nearly three years ago of LandAmerica subsidiaries Lawyers Title Insurance Corp., Commonwealth Land Title Insurance Co., and Transnation Title Insurance Co.

In February 2006, the California Department of Insurance reached a separate, $4.5 million settlement with LandAmerica to resolve allegations that the same companies employed captive reinsurance schemes to funnel kickbacks to builders, lenders and real estate agents who referred business to them from 1997 to 2004.

The latest settlement was the result of a market conduct examination the department launched in April 2005. According to accusations filed by insurance department lawyers in November, the three LandAmerica subsidiaries did not always follow their own filed rates, incorrectly rated policies, or failed to apply applicable discounts.

The settlement, in which LandAmerica admitted no liability or wrongdoing, requires the three companies to pay $1.5 million in fines and refund up to $2 million to consumers. The fines are to be divided evenly between the companies, but neither the Department of Insurance nor LandAmerica could say how many consumers might receive refunds.

State regulators said only that their examination of rating and underwriting practices during the first quarter of 2005 uncovered a “high incidence of rating errors resulting in premium overcharges and undercharges.”

The number of title policies with errors was to have been determined at a hearing. Under the terms of the settlement, however, it will be up to the three LandAmerica subsidiaries to identify consumers who are eligible for a refund, and the amount of the refund.

If the companies are unable to locate a consumer who is entitled to a refund, they are to deliver the payment to the State Controller’s Office, where the refunds may be claimed by consumers whose names will be published in an unclaimed property database.

Consumers eligible for a refund include those who purchased a title policy from the Northern California operations of Commonwealth Land Title, and issued by Commonwealth, Lawyers or Transnation between Jan. 1, 2004 and March 31, 2005.

Also eligible for refunds are consumers who refinanced their mortgage and purchased a title policy from LandAmerica’s One-Stop Division that was issued by Transnation, or purchased from Southland Title Corp. and issued by Commonwealth, Lawyers or Transnation between Jan. 1, 2004 and March 31, 2005.

Asked why it took nearly three years to reach a settlement, a spokeswoman for the Department of Insurance said that after a market conduct examination is launched, the department discusses its preliminary findings with the targeted company. The company is given an opportunity to respond to the findings, and the department continues to monitor the company to “make sure they continue to comply with the law,” said the spokeswoman, Molly DeFrank.

In a statement, LandAmerica said the company “took immediate steps to ensure adherence to its respective filed rates” after the Department of Insurance began its review.

“LandAmerica is pleased to settle this matter and is grateful for the opportunity to work collaboratively with the department to address any possible aberrations in the application of LandAmerica’s filed rates for title policies in California,” the statement said.

The settlement was the latest LandAmerica and other title insurers have reached with state regulators around the nation.

In 2005 and 2006, the California Department of Insurance reached settlements totaling $37.8 million with LandAmerica and two other title insurers accused of creating captive reinsurance companies that were allegedly used to funnel illegal rebates to companies that referred business to them.

In November 2005, Fidelity National Financial and First American Title Insurance Co. agreed to pay $33.3 million in fines and refunds in connection with the scheme, without admitting wrongdoing (see Inman News story).

The following February, LandAmerica agreed to a $4.5 million settlement over similar allegations that its Lawyers, Commonwealth and Transnation Title subsidiaries employed similar schemes. The three companies were ordered to refund $2.6 million in premiums to consumers, pay $1.725 million in fines, and reimburse the department $175,000 for its legal expenses.

Critics say reinsurance schemes — which supposedly allow title insurers to share risk with others — are actually used to funnel illegal kickbacks to companies that refer them business. Most of the expense of a title insurance policy is associated with researching a title and clearing “clouds” over a property’s ownership, and claim rates are very low compared to property and casualty insurance.

According to the 46-page accusation filed against the companies, and an order implementing the 2006 settlement, LandAmerica subsidiaries reinsured nearly 13,000 title insurance policies between 1997 and 2004. Lenders and real estate agents participating in the scheme typically received a $300 “processing fee” for each reinsured title policy, and 15 percent to 20 percent of the policy premiums in exchange for taking on an equal amount of risk.

Lawyers Title subjected 9,973 title insurance policies to captive reinsurance arrangements, and was assessed the largest share of the $1.725 million fine levied against the three companies — $1.38 million. Commonwealth, which was accused of referring 2,589 policies to captive reinsurance companies, was fined $313,659. The 236 policies Transnation allegedly subjected to reinsurance earned the company a $33,070 fine.

In addition to the $8 million in settlements reached with California regulators in recent years, LandAmerica and its subsidiaries have paid at least $15 million to settle probes and lawsuits in Colorado, Nevada, Michigan, Virginia and Arizona.

In June 2006, LandAmerica said it would pay more than $3.5 million in fines and refunds to consumers to settle an investigation by Nevada regulators into the company’s captive reinsurance practices.

LandAmerica subsidiaries Lawyers Title and Transnation were among four companies that agreed to pay $27.5 million in May 2006 to settle a class-action lawsuit alleging 64,500 people who bought new homes in Michigan were overcharged for title insurance policies. According to an SEC filing, LandAmerica agreed to pay $10.3 million without admitting liability to settle the suit, which alleged illegal kickbacks and fee splitting.

In March 2006 — one month after settling with California regulators over its captive reinsurance practices — LandAmerica said it had reached an agreement with Virginia regulators over allegations the company made illegal payments to real estate developers and lenders. LandAmerica did not admit liability, and the terms of the settlement were not disclosed.

In September 2005, LandAmerica agreed to contribute $1 million to the Arizona chapters of the American Red Cross and establish a $250,000 title insurance education fund after regulators began looking at the company’s business practices.

Colorado launched the first of a wave of state investigations into the title insurance industry in late 2004, when then-deputy insurance commissioner Erin Toll began looking at captive title insurance schemes in the state.

LandAmerica reached a $241,000 settlement with Colorado in August 2006 that included $139,000 in premium refunds to 922 consumers the state said were victims of captive reinsurance practices.

In a December 2006 report, members of the House Committee on Financial Services said LandAmerica had attempted to impede Toll’s investigation. LandAmerica said the report — which relied in part on internal company e-mails — was one-sided and inaccurate. Toll now heads the Colorado Division of Real Estate.

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

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