Stewart Title of California fined $750,000 for alleged kickbacks

April 20, 2005

Insurance commissioner says company gave illegal inducements

Inman News

California's insurance commissioner hit Stewart Title of California with $750,000 in fines and costs for alleged illegal kickbacks to real estate agents, the commissioner's office said today.

Insurance Commissioner John Garamendi on Tuesday signed an order fining Stewart Title of California $590,000 and ordering it to pay $160,000 in investigation costs for alleged illegal rebating activity uncovered during a 30-month investigation, the commissioner's office said.

The fine is part of a settlement between Stewart and the state Department of Insurance, which uncovered the alleged kickback scheme in a 30-month investigation.

"Time and again we have caught the title insurance industry breaking the law in order to line its pockets at the expense of consumers," said California Insurance Commissioner John Garamendi in a statement. "Let this latest fine be a warning: We will find these companies who continue to pay kickbacks, and I will do everything in my power to see that they are punished for their actions."

The investigation found that the inducements Stewart allegedly gave to agents amounted to $594,102.67. The insurance commissioner said the inducements came in the form of payments for business support services, gift certificates and door prizes for realtor events, rent payments, special event funding, and broker activity sponsorship.

"Stewart strives to follow all applicable federal and state laws regarding business practices on marketing activities; unfortunately, the California Department of Insurance has not clearly defined what constitutes a violation," said Mike Skalka, general counsel, Stewart Title Guaranty Co. "Stewart has a strong reputation for integrity. We continue to seek guidance from governing bodies concerning lawful marketing activities."

The alleged crimes took place in Los Angeles, Orange, Riverside, San Bernardino and San Diego Counties.

Garamendi is currently investigating the title industry for illegal 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 earlier this month.

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.

The Commissioner, co-chair of the Title Insurance Working Group within the National Association of Insurance Commissioners, has been working 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 arrangements were designed to kick back a large share of the title-insurance premium in exchange for the referral of the customer to the title company, a violation of the law, and a practice that harms consumers by potentially forcing up title insurance rates, according to Garamendi.

Garamendi said the hearing would give insurers and producers an opportunity to demonstrate that the arrangements are "not what they appear to be," and that the arrangement really is reinsurance, that they are receiving a real benefit from the arrangements, and that the amount they are paying is reasonable for the benefit received.

The commissioner held a public hearing earlier this month in which he subpoenaed information from top executives of these companies, including two of the three largest title firms operating in California.

Copyright 2005 Inman News

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