Newspaper article The Florida Times Union

Fidelity National Part of California Inquiry; Insurance Commissioner Examining Whether Insurers Paid Kickbacks for Client Referrals

Newspaper article The Florida Times Union

Fidelity National Part of California Inquiry; Insurance Commissioner Examining Whether Insurers Paid Kickbacks for Client Referrals

Article excerpt

Jacksonville-based Fidelity National Financial is at the center of a California Department of Insurance investigation into whether title insurers paid illegal kickbacks to real estate developers in return for referrals.

California Insurance Commissioner John Garamendi said Tuesday at a news conference that he had evidence of such payments by Fidelity and Richmond, Va.-based LandAmerica and has issued subpoenas for additional information. Mortgage lenders Citigroup Inc. and Wells Fargo & Co., along with realtors such as Re/Max International Inc. played a role in the "scheme," he said.

"This is clearly illegal," Garamendi said. "There's no doubt about it."

But Fidelity officials said the Fortune 500 company had already stopped the practice at the request of regulators in other states and had only entered into reinsurance agreements for competitive reasons.

"We never wanted them," said Fidelity chairman and CEO Bill Foley. "As soon as the opportunity arose, we canceled them."

Title insurance protects real estate buyers against losses in the event their property titles are questioned. Federal law and most states prohibit title insurers from paying incentives or referral fees to generate business, according to a January report by Fitch Ratings. The Colorado Division of Insurance reached a $24 million settlement last week with title insurer First American Corp. over the same issue.

Garamendi said insurers paid kickbacks by setting up reinsurance companies in a developer's name, and then sharing some of their premiums with those startups. The developer may have taken little or no insurance risk while getting a percentage of the premiums, he said. Banks and Realtors also signed reinsurance contracts, he said.

Such practices are illegal because they ultimately drive up the cost of home ownership, said Garamendi in a memo released Tuesday.

As an example of the alleged kickbacks, the memo describes a partnership between Fidelity and Meritage Homes, a developer operating in California, Nevada and Arizona. According to the example, Meritage created a reinsurance company which then referred title business to Fidelity subsidiaries. …

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