LandAmerica Financial Group Inc., a title insurer under investigation in California, said it would cease the reinsurance arrangements that prompted the probe.
California Insurance Commissioner John Garamendi said Tuesday that the arrangements essentially served as kickbacks to builders who referred clients to LandAmerica and a second insurer, Fidelity National Financial Inc. On Wednesday, LandAmerica, based in Richmond, Va., said Garamendi's statements were "untrue and misleading."
"LandAmerica's captive reinsurance arrangements have not resulted in any injury to consumers," said Michelle Gluck, LandAmerica's general counsel. The company will stop the arrangements out of a "good faith willingness to resolve this issue."
Garamendi said title insurers paid kickbacks by setting up reinsurance companies in the name of a builder or lender and then sharing some of their premiums with those start-ups. The builder may have taken little or no insurance risk while getting a percentage of premiums, he said. Meanwhile, the kickbacks drove up the cost of insurance, he said.
LandAmerica said Wednesday that it had paid $12 million in premiums to reinsurance entities since 1997 and that the builders and lenders did take on risk by assuming responsibility for some claims. It has ended the arrangements in Colorado, which is also investigating.
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.
LandAmerica said the reinsurance partnerships required the company to tell customers that home builders, brokers and lenders might benefit from the arrangements.
Fidelity National, based in Jacksonville, Fla., said Wednesday that it had previously announced it would end such arrangements. The company, which is cooperating with investigators, said it had paid about $10 million in premiums to reinsurance companies.
LandAmerica shares rose 93 cents to $54.05 on the New York Stock Exchange. Fidelity National shares rose 78 cents to $44.79, also on the NYSE.