Title insurers say that's not a fair comparison, since a portion of the premium is devoted to preventing problems. First American Corp., the Santa Ana-based company that is the nation's leading title insurer, says that for 30% of applications it does "curative" work, including fixing errors, before issuing a policy.
Such insurers market their product not to the party paying for it, but to real estate agents, lenders and builders because they have the most influence over what title company is used. These marketing efforts sometimes take the form of cash rewards and gifts, although federal and state laws forbid giving anything of value in exchange for referrals in a real estate transaction.
A 2007 report by the U.S. Government Accountability Office found 58 federal and state investigations into illegal payments by the title industry, resulting in more than $100 million in fines and penalties during the previous four years.
In the last three years, California's four largest title insurers have been ordered to pay about $49 million in penalties and refunds for illegally giving cash and gifts to reward real estate agencies, lenders and builders who brought in title customers, according to Department of Insurance records.
In 2005, state investigators found that First American had given tickets to sporting events, the Teen Choice Awards and concerts featuring Gwen Stefani, U2, Elton John, Velvet Revolver, the Eagles and Paul McCartney.
The company spent thousands of dollars more on food and beverages for real estate agents' events and paid for chartered fishing trips, riverboat dinner cruises and trips to the Del Mar racetrack.
First American and its chief competitors -- Fidelity National Financial Inc., LandAmerica Financial Group Inc. and Stewart Title Guaranty Co. -- have also been sanctioned for funneling millions of dollars to realty agencies, builders and lenders through sham "reinsurance" arrangements.
The real estate intermediaries were purportedly being paid to share the title insurance risk, but state investigators found they never had to pay out a single penny in claims.
In agreeing to pay fines and give refunds to consumers, the four title insurers neither admitted nor denied wrongdoing.
Industry leaders say they do not condone unlawful practices.
"They are the exception in the title business, but when they do occur they should be addressed by regulators," said Kurt Pfotenhauer, chief executive of the American Land Title Assn.
