Title insurers are being harshly scrutinized in the wake of the housing boom -- no question about it. The Wall Street Journal reports on a price-fixing case recently filed in federal court in Brooklyn:
In the latest legal challenge, an antitrust suit ... accuses the four firms that dominate title insurance nationwide of illegally fixing prices in New York state. Although insurance firms have limited immunity from antitrust claims because state regulators approve their rates, the suit accuses title firms of concealing improper costs underlying their rate requests ... The New York suit, which seeks to represent all home buyers in the state, says consumers were forced to pay hundreds of millions of dollars in extra closing costs.
The four firms named in the suit are Fidelity National Title, First American, LandAmerica Financial and Stewart Title Insurance. The Journal reports on the allegations, which claim that while New York regulators review title insurance rates, the rates provided for review hide referral fees and other kickbacks that prop up the cost of title insurance:
"They're gaming the regulatory system," said Gordon Schnell, a lawyer representing the four named plaintiffs. "Especially in New York, where the firms set their rates collectively, that's a violation of the antitrust laws." The suit cites a 2006 state hearing in which regulators conceded they can't adequately review agents' commissions, which make up 85% of rates.
Industry representatives have said all four firms will fight the allegations vigorously in court, according to the Journal. Allegations of illegal kickbacks are nothing new to the title industry -- First American paid $10 million last January, and Stewart $1 million in August, to settle charges of kickbacks with the California Department of Insurance. Fidelity National's default management outsourcing businesses were recently the subject of a class-action lawsuit alleging forced and illegal kickbacks involving its network of foreclosure attorneys. But the New York suit represents a new tack on an old issue, with borrowers directly bringing an antitrust suit against the large title insurers. It's worth noting that the law firm representing the plaintiffs here is Constantine Cannon LLP -- the same law firm that won a $3 billion antitrust settlement on behalf of Wal-Mart against Visa and MasterCard in 2003. Their involvement likely signals an ability and willingness to go toe-to-toe with some pretty deep pockets.