A report by members of a congressional committee that held hearings on the title insurance industry earlier this year accuses LandAmerica Financial Group of attempting to impede its investigation and discredit the Colorado official credited with sparking enforcement actions against the industry nationwide.
Erin Toll, who led Colorado’s investigation of the title insurance industry until taking charge of the state’s Division of Real Estate in September, was the target of a campaign by LandAmerica to portray her as an ego-driven regulator who overstepped her authority because she held a personal grudge against the company, according to a report by members of the House Committee on Financial Services.
The 37-page report, "Problems and Concerns Regarding the Marketing and Sales of Title Insurance and LandAmerica Financial Group Inc.’s Conduct Regarding Federal and State Examinations of Title Insurance," makes public numerous internal LandAmerica e-mails and partial transcripts of two phone calls.
The report accuses top LandAmerica executives, including CEO Theodore Chandler, of authorizing a campaign to use information about Toll’s family members to "raise conflict of interest charges in an effort to limit her investigation into LandAmerica’s Colorado operations, undermine her efforts to lead a multistate settlement on captive reinsurance, and, in the opinion of Ms. Toll, to discourage her from testifying at a hearing before a subcommittee of the Committee."
LandAmerica "respectfully and strongly disagrees with the conclusions contained in the report," noting that it was written by staff members at the request of Chairman Michael Oxley, R-Ohio, and has not been officially adopted.
"LandAmerica believes that the report is filled with inaccuracies, misquotes documents, omits significant facts, and takes many statements out of context," the company said in a statement Wednesday. "The staff did not interview anyone from LandAmerica, resulting, the Company believes, in a one-sided report."
Not in dispute is that LandAmerica told insurance regulators, including Toll’s superior, Colorado Insurance Commissioner David Rivera, that Toll had a conflict of interest because of several family members’ current or past ties to the company.
LandAmerica maintains that Toll’s stepfather worked for a former subsidiary, Lawyers Title Insurance Corp., but was forced to resign over allegations of improper expense reports. Toll’s stepfather also worked for Commonwealth Land Title Insurance, where he was asked to resign "due to unsatisfactory work performance," the company said Wednesday. Commonwealth has since become a subsidiary of LandAmerica, and the employee involved in dismissing Toll’s stepfather is now a senior executive at LandAmerica, the company said.
Toll’s stepfather later was hired at United Guaranty Title Insurance Co., a LandAmerica competitor that was not investigated by Toll because it was not engaged in a questionable practice known as captive reinsurance, LandAmerica told Rivera.
In addition, LandAmerica claims Toll’s mother is a former employee of a LandAmerica subsidiary, her sisters have had business relationships with the company, and her ex-husband is a Colorado lawyer who sometimes represents LandAmerica.
Toll declined to comment on the report or LandAmerica’s response to it. But when LandAmerica sent Toll’s boss a letter on May 10 outlining its case that the deputy commissioner had a conflict of interest, Rivera fired back a prompt reply. Rivera said Toll had no conflicts of interest, had the full support of the Commissioner and the Department of Insurance, and that LandAmerica was making personal attacks to cover for the company’s conduct in Colorado.
"I am deeply concerned that the personal attack on Ms. Toll is a smoke screen intended to distract attention from LandAmerica’s conduct," Rivera said in his reply. "I have considered your charges and consider them to be groundless."
Because of the "personal nature of LandAmerica’s claims" about Toll, Oxley and Rep. Barney Frank, D-Mass, on May 24 requested records of the company’s contacts with Toll, "in an effort to discern how LandAmerica came into possession of this personal information," the committee report said.
Inman News, which profiled Toll in August 2005, reported on Oxley and Frank’s investigation the day after it was launched.
A peek behind the curtain
The report that resulted provides a rare glimpse into the behind-the-scenes interaction between the industry and state and federal regulators.
In late 2004, as deputy insurance commissioner, Toll began looking into captive title reinsurance schemes in Colorado. Such schemes may involve real estate brokers, lenders and home builders who agree to refer clients to a particular title insurer. In exchange, the title company agrees to "reinsure" the policies with businesses owned by the companies providing the referrals.
Although reinsurance has been used in other industries to spread risk, in real estate "captive reinsurance" arrangements designed to generate rebates or kickbacks are prohibited under state and federal laws.
LandAmerica says that although its captive reinsurance activities were legal, it voluntarily terminated them in February 2005 in response to regulator’s concerns.
By then, Toll’s investigation involved nine Colorado title insurers, and had prompted similar action in more than a dozen other states. Toll was offering to serve as the point person for reaching joint settlements between title insurance companies and the states.
In early 2005, without admitting liability or wrongdoing, First American Title Insurance Co. agreed to refund $24 million to consumers nationwide. But in the fall of 2005, according to internal company e-mails, LandAmerica’s strategy was to negotiate settlements with individual states, instead of pursuing a joint settlement with Colorado and 19 other states proposed by Toll.
Company e-mails show LandAmerica officials viewed Toll as a tough negotiator who could make it more expensive to settle allegations that the company had improperly profited from its captive reinsurance schemes. The e-mails published in the House Finance Committee’s report include several from Peter A. Kolbe, vice president for government affairs for LandAmerica Financial group, to lawyers representing the company.
In an Oct. 28, 2005, e-mail to lawyers, Kolbe said he had "been trading e-mails with Erin Toll last night and this morning" and that Toll was "adamant that Colorado (Division of Insurance) will settle for nothing less than a refund of the full cession premium. She will not discuss alternate settlement models. She will not grant an extension on her request for additional information."
Although Kolbe believed Toll’s claim that 19 other states were asking her to negotiate settlements on their behalf was "hyperbole," he recommended that LandAmerica "cut our losses in Colorado and agree to refund the full cession premium," because the legal costs of a court battle would exceed the settlement amount.
"Further, if we won the litigation, we’d be back in the captive reinsurance business again, which I think we want to avoid," Kolbe said.
The sooner LandAmerica reached a settlement with the Colorado Department of Insurance, "the less likely it is that Erin will screw up our settlement with Nevada, which I’m sure she is attempting to do," Kolbe concluded. "Nevada is the last big state with which we have to deal. Our focus should be there, and getting Erin out of the way will help."
When Toll told Kolbe she would take the issue of reaching a joint settlement to the National Association of Insurance Commissioners’ (NAIC) Market Analysis Working Group, Kolbe said he wasn’t worried. "I personally know about a third of MAWG’s 21 members, and I think we can derail Erin there," Kolbe said in another e-mail.
A spokesman for NAIC did not respond to a request for comment.
In the mean time, LandAmerica was also amassing information it could use to portray Toll as hostile toward LandAmerica, and as having a conflict of interest because of her family’s current or past ties to the company. At first, Kolbe’s superiors at LandAmerica did not want the company to be seen as attacking Toll’s credibility.
On Dec. 15, Kolbe sent colleagues a draft of a letter he proposed sending to a NAIC member detailing Toll’s alleged conflicts of interest. The letter was to be sent as the group prepared to make assignments to a committee that would be looking at ways to reach a multistate settlement over allegations of captive title insurance practices.
Although one of his co-workers wrote back that it was "a very good letter," Kolbe lamented on Dec. 19 that, "sadly my bosses here decided not to let me raise Erin’s conflicts of interest" before the selection process.
Congress gets involved
The issue of captive title insurance had now captured the attention of lawmakers in Washington, D.C.
In a Jan. 24, 2006, letter, Oxley asked the Government Accountability Office (GAO) to analyze the title insurance industry. The Ohio Congressman instructed the GAO to look at pricing, competition and the relationship between title insurers, Realtors, lenders and home builders.
When the GAO began looking into the title insurance industry, Kolbe suspected that Toll had sparked the fed’s interest by contacting Oxley, who in turn went to the GAO. One of the first steps the GAO took was to seek information on how the industry worked from the NAIC. Kolbe said a source in the NAIC had tipped him off to the GAO’s request.
"Frankly, I suspect that Erin Toll has engineered this to increase the focus on the industry in order (to) further place her in the spotlight," Kolbe wrote Michelle Gluck, executive vice president and general counsel for LandAmerica Financial Group, on Feb. 7, 2006.
By March 8, LandAmerica’s outside legal counsel Jay Varon said in an e-mail the company was still trying to reach a settlement with Colorado and preparing to enter into talks with Nevada, Minnesota and Maryland.
"Basically Erin Toll is stirring things up, purporting to be negotiating on behalf of multiple state (departments of insurance) who later disclaim her authority," Varon said.
Kolbe, Varon wrote, "is on the war path vis a vis Erin and wants to raise the conflict-of-interest issue in a number of possible ways. I am still urging restraint but Michelle (Gluck) got Ted (Land America CEO Theodore Chandler) to authorize doing it if we thought it was necessary and/or advantageous."
The next day, Kolbe was on the phone with Paul Hanson, the chief examiner of the enforcement division of the Minnesota Department of Commerce — one of the states LandAmerica was hoping to reach a settlement with outside of the process Toll had hoped was being established by NAIC.
The call was tape-recorded. According to a transcript of a portion of the call published by the committee, Kolbe told Hanson "Erin has extremely serious ethical conflicts with the entire title insurance industry, as well as LandAmerica. And we had not said anything about that, figuring that, hey, if she wants to beat up on the industry through the state regulatory system, that’s fine. We’ll suck it up."
Toll went too far, Kolbe said, by taking her concerns to Oxley. LandAmerica viewed that move "as going well beyond her regulatory role. We think that is an ego-driven thing. We think it is hostile to the concept of state regulation of insurance by telling Congress, essentially, you guys need to look into this because we as state regulators can’t seem to handle it."
In the portions of the March 9 phone conversation between Kolbe and Hanson published by the committee, and during a second call March 22, Hanson was unsympathetic.
"Quite frankly, I would think more regulators would suspect she’s biased in favor of you guys because her sister is connected to you and her ex-husband was connected to you," Hanson said. In talking to colleagues in other states, Hanson told Kolbe, "I’m not finding anybody really getting too interested in going down that path," meaning Toll’s alleged conflicts of interest. In fact, Hanson said, several regulators he discussed the issue with "were not real happy that this was a topic of discussion. So I didn’t win any friends bringing this stuff up, OK?"
Kolbe told Hanson other regulators did feel Toll has a potential conflict of interest, and that LandAmerica had "tried to raise it in a discreet way. If we were trying to do anything to hurt anybody, which we absolutely are not, we would have picked up the phone to the newspapers."
But at least one LandAmerica executive privately acknowledged that the company’s allegations against Toll could become public.
On March 10, Lloyd Osgood, senior vice president of corporate communications, e-mailed a fellow employee in LandAmerica’s media relations department and a contractor at an outside public relations firm. LandAmerica CEO Ted Chandler, Osgood said, had given general counsel Michelle Gluck "permission to do whatever it takes with respect to ET (Erin Toll), and she wants your counsel on how to handle surfacing ET’s conflict of interest and subsequent attention that will result."
According to the committee’s report, it was Hanson who tipped Toll off that LandAmerica was working behind the scenes to cast doubt on her motives for investigating the company and the industry itself. Hanson’s tip gave Toll cold feet about testifying at the committee’s hearing on the title insurance industry, scheduled for April 26, the committee’s report said.
Toll contacted the committee staff on March 10 "and informed them that she felt uncomfortable about testifying at the hearing," the report said. Toll was "concerned about how LandAmerica obtained her family information and expressed a desire not to testify at the hearing."
The committee staff asked her to reconsider, and Toll agreed to testify as planned, the report said. At the April 26 hearing, Toll said she felt "threatened" by an unnamed title insurance company.
When Kolbe saw the transcript of Toll’s testimony, he denied the company had investigated Toll or tried to intimidate her.
"Toll says, without naming us directly, that we have not cooperated, that we investigated her, and that she felt threatened and intimidated by us," Kolbe said in a May 5 e-mail to Gluck, adding that such allegations were "all lies."
But the flap over LandAmerica’s behind-the-scenes activity was about to become public.
Toll publicly named the company she felt threatened by as LandAmerica, prompting LandAmerica’s May 10 letter to Toll’s boss, Rivera, spelling out in more detail the company’s allegations of conflict of interest.
LandAmerica restated similar arguments in a statement released Wednesday, saying the issues it raised were legitimate and not part of an attempt to undermine investigations by other states. By March 2006, the company said, it had already reached settlements with California, Arizona and Virginia, and was on its way to reaching a settlement with Nevada announced in June. The total value of the settlements was $9 million.
In August, LandAmerica reached a $241,000 settlement with Colorado that received little media attention.
At the time, Toll told Inman News that LandAmerica "has consistently from day one refused to deal with (states) together. The last time I checked, there were 15 states pursuing (captive reinsurance investigations of LandAmerica). They will only do settlements with each state individually, so (individual settlements) never get the attention that the other (larger settlements) did."
The aftermath
In his May 5 e-mail after the hearings in Washington, D.C., Kolbe was optimistic that lawmakers would leave it up to the Department of Housing and Urban Development to regulate the industry. He foresaw changes that would help, rather then hurt the industry.
"Despite the beating given to the title insurers, reading between the lines (of the hearing transcript), I think that the House is trying to push HUD to regulate the marketplace," Kolbe wrote. "I see that happening in two ways that potentially could benefit the title insurers. First … I anticipate that GAO is going to find that all AfBAs (affiliated business arrangements) and JVs (joint ventures) create inherent conflicts of interest on the part of the settlement producer, and thus reduce competition.
"HUD may be forced to re-address or eliminate its current safe harbor for certain AfBAs," Kolbe continued. "In a perfect world, prohibition on all AfBAs and JVs might be very attractive to us, as many people feel that these are merely revenue drains on the insurers."
Kolbe was also optimistic that some criticism of the industry could be shifted to agents by arguing that excessive commissions are part of the problem.
"It is clear from the testimony … that the focus is shifting to whether agents are being overcompensated for the work they perform," Kolbe wrote. "This is the discreet message that LandAmerica has been quietly putting to insurance regulators, such as Florida (Department of Insurance). There is a potential benefit here for insurers too — think of it if HUD could promulgate some sort of commission split. In any event, that is where I see the thrust of this going, and we are merely the whipping boy to get there. Future interaction with HUD behind the scenes could be useful for us."
