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Executive essay.

In a landmark decision governing the relationship between title insurance underwriters, their agents and customers, Lawyers Title of North Carolina and co-plaintiff Jefferson-Pilot Title Insurance Company recently emerged the victors in their four-year suit against Investors Title Company, Investors Title Insurance Company (ITIC) and Investors Title Agencies of Chapel Hill, North Carolina. The defendant companies, which controlled the largest market share in the state's title insurance industry, were found by a jury to be in violation of North Carolina law, the Real Estate Settlement Procedures Act and federal antitrust laws. Defendants subsequently entered into a consent order and judgment whereby they agreed to pay the plaintiffs $4.6 million in damages and attorneys' fees and to abide by the terms of a permanent injunction. The defendants also were found liable for engaging in a pattern of coercing or misleading consumers and their counsel into purchasing title insurance from ITIC.

Joseph M. Parker, Jr., president of Lawyers Title of North Carolina noted that, "In its verdict, the jury vindicated the rights of closing attorneys to fulfill their fiduciary duties to their clients. The verdict sends a strong message that the North Carolina consumer will be best served when an independent attorney advises his or her client regarding choice of title insurance companies."

Following the six-week trial last April, a federal court jury in Winston-Salem, North Carolina found the defendant companies in violation of Sections 1 and 2 of the Sherman Antitrust Act, and a month later Chief Judge Richard C. Erwin of the United States District Court for the Middle District of North Carolina, who presided over the trial, entered an order finding the defendants in violation of the Real Estate Settlement Procedures Act and North Carolina General Statute 75-1.1, which forbids unfair and deceptive trade practices in commerce. Subsequently, North Carolina Attorney General Lacy Thornburg, whose office also has a civil case pending against the defendants, filed a friend-of-the-court brief supporting the plaintiffs' motion for a permanent injunction against the defendants.

The suit--the first in the country to challenge the agent/underwriter relationship--charged defendants with setting up agreements to sell title insurance through subsidiaries of Realtors, developers and mortgage lenders, which in most cases were savings and loans. The parent corporations then pressured attorneys for North Carolina homebuyers to select ITIC as their title insurer, thereby limiting consumers' freedom to choose a competitor title company.

The plaintiffs maintained that defendants' business practices constituted efforts to monopolize the industry through the use of "dummy" agents who received payment for referring business to the title company but performed no other services. Defendants contended that the funds paid to the agents were commissions. The jury, however, determined that they were in reality kickbacks and contributed to the restraint of trade.

At the close of the lengthy trial, the jurors considered 33 questions from the judge on the referral scheme and rendered answers in favor of the plaintiffs as to each question. It was then that Judge Erwin ruled on the violation of the North Carolina statute. The statute requires a judicial decision on whether the law has been violated based on the jury's findings.

The consent order and judgment requires that ITIC sever its relationships with approximately 90 North Carolina agents, most of whom are affiliated with real estate lenders or developers. In addition, the company is prohibited from establishing any new agency relationships with any of the existing illegal agencies or with other lenders, real estate agents, developers or attorneys for a period of three years. ITIC also agreed to conduct its title operations in North Carolina in compliance with the Real Estate Settlement Procedures Act, certain North Carolina statutes and all other applicable North Carolina statutes and regulations. Any such agent appointed by ITIC after the three-year period will be required to issue binders and policies of title insurance through its own employees, perform its own underwriting, examine title evidence as part of the underwriting effort and be responsible to the underwriter for its errors or omissions. The defendants also will be directed not to engage in any retaliatory actions against attorneys, title insurance companies or agents by removing or threatening to remove them from the defendants' approved lists.

Parker observed that he hoped that the elimination of the kickback relationships would "finally lead to an open and honest market for the sale of title insurance in North Carolina. We view the entry of the comprehensive consent order and judgment as a victory not only for Lawyers Title of North Carolina, but for all the independent real estate practitioners of this state," he said.

Defendants initially filed motions to set aside the jury's verdict and for a new trial. According to J. Allen Fine, president of ITIC, its position was that "the jury verdict was based on a misconception of the law and failure to understand that relationships between title companies and lender-owned agents are legitimate and well-accepted throughout the United States." Although the defendant companies' original intent was to proceed with an appeal to the Fourth Circuit Court of Appeals in Richmond if the trial court refused to set the verdict aside, defendants announced their agreement to a settlement at the end of May.

Defendants withdrew their motion that the verdict be set aside and agreed to pay plaintiffs $2.36 million in damages. ITIC will assume responsibility for $1.5 million of the damages, and Investors Title Agencies will pay the plaintiffs $860,000. Lawyers Title of North Carolina will collect most of the settlement, with Jefferson-Pilot receiving one-sixth of the total amount. In addition to damages, ITIC will pay attorneys' fees and costs incurred by the plaintiffs in the amount of $2 million.

According to Russell W. Jordan III, senior vice-president and general counsel of Lawyers Title Insurance Corporation, underwriter for Lawyers Title of North Carolina, the favorable verdict following the long-running, arduous litigation has set a precedent for acceptable practices among title insurers, not just in North Carolina, but across the country as well. "This case is very important in that it constituted a direct attack on certain controlled business agency arrangements that were illegal under federal antitrust laws, the Real Estate Settlement Procedures Act and North Carolina law, and the judicial system put a stop to this practice," Jordan pointed out.

Joseph Parker clearly was gratified by the settlement. "We are extremely pleased with the final result," he said. "The defendants had built up their business through a pattern of kickbacks and illegal relationships that harmed consumers and we are glad to see that end. From this point forward, all North Carolina title companies will be competing on a level playing field and attorneys who represent consumers will be able to choose among those companies."

H. Randolph Farmer is senior vice president of corporate communications and advertising at Lawyers Title Insurance Corporation, Richmond, Virginia.
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Title Annotation:landmark court decision regarding the relationship between title insurance underwriters and their agents and customers
Author:Farmer, H. Randolph
Publication:Mortgage Banking
Date:Sep 1, 1992
Words:1139
Previous Article:Clarification or change?
Next Article:Combating Fraud and Unethical Practices in Real Estate Transactions.
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