Client Alert

Insurance Report


A Great Deal, or "Adverse Action"?

If you give an applicant an initial rate for homeowners or automobile insurance and the rate is influenced by a credit report, you have to send an "adverse action" notice under the Fair Credit Reporting Act if the given rate is not your best available rate. This is true even if the rate is better than the applicant could have gotten elsewhere. (Reynoldsv.HartfordFinancial Services, 2005 WL 1840054 (9th Cir. Aug. 4, 2005).) This is easy to fix now, before the process server arrives.

For more information, contact Michael Agoglia (

Elder Abuse—Annuity Products

Financial services companies who sell annuities to senior citizens are coming under increasing scrutiny by regulators, government officials, and consumers, who question allegedly abusive and unethical sales tactics. These involve the charge that seniors are being sold annuities ill-suited to their needs, or are being sold to persons who cannot understand their contracts. Other complaints state that seniors are told that annuities are as safe as CDs, when they actually are not, and that seniors are encouraged to switch products, resulting in high fees. Massachusetts regulators have taken action against annuity sellers. Legislative efforts are underway in California, Utah, Washington, and New Jersey.

The issue also has recently gotten the attention of the class action plaintiffs’ bar. Class actions have been filed against annuity sellers and issuers in various states, including Florida and California, raising claims of unfair competition, false advertising, and elder abuse. Plaintiffs claim that, in the guise of estate and financial planning, seniors are being sold annuity products that are inappropriate investments for someone over 65.

For more information, contact Jack Londen (

Elder Abuse—Reporting

California’s Governor Schwarzenegger signed into law a measure requiring bank and credit union employees to report instances of elder abuse to authorities. SB 1018, effective January 1, 2007, will impose a $5,000 penalty on institutions who fail to report suspected financial crimes against elderly victims. An earlier version of the bill would have allowed for private enforcement, but that provision was defeated by the banking industry. There are now 18 states that require bank employees to report suspected abuse.

Caught in the Captive Reinsurance Crosshairs

Captive reinsurance arrangements in the title industry are drawing regulatory scrutiny. In captive reinsurance, homebuilders, lenders, and real estate firms often form subsidiaries to share the risk of issuing the title policies. In return, the title insurers pay these subsidiaries a portion of their fees each time they issue a title policy based on a referral from the subsidiary’s parent firm. The regulators think that’s an illegal kickback under Section 8 of RESPA.

In July, California’s Insurance Commissioner announced a $37.8 million settlement with LandAmerica Financial Corporation, First American Title Insurance Company, and Fidelity National Financial for alleged illegal kickbacks paid to various lenders, builders, and realtors in exchange for the referral of title insurance business. Earlier this year, Colorado’s regulators went after some of the same title insurers. Now, Washington, Nevada, Florida, and New York are poking around too. HUD, too, appears to be showing interest and asking the usual "Section 8" questions:  Did the captive reinsurers perform a real risk-sharing service, and were the payments received from the title companies commensurate with the value of that service?  HUD has tripled its staff and doubled its budget in the last three years, and is currently pursuing 60 investigations into possible Section 8 violations.

In a related development, the OCC, in its Bulletin 2005-27, issued August 4, is urging CEOs and compliance officers of all national banks, department and division heads, and all examining personnel to carefully review HUD’s 1996 Policy Statement on Sham Controlled Business Arrangements and "ensure that the structure, operating agreement, and activities of these entities do not violate Section 8 of RESPA." 

For further information, contact Jim McCabe ( or Steve Kaufmann (




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