By Bob Egelko, SAN FRANCISCO CHRONICLE
March 19, 2021
Property owners can sue title insurers who charged them rates without first filing them with the state insurance commissioner, the state Supreme Court ruled Thursday in a case that could affect millions of Californians.
The insurers cover any losses borrowers or lenders suffer from defects discovered in property ownership titles during real estate transactions. When the insurers want to set new rates, state law requires them to file their proposals with the commissioner. But unlike most other insurers in California, title insurers do not need the commission's approval to put those rates in effect 30 days afterward, though they can face consequences later for having violated legal standards.
Two homeowners in Santa Clara County, in a class-action suit on behalf of other customers, accused Fidelity National Title Insurance of illegally charging them fees for title services during their mortgage refinancing without first submitting them to the state commissioner's office.
A state appeals court rejected the suit, saying it was barred by state law and that customers' only option was to ask the insurance commissioner to rule the rates illegal. The state's high court unanimously disagreed Thursday and said consumers could sue over rates that had not been filed with the commissioner's office.
State law "authorizes only charges for filed rates," Justice Leondra Kruger said in the 7-0 ruling. She noted that Insurance Commissioner Ricardo Lara, who filed arguments in the case, and his four predecessors had all agreed that state law does not protect insurers from being sued for charging unauthorized rates.
If a title insurer, for example, charged higher rates to African Americans buying homes in certain neighborhoods, Kruger said, "under Fidelity's view of the law, the illegality would make no difference; a consumer aggrieved by the discriminatory rate could not sue."
Rejecting the company's argument that customers should have to file their claims with the commissioner's office, Kruger said the commissioner can only halt the charging of unauthorized rates and suspend an insurer's license, but cannot order compensation for past overcharges.
The ruling has "a huge impact on 500,000 customers who Fidelity charged an illegal rate to," said the plaintiffs' lawyer, Bernie Bernheim. He said it would apply to other title insurance companies and to other types of insurers, such as workers' compensation carriers, and could lead to similar rulings affecting auto and homeowners' insurers.
The decision was also hailed by attorney Harvey Rosenfield, founder of the advocacy group Consumer Watchdog and author of Proposition 103, the 1988 initiative that required auto and property insurers to obtain the state commissioner's approval before any rate changes. Prop. 103 did not apply to title insurance.
"This is a victory for the tens of millions of Californians who are confronted by a bewildering array of unexpected and unfair fees and charges when they buy, sell, or refinance their homes," Rosenfield said.
Greg Wolff, a lawyer for Fidelity, said the ruling would chiefly benefit plaintiffs' lawyers, "resulting in more costly litigation ultimately paid for by consumers."
The case is Villanueva vs. Fidelity National Title Co., S252035.