State Fines Illinois Insurer Being Sued By Guaranty Bank

Jan. 27–Guaranty Bank says an order by Wisconsin’s insurance regulator supports its claim that an Illinois insurer sold mortgage guarantee insurance to the bank illegally — an alleged violation that Guaranty argues entitles it to relief from huge premiums.

The state insurance commissioner announced that it fined Evanston Insurance Co., of Deerfield, Ill., $100,000 in November, concluding the insurer was not authorized in Wisconsin to sell mortgage guaranty insurance.

That’s the same accusation Guaranty made against Evanston last year in a federal lawsuit that, at the time, was characterized as crucial to the bank’s survival.

Guaranty, which is based in Brown Deer, has posted quarterly losses for three years as home-equity loans have gone bad in the housing slump and recession.

At the same time, rising premiums for insurance to cover losses on mortgages have been a drain on earnings. The bank says it paid more than $33.4 million in premiums to Evanston last year.

Frustrated by the growing premiums, Guaranty took Evanston to court in a case that appears to depend, at least in part, on how mortgage guarantee insurance is defined in Wisconsin.

Guaranty contended in its lawsuit that because Evanston wasn’t licensed to sell mortgage guarantee insurance, the bank not only is entitled to relief from further premiums but to continued coverage on the insured loans in its portfolio as well.

Last summer, a judge denied Guaranty’s request that it be allowed to immediately stop paying premiums yet keep its coverage. In turning down the preliminary injunction, U.S. District Court Judge J.P. Stadtmueller wrote, “Guaranty cannot have its cake and eat it, too.”

Guaranty says it believes its case has been buoyed by the insurance commissioner’s findings.

“In the stipulation, the commissioner’s office asserts its position that Evanston illegally sold a mortgage guaranty insurance policy to Guaranty Bank, which confirms Guaranty Bank’s legal argument in its lawsuit against Evanston,” the bank said in a written statement.

Evanston spokesman Robert Blazer said the firm didn’t agree with the insurance commissioner’s view.

“We disagreed with the commissioner’s position on this issue, but entered into an agreement with the commissioner to resolve our dispute and to put the issue behind us,” Blazer said in a statement. “While we are disappointed with the commissioner’s position, the agreement allows our company to put this issue behind us and focus on the Federal Court action, where we have already received a favorable ruling from the Court, which is not affected by the Commissioner’s position.”

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