The office of General Counsel issued the following informal opinion on December 4, 2001, representing the position of the New York State Insurance Department.
Re: Title Insurance N.Y. Ins. Law § 6409(d) (McKinney 2000)
This is in response to a recent correspondence directed to this office seeking clarification of a letter dated October 19, 2001 from this writer to the predecessor of the current President of a land title company.
The third question addressed in the October 19th letter was whether New York law prohibits title insurance companies from compensating any person or entity for the referral of title insurance business. The letter concluded that N.Y. Ins. Law § 6409(d)(McKinney 2000) specifically prohibits title insurers from engaging in such activity.
N.Y. Ins. Law § 6409(d) (McKinney 2000) states as follows:
No title insurance corporation or any other person acting for or on behalf of it, shall make any rebate of any portion of the fee, premium or charge made, or pay or give to any applicant for insurance, or to any person, firm, or corporation acting as agent, representative, attorney, or employee of the owner, lessee, mortgagee or the prospective owner, lessee, or mortgagee of the real property or any interest therein, either directly or indirectly, any commission, any part of its fees or charges, or any other consideration or valuable thing, as an inducement for, or as compensation for, any title insurance business. Any person or entity that accepts or receives such a commission or rebate shall be subject to a penalty equal to the greater of one thousand dollars or five times the amount thereof.
After quoting the statute, the letter concluded that the conduct prohibited by the statute is the payment, directly or indirectly, of a fee, commission or other thing of value to an owner of an interest in real estate, or the representative, agent or attorney of such owner or prospective owner, which would reduce the cost of title insurance that is paid to induce the placement of title insurance business, or which is paid to a person who is not an agent of a title insurer for the production of title insurance business.
The inquiry is with regard to the paragraph in the October 19 letter that reads as follows:
Payment of commissions by the title insurer to its agent for the usual and customary services performed by title insurance agents is not within the activities prohibited by the statute. Nor does § 6409(d) prohibit legitimate payments to individuals (such as title closers and abstract companies) who perform substantial service on behalf of a title insurance company or to an attorney who renders the usual and customary services like supervision of a closing, marking up the title policy and providing the curatives to the title insurer. If the lenders attorney merely obtains the title insurance, any consideration or valuable thing given to the lender or its attorney is not for services rendered but is an inducement or compensation for the title insurance business he refers to the title company. Such compensation is an improper referral fee that is specifically prohibited by § 6409(d).
The inquirer expressed concern that, as a result of the italicized language, the paragraph above might be read to limit the scope of the prohibition found in N.Y. Ins. Law § 6409(d) (McKinney 2000). In fact that was not the intention. Rather, it was an attempt to be responsive to a paragraph in a prior letter dated May 17, 2001 that focused on the issue of the activities of an attorney who is also a title insurance agent. The October 29, 2001 letter correctly states that the statute prohibits any person or entity from being compensated for the placement of title insurance business unless that person is a licensed agent of the title insurer.
For further information you may contact Associate Attorney Sam Wachtel at the New York City Office.