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: Vehicle Title Insurance Policies
ABC Title Insurance Company
Question Presented:
Is a policy that insures against loss caused by certain identified liens and encumbrances on, and defects in title to, motor vehicles substantially similar to a policy of title insurance, as that kind of insurance is described in N.Y. Ins. Law § 1113(a)(18) (McKinney 2000)?
Conclusion:
Policies offered to motor vehicle dealers and consumers that insure against monetary loss resulting from loss caused by certain identified liens and encumbrances on, and defects in title to, motor vehicles, are substantially similar to policies of title insurance, as that kind of insurance is described in N.Y. Ins. Law § 1113(a)(18) (McKinney 2000). Accordingly, only authorized title insurers may offer these policies.
Facts:
ABC Title Insurance Company (the "Company") is proposing to offer in New York a Vehicle Title Insurance ("VTI") policy that will insure against loss caused by certain identified liens and encumbrances on, and defects in title to, motor vehicles. The Company will offer two types of policies (basic coverage and extended coverage) to each of the consumer and dealer markets. The extended coverage is for vehicles and light trucks that are model year 1981 or newer. Both policies insure against monetary loss, not exceeding the policy amount, including any costs, attorneys fees and expenses provided under the policy resulting from certain specified covered risks. The policy only covers losses from a covered title risk if the event creating the risk exists on the policy date.
For basic coverage, the covered title risks are:
1. Title to the vehicle has not passed because the seller of the vehicle had no legal capacity to transfer title.
2. Another person has rights affecting title to a vehicle arising out of fraud, forgery or impersonation.
3. Another person has a lien on the title to the vehicle not registered with the Department of Motor Vehicles ("DMV") for the state where the title is registered on the Policy Date.
4. Another person has rights affecting title to a vehicle arising out of duress, incompetency or incapacity.
For extended coverage, the covered title risks are:
1-4. All of the covered title risks listed above for basic coverage, plus
5. Title affected by any of the following title defects:
a. salvaged title;
b. lemon law title;
c. junked title;
d. prior taxi title;
e. prior police title;
f. odometer not actual mileage title.
6. There is odometer rollback evidence with a DMV that is not shown in the Vehicle History Summary.
7. Any other title defect (brand) affecting title.
Before the VTI policy is issued, the Company undertakes a search of DMV records nationwide and produces a Vehicle History Summary ("VHS") identifying the title defects disclosed by the search. The VHS discloses information concerning certain liens and the type of title, known as "branding", issued by the DMV. If the vehicle has been branded (that is, the title is marked in such a way as to designate a defect in title due to the property having been flooded, heavily damaged, salvaged, etc.) by the DMV in a state where it is or has been registered, such designation will be revealed by a search of DMV records. These brands do not operate as a lien against the vehicle, but do, however, result in a diminution in value of the property.
For the extended coverage policy, after the search is performed, the information is placed into the VHS and attached to the VTI policy as the policy schedules. The Company insures the vehicle based on the results of its search as described on the VHS. If one of the covered risks is subsequently discovered to exist and the matter is not revealed by the VHS, the Company will indemnify the insured for his actual monetary loss and will provide protection against costs, legal fees and expenses incurred in defending the title against such losses. Exclusions will include any loss, cost, attorneys fees and expenses resulting from any title defects and additional exclusions shown on the VHS. Also excluded is damage caused by "right, title, or interest of any lien holder or lessor registered with any DMV" and by risks "that occur after the Policy Date."
For the basis coverage policy, a VHS will not be annexed to the policy but there will be coverage for the basic risks listed above.
Analysis:
N.Y. Ins. Law § 1113(a)(18) (McKinney 2000) defines title insurance as meaning:
Insuring owners of, and other persons lawfully interested in, real property and chattels real against loss by reason of defective titles and encumbrances and insuring the correctness of searches for all instruments, liens or charges affecting the title to such property, including power to procure and furnish information relative thereto, and such other incidental powers as are specifically granted in this chapter.
N.Y. Ins. Law § 1113(a)(30) (McKinney 2000) defines substantially similar kind of insurance as meaning:
Such insurance which in the opinion of the superintendent is determined to be substantially similar to one of the foregoing kinds of insurance and
thereupon for the purposes of this chapter shall be deemed to be included in that kind of insurance.
N.Y. Ins. Law § 6401 (McKinney 2000) defines a "Title insurance policy" as meaning:
Any policy or contract insuring or guaranteeing the owners of real property and chattels real and other persons interested therein, or having liens thereon, against loss by reason of encumbrances thereon and defective titles."
The policy coverages described in this policy are analogous to the coverages that can be offered in a title insurance policy covering real property. The defects in title insured against in this policy differ from the defects insured against in the title insurance policy because of the difference in the subject of the insurance, real property and/or chattels real in the title insurance policy as opposed to personal property, in the form of a motor vehicle, in this policy. This Office has on several occasions determined that a policy that insures the title in regard to personal property is substantially similar to title insurance, and may be written by a title insurance company. Accordingly, the Company may write this coverage.
This opinion addresses the permissibility of an insurer writing this coverage in New York. The Company, nevertheless, must file its policy forms and rates with the Property Bureau in accordance with the pertinent provisions of N.Y. Ins. Law §§ 2301-2351 (McKinney 2000).
For further information you may contact Supervising Attorney Joan Siegel at the New York City Office.