The Office of General Counsel issued the following opinion on March 24, 2003 representing the position of the New York State Insurance Department.
Re: Joint Venture/Title Insurance Agency
1. May a joint venture/title agency be formed where the sources of business will be derived solely from certain of the non-title agent co-owners?
2. May the co-owners who do not generate business share in the profits of the title agency?
1. Yes, provided that the non-title agent co-owners, who do not fall within one of the prohibited classes under N.Y. Ins. Law § 6409(d) (McKinney 2000), generate a significant portion of the business.
2. There is no prohibition against co-owners of a title agency, who do not generate business, sharing in the profits of the agency.
A title insurance agency will be a co-owner of a joint venture/title agency whose sources of business will be derived solely from certain of the non-agent co-owners. Some of these non-agent co-owners who generate business may fall within one of the prohibited classes in Section 6409(d) (McKinney 2000). All of the co-owners, regardless of whether or not they generate business will share in the profits of the joint venture. The co-owners compensation will be based on their percentage ownership interests and not on the amount of business each refers. There will be no agreement regarding the amount of business any co-owner must generate.
N.Y. Ins. Law § 6409(d) (McKinney 2000) prohibits the payment directly or indirectly, of any remuneration to any person if such remuneration constitutes "an inducement for, or as compensation for, any title business." It provides:
(d) 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 who 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.
The Department has previously opined that, in order to avoid a violation of the statute, the co-owners who come within one of the prohibited classes in Section 6409(d), may not be the sole source of business for the title agent. Rather, there must be significant and multiple sources of title insurance business for the title agent. See Office of General Counsel Opinion dated November 14, 2002. This requirement can be satisfied if, in addition to the business generated by co-owners who fall within one of the prohibited classes in Section 6409(d), there is also significant business generated by non-owner sources, as was the case in the November 14, 2002 opinion, or by other co-owners who do not fall within one of the prohibited classes. Moreover, once this requirement is met, the compensation for the prohibited class co-owners must be based on the percentage of each of their ownership interests, rather than on the amount of business each brings in. There can be no agreement as to how much business each prohibited class co-owner must generate. See Office of General Counsel Opinions dated November 14, 2002, May 2, 2002, March 21, 2002, January 14, 2002 and May 11, 2001. The present fact pattern does not meet these criteria. Therefore, the proposed joint venture/title agency would violate the statute.
In a case where all of these criteria are met, the fact that there will be co-owners who may not generate any business would not be material.
For further information you may contact Supervising Attorney Joan Siegel at the New York City Office.