The Office of General Counsel issued the following opinion on November 20, 2003, representing the position of the New York State Insurance Department.
Re: Title Search Guarantee Premium/Fee
May a title insurer issue a title search guarantee, that is separate and apart from a title insurance policy, without charging a premium or fee for such guarantee?
Under such circumstances, a title insurer may not guarantee a title search without charging a fee or premium.
The inquirer states that, as a title insurer, the inquirer recently attempted to establish agency relationships with several title agents in ABC County. These agents informed the inquirer, however, that prior to the establishment of any insurer/agent relationship the inquirers title insurance company must agree to guarantee such agents title searches without charging a premium or fee.1 The inquirer is concerned that such arrangement would be a violation of the Insurance Law.
The inquirer states that in 1998, an ABC County Bar Association approved an amended real estate contract that requires that the "seller shall provide a tax and title search which covers the property only, and fully guaranteed by a title insurance corporation licensed under Article 64 of the Insurance Law." The inquirer states that prior to this bar association requirement, the contract for the sale of real property only required that the seller furnish the buyer with a fully guaranteed tax and title search. The inquirer informed the Department that some unlicensed abstract companies had been issuing title search guarantees in ABC County. However, it is unclear whether such companies are still engaging in this practice.
The inquirer also stated that its company normally conducts its own title searches, issue its own guarantees based on such searches and charge a fee for such guarantee which is separate and apart from the premium that is charged for a title insurance policy. The inquirer stated, however, that because title searches are separate and distinct products from title policies, some title searches are prepared and sold by title agents. Under the proposed arrangement, the inquirers company would guarantee the searches of these title agents, yet all fees that the insured is charged would be retained by the title agents. The inquirer argues that the end result is that its company would assume liability for a long period of time without charging a premium or fee and at least four licensed title insurers in ABC County have been engaging in such practices.
The inquirer also referred to and expressed certain concerns about a June 1998 Department letter which addressed, briefly, the issue of insurers guaranteeing the searches of agents. This opinion will address, among other things, the inquirers concerns regarding this issue.
As a preliminary matter, title insurance2 coverage includes insuring owners of real property against loss by reason of defective titles and encumbrances and insuring the correctness of searches for, among other things, all instruments affecting title to such property.
The inquirer states that in ABC County some unlicensed companies/agencies have been issuing title search guarantees. N.Y. Ins. Law § 6403(b) (McKinney 2000) which delineates the activities that a title insurance corporation may engage in, states, in pertinent part:
(b) Every title insurance corporation shall, subject to the exceptions and restrictions contained in this chapter, have power to do, in addition to the powers granted by the business corporation law, only the following kinds or any of the kinds of business, of which those specified in paragraphs one and two hereof shall be deemed doing an insurance business:
(1) To make and to guarantee the correctness of searches for all instruments affecting titles to real property, chattels real, and cooperative units and proprietary leases, and for all liens or charges affecting the same.
(2) To issue title insurance policies (emphasis added).
Further, N.Y. Ins. Law § 6408(a) (McKinney 2000) permits the making, issuance or furnishing of an abstract, search, examination, survey or certificate of title without a guarantee. That section provides:
(a) No person, firm, association or corporation shall engage in a business as a title insurance corporation except pursuant to the provisions of this article. This prohibition shall not prevent the making, issuing, or furnishing of any abstract, search, examination, survey or certificate of title without guarantee or insurance thereof, nor the doing of any business specified in paragraphs three, four, five and six of subsection (b) of section six thousand four hundred three of this article. (emphasis added).
Any person, firm or corporation that issues guarantees, therefore, is doing an insurance business in New York and must be appropriately licensed as a title insurance corporation. A company, other than a licensed title insurance corporation, violates the Insurance Law if it issues title search guarantees without first obtaining the appropriate license from the Department.
A title insurance corporation has the power, not the obligation, to issue either a guarantee of the correctness of title searches or a title insurance policy, or both.3 A guarantee obligates a title insurer to pay damages in the event that an insured suffers loss due to negligence in connection with the search.4 A title insurance policy, on the other hand, is a contract by which the title insurer agrees to indemnify its insured for loss occasioned by a defect in title. The two are recognized in Section 6403(b)(1) and (2) as separate and distinct coverages.5
The inquirer states that normally its title insurance company conducts its own title searches, guarantees such searches and charges the insured a fee for such guarantee. In the proposed arrangement outlined in the facts above, the inquirers title insurance company, in order to obtain title insurance business from the title agents, would guarantee the title searches conducted by such agents, without charging a premium. The inquirer asks whether such arrangement would be in accordance with the Insurance Law.
N.Y. Ins. Law § 6409(b), (d) and (e) (McKinney 2000):
(b) Every title insurance corporation shall file with the superintendent its rate manual, if any, its basic schedule of rates and classification of risks, its rating plan and rules in connection with the writing or issuance of policies of title insurance and shall thereafter likewise file any changes therein. After any such filing no such corporation shall, in connection with the writing or issuance of any such policy, deviate from the rates, classifications of risks and rules last filed by it, either by making any reduction in rates without having filed the same as herein provided, or by way of any discriminations in favor of or against any insured. The superintendent shall have the powers specified in article twenty-three of this chapter applicable to title insurers.
(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.
(e) Premium rates for coverage shall fully reflect the foregoing prohibitions of subsection (d) hereof.
Section 6409(b) requires that all title insurers adhere to the rates, classifications and rules in the Title Insurance Rate Service Association (TIRSA) Rate Manual ("the Manual") that is required to be filed with the Superintendent. Section 6409(b) also prohibits a title insurer from deviating from the manual filed with the Superintendent by reducing rates or by discriminating for or against any insured. Section 1(J) of the Manual provides that:
All charges, fees and premiums set forth in this manual, pursuant to Section 23146 of the Insurance Law, are mandatory upon each Company7 upon approval by the Superintendent of Insurance, and cannot be waived, reduced or increased, except as provided in Paragraph F,8 Section 1 hereof or as provided in Section 2339 of the Insurance Law.
As mentioned above, guaranteeing the correctness of a title search constitutes insurance. Thus, a premium must be charged for such coverage when issued separate and apart from a title policy because, among other things, by making such guarantee a title insurer exposes itself to liability. Further, before a title insurer may charge a premium, it must file premium rates with and obtain approval from the Superintendent in accordance with Articles 239 and 64 of the Insurance Law. Once such rates are filed, an insurer may not deviate from them by waiving, increasing or reducing such rates. Further, a title insurer may not issue a title search guarantee in New York if it has not filed its policy forms with the Superintendent.
In addition, pursuant to Section 6409(d) a title insurance corporation, or any "person acting for or on behalf of it, shall not 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, 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." Failure by an insurer to charge a fee or premium, that is required by the Insurance Law, as an inducement for title insurance business constitutes an illegal rebate which is a violation of Section 6409(d). In addition, Section 6409(d) provides for a monetary penalty for such violation.
As a final matter, the inquirer provided the Department with copies of two sample title search guarantees issued in ABC County. Both title search guarantees specifically state, in their opening sentences, that:
" A New York corporation, for a valuable consideration to it paid, guarantees to the record owners of an interest in that the SET-OUTS designated herein are all the references affecting title to said premises ." (first emphasis added).
It appears that both samples/title insurers, in order to obtain the businesses of the title agents in question, have been waiving the "valuable consideration" mentioned in their guarantee, thereby engaging in rebating in the charging of rates, in violation of the Insurance Law. The inquirer mentioned that at least four title insurers in ABC County have been engaging in this practice. The inquirer also stated that some abstract companies have been guaranteeing title searches without a license. Please provide the Department with the names of such companies, as well as evidence that the inquirers company has filed the appropriate forms and rates with the Department for the fees for the title search guarantees issued by such company.
For further information you may contact Associate Attorney D. Monica Marsh at the New York City Office.
1For rate making purposes New York State is divided into two Zones. Zone 2 encompasses the southeastern corner of the state including New York City and Albany. The premium rates for Zone 2 include the cost of searching. Zone 1 includes the rest of the State and Erie County falls within this Zone. Zone 1 rates do not include the cost of searching thus, a separate charge may be made for searches.
2 See, N.Y. Ins. Law § 1113(a)(18) (McKinney 2000).
3 See, Citibank, N.A. v. Chicago Title Ins. Co., 214 A.D. 2d 212, 220 (1st Dept. 1995).
4 Id. at 216
5 Id. at 221.
6 N.Y. Ins. Law § 2314(McKinney 2000) provides that no authorized insurer or any of its representative or employee "shall knowingly, charge or demand a rate or receive a premium which departs from the rates, rating plans, classifications, schedules, rules and standards in effect on behalf of the insurer, or shall issue or make any policy or contract involving a violation thereof."
7 Paragraph D of Section 1 of the Manual states:
"Company" as used herein means each Title Insurance Company to which this manual applies and any Title Insurance Agent acting on behalf of such Title Insurance Company in the transactions described herein.
8 Provides for the imposition of "additional work charges in especially difficult titles."
9 N.Y. Insurance Law § 2303 (McKinney 2000) states in pertinent part that [r]ates shall not be excessive, inadequate, unfairly discriminatory, destructive of competition or detrimental to the solvency of insurers. (emphasis added).