The Office of General Counsel issued the following opinion on March 2, 2005, representing the position of the New York State Insurance Department.
Re: Permissibility of Title Agent's Decision to Eliminate Certain Discretionary Fees it Customarily Charged its Applicants for Insurance
Pursuant to N.Y. Ins. Law § 6409 (McKinney 2000), may a title agent stop charging all its applicants for title insurance certain discretionary fees related to obtaining title insurance, fees that are usually passed on by the title agent to applicants?
Based on the analysis below, a title agent may eliminate such fees.
The inquirer's client, a title agent, would like to eliminate certain discretionary fees that it currently charges applicants for insurance in connection with obtaining title insurance. The inquirer states that the fees that will be eliminated include, among other things, discretionary fees such as bankruptcy search fees, courier and escrow service fees, municipal search fees and PATRIOT Act search fees. The inquirer claims that these fees are for costs or charges incurred by the title agent, not the title insurer, the applicant, or any other entity and, while not required, are typically passed on by title agents to applicants for insurance/insureds in connection with obtaining title insurance. The inquirer states that, if allowed, the client intends to advertise that his agency has eliminated such fees.
The inquirer argues that while the elimination of such fees will result in a reduction of the total cost to the applicant, such reduction would apply to all of the title agent's future customers. Therefore, the inquirer argues, such elimination would not constitute a waiver or rebate of fees to an applicant for title insurance. The inquirer seeks confirmation that such business arrangement would not violate the Insurance Law.
N.Y. Ins. Law § 6409(b), (d) & (e) (McKinney 2000) provides, as follows:
(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 power 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.
The inquirer's question relates to whether a title agent, by eliminating what the inquirer refers to as discretionary fees in connection with obtaining title insurance, would be violating Section 6409 of the Insurance Law. Section 6409 (b) requires a title insurance company to file, among other things, its rate manual, its basic schedule of rates and classifications of risks and its rating plan and rules in connection with the writing or issuance of policies of title insurance. Section 6409 (d) prohibits a title insurance corporation or any other person acting for or on behalf of such title insurance corporation from, among other things, rebating any portion of its fee or charge made, or give to any applicant for insurance, either directly or indirectly, 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. Therefore, a title insurance company, as well as its agent, must abide by the provisions above pertaining to the charging of fees and premiums.
The inquirer states that the fees in question are discretionary in nature and are usually passed on to applicants for insurance by title agents. In addition, the inquirer states that such fees are not the fees of a title insurance company, the applicant, or any other entity, but strictly those of the title agent in question and are for services provided by such agent. The inquirer states also that the business decision to eliminate such fees would apply to all applicants for title insurance looking to use the agent.
Elimination of such fees for all insureds would not violate the Insurance Law to the extent that the fees are those charged by the title agent, are not part of the rates of the title insurer or otherwise contained in the rate manual, and are not fees charged by any other entity, such as court filing fees. Please note, however, that the Department is currently reviewing whether title agents may charge certain fees.
This analysis is limited to an interpretation of the Insurance Law.
For further information you may contact Associate Attorney D. Monica Marsh at the New York City Office.