The Office of General Counsel issued the following opinion on June 17, 2005, representing the position of the New York State Insurance Department.
Re: Title Insurance
1) Is the purchase of owners title insurance by a buyer of a home required by New York State law? If not, is it regularly purchased?
2) Are the rates charged by title insurance companies regulated by the State of New York?
1) No. New York State law does not require a purchaser of a home to acquire title insurance; however, title insurance is often purchased by the home buyer because it eliminates risks associated with title problems.
2) Yes. New York State's title insurance rates are subject to prior approval of the Superintendent of Insurance.
A recent purchaser of a home in Garden City, New York was surprised by the amount of premium he was charged for owners title insurance. He asked whether such insurance is required by New York State law and whether the title insurance rates are regulated by the State.
Article 64 of the New York Insurance Law covers title insurance. N.Y. Ins. Law § 6401 (2005) in pertinent part states:
(b) "Title insurance policy" means 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.
Typically, if there is a mortgage, the lender will require the purchaser to buy a policy of title insurance covering the lender's interest. Since the amount of the mortgage is generally less than the price of the home, the purchaser will be at risk for defects in the title to the extent that they exceed the mortgage amount. Because the loss can be greater than the mortgage itself, home buyers frequently purchase owner's policies of title insurance in addition to purchasing lender's policies. An owner's title insurance policy is typically issued in the amount of the purchase price of the home.
The home owner also asked whether title insurance rates are regulated by the State. N.Y. Ins. Law § 2305 (2005) (Article 23) in pertinent part states:
(b) rate filings for:
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(7) title insurance;
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shall be filed with the superintendent and shall not become effective unless either the filing has been approved or thirty days . . . have elapsed and the filing has not been disapproved as failing to meet the requirements of this article, including the standard that rates be not otherwise unreasonable . . . .
Section 2305 requires title insurance rates to be filed with the Superintendent. The rate becomes effective when it is approved by the Superintendent or thirty days have elapsed since the filing of the rate and such rate has not been disapproved by the Superintendent.
In addition, N.Y. Ins. Law § 6409 (2005) in pertinent part states:
(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.
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(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 . . . 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.
Section 6409(b) requires a title insurance company to file its rate manual, its basic schedule of rates, classification of risks, its rating plan and its rules in connection with the issuance of a title insurance policy, with the Superintendent of Insurance.
In addition, § 6409(d) proscribes a title insurance corporation or any person acting for or on behalf of such corporation to rebate any portion of fees, premiums or charges. It further prohibits the title insurance company to pay or give, either directly or indirectly, any commission, fees, charges, or consideration to any applicant for insurance as an inducement for, or as compensation for, any title insurance business.
Therefore, a title insurance company must abide by the above provisions of § 2305 and § 6409 in charging premium including filing its rates with, and for the approval of, the Superintendent.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.