Home » 2014 Issues » July 23, 2014 » DFS-29-14-00014-P Title Insurance Agents, Affiliated Relationships, and Title Insurance Business
DFS-29-14-00014-P Title Insurance Agents, Affiliated Relationships, and Title Insurance Business
7/23/14 N.Y. St. Reg. DFS-29-14-00014-P
NEW YORK STATE REGISTER
VOLUME XXXVI, ISSUE 29
July 23, 2014
RULE MAKING ACTIVITIES
DEPARTMENT OF FINANCIAL SERVICES
PROPOSED RULE MAKING
NO HEARING(S) SCHEDULED
I.D No. DFS-29-14-00014-P
Title Insurance Agents, Affiliated Relationships, and Title Insurance Business
PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:
Proposed Action:
Amendment of Parts 20 (Regulations 9, 18, and 29), 29 (Regulation 87), 30 (Regulation 194), 34 (Regulation 125); and addition of Part 35 (Regulation 206) to Title 11 NYCRR.
Title insurance agents, affiliated relationships, and title insurance business.
Purpose:
To implement requirements of chapter 57 of Laws of NY 2014 re: title insurance agents and placement of title insurance business.
Text of proposed rule:
Section 20.1 is amended as follows:
Forms of applications for temporary licenses to be issued pursuant to Insurance Law section 2109 [of the Insurance Law] are prescribed for a temporary insurance broker’s license, [and for a temporary] insurance agent’s license, and title insurance agent’s license. These forms may be obtained upon request to the Department of Financial Services, Albany, NY.
Section 20.2 is amended as follows:
Forms of notice of termination of appointment of insurance agents and title insurance agents pursuant to Insurance Law section 2112 [of the Insurance Law] are prescribed as follows: for agents licensed pursuant to Insurance Law section 2103(a) [of the Insurance Law]; for agents licensed pursuant to Insurance Law section 2103(b) [of the Insurance Law]. These forms may be obtained upon request to the Department of Financial Services, Albany, NY.
Section 20.3 is amended as follows:
§ 20.3 Fiduciary responsibility of insurance agents, title insurance agents, and insurance brokers; premium accounts.
(a) This section is issued for the purpose of interpreting, and facilitating compliance with, Insurance Law section 2120(a) and (c) [of the Insurance Law].
(b) Every insurance agent, [and every] title insurance agent, and insurance broker is responsible as a fiduciary for funds received by such insurance agent, title insurance agent, or insurance broker in such capacity; all such funds shall be held in accordance with the following paragraphs:
(1) An insurance agent, title insurance agent, or insurance broker who does not make immediate remittance to insurers and assureds of such funds shall deposit them in one or more appropriately identified accounts in a bank or banks duly authorized to do business in this State, from which no withdrawals shall be made except as hereinafter specified (any such account is hereinafter referred to as “a premium account”).
(2) An insurance agent, title insurance agent, or insurance broker who makes immediate remittance to insurers and assureds of such funds need not maintain a premium account for such funds.
(3) Deposits in a premium account in excess of aggregate net premiums received but not remitted may be made to maintain a minimum balance, to guarantee the adequacy of the account, or to pay premiums due but uncollected (any such deposit is hereinafter referred to as “a voluntary deposit”).
(4) No withdrawals from a premium account shall be made other than for payment of premiums to insurers, payment of return premiums to assureds, transfer to an operating account of (i) interest, if the principals have consented thereto in writing and (ii) commissions, or withdrawal of voluntary deposits, provided, however, that no withdrawal may be made if the balance remaining in the premium account thereafter is less than aggregate net premiums received but not remitted.
(5) Deposit of a premium in a premium account shall not be construed as a commingling of the net premium and of the commission portion of the premium.
(6) In the case of an insurance agent or title insurance agent operating under an “account current system”, maintenance at all times in one or more premium accounts of at least the net balance of premiums received but not remitted shall be construed as compliance with Insurance Law section 2120(a) and (c) [of the Insurance Law], provided that the funds so held for each such principal are reasonably ascertainable from the insurance agent’s or title insurance agent’s records.
(c) Except as hereinabove provided, an insurance agent, title insurance agent, or insurance broker shall not commingle any funds received or collected as an insurance agent, a title insurance agent, or an insurance broker with his, her, or its own funds or with funds held by him, her, or it in any other capacity without the written consent of the person, firm, or corporation for whom they are held in a fiduciary capacity.
(d) If any provision of this section or the application thereof to any person or circumstances is held unauthorized by law, then the remainder of the section and the application of such provision to other persons or circumstances shall not be affected thereby.
Section 20.4 is amended as follows:
§ 20.4 Fiduciary responsibility of insurance agents, title insurance agents, and insurance brokers; minimum recordkeeping requirements.
(a) This section is issued for the purpose of interpreting, and facilitating compliance with, Insurance Law section 2120(a) and (c) [of the Insurance Law].
(b)(1) Every licensee who is required to maintain a premium account shall maintain books, records and accounts in connection with [their] the licensee’s business to record:
(i) all money received in trust for insurers or members of the public;
(ii) all disbursements out of money held in trust;
(iii) all other money received and disbursed in connection with the business.
(2) At a minimum, to comply with paragraph (1) of this subdivision, every licensee [who is] required to maintain a premium account shall maintain:
(i) a book or other permanent account record, imprinted with the name and address of the licensee, showing all receipts and disbursement of money, distinguishing therein between:
(a) the receipt of money in trust for insurers and members of the public and disbursements out of money held in trust, and the record shall have the following minimum detail:
(1) for receipts:
(i) amount of money received;
(ii) date received;
(iii) name of insured;
(iv) insurer’s name and policy binder number; and
(v) description of the risk (vehicle type, property description, liability exposure, etc.); and
(2) for disbursements:
(i) amount of money received;
(ii) check number;
(iii) name of insured;
(iv) insurer’s name and policy binder number; and
(v) description of the risk (vehicle type, property description, liability exposure, etc.); and
(b) money received and money paid by the licensee for general operations, services, sales and other insurance;
(ii) records in such form to show all billings, correspondence or other transmittal related to premiums, return premiums, commissions and fees charged to members of the public; and
(iii) bank statements or passbooks, cashed checks and detailed deposit slips for both trust and general accounts.
(3) Every licensee [who is] required to maintain a premium account shall maintain accounting records in a manner that clearly reflects the nature and purpose of the transaction and accurately and fairly states or measures or properly accounts for the money or valuable consideration exchanged in the transaction.
(4) Where this section requires a record to be kept by a licensee, it may be kept in a bound or looseleaf book, or by means of a mechanical, electronic or other device.
(5) The licensee shall:
(i) take adequate precautions, for safeguarding the records and for protection against the falsification of the information recorded; and
(ii) provide means for making the information available in an accurate and useable form for inspection and copying to any person lawfully entitled to examine the record.
(c)(1) The information [which] that is made available under subparagraph (b)(5)(ii) of this section is admissible in evidence as prima facie proof of all facts stated therein.
(2) Where this section requires a record to be kept by a licensee, it shall be preserved for at least the three-year period preceding the most recent fiscal year-end of the licensee.
(3) The records described in subdivision (b) of this section shall be maintained in this State at the licensee’s principal place of business or stored in such a manner as to allow reasonable accessibility and made available upon request by the department; or if a non-resident licensee, shall be made available in this State within [10] ten days upon request.
(4) The records described in subdivision (b) of this section shall be in addition to any requirements already detailed in the Insurance Law and Regulations promulgated thereunder.
(5) The record described by subclause (b)(2)(i)(a)(1) of this section, the receipt along with a copy of the application, shall be delivered to the insured at the time of its making.
(d) If any provision of this section or the application thereof to any person or circumstances is held unauthorized by law, then the remainder of the section and the application of such provision to other persons or circumstances shall not be affected thereby.
Section 29.5 is amended as follows:
(a) [Any] Except as provide in subdivision (c) of this section, any licensee who receives any fees and/or commissions, or shares thereof, in connection with any insurance services rendered to, or insurance coverages placed or serviced on behalf of, a governmental unit, shall file, with the [Department of Financial Services] department and the most senior official of the governmental unit who ordered such insurance services or coverages, a completed Governmental Insurance Disclosure Statement, affirmed by the licensee as true under penalties of perjury, on the prescribed form [attached hereto as] set forth in Exhibit B in section 29.6 of this Part, which statement after filing shall be a public record.
(b) Statements shall be filed with [Licensing Bureau of the Department of Financial Services, at the Albany office of] the department[,] on or before [the 15th day of] April 15 in each year with respect to fees and/or commissions, or shares thereof, received as of the preceding December [31st] 31. A general agent, as defined in this Part, shall not be required to file a Governmental Insurance Disclosure Statement with respect to insurance coverages placed in his or her capacity as a general agent, or on account of which commissions or shares thereof are paid to another insurance agent or insurance broker who ordered such coverages from said general agent.
(c) Pursuant to Insurance Law section 2128(b), a title insurance agent shall not be required to file a Governmental Insurance Disclosure Statement if an industrial development agency, state of New York mortgage agency or its successor, or any similar type of entity, is the named insured under the policy and is a mortgagee with respect to the property insured.
Section 29.6(a) is amended as follows:
(a) The form in subdivision (b) of this section is hereby approved for use as specified in this Part. [Any licensee may request the return of disclosure statements heretofore or hereafter filed with the Department of Financial Services, provided such request is made in writing to the Licensing Bureau at the Albany office of the Department of Financial Services and is accompanied by a self-addressed, postage paid envelope suitable for the return of such disclosure statements.]
Section 30.3 is amended by adding a new subdivision (g) as follows:
(g) Notwithstanding subdivision (a) of this section, if an insurance producer is a title insurance agent, then the title insurance agent shall, in lieu of the disclosures required by subdivision (a) of this section, provide the written disclosures required by Insurance Law section 2113(b). As part of such disclosure, the title insurance agent shall provide a description of the title insurance agent’s role in the title insurance transaction and provide the information required by subdivision (b) of this section.
Section 34.1(a) and (b) are amended as follows:
(a) Agent means [any person, firm, association or partnership] an insurance agent as defined in Insurance Law section 2101(a)[, and licensed pursuant to section 2103 of the Insurance Law] or a title insurance agent as defined in Insurance Law section 2101(y).
(b) Broker means [any person, firm, association or corporation] an insurance broker as defined in Insurance Law section 2101(c) [and licensed pursuant to section 2104 of the Insurance Law].
Section 34.2 is amended by adding a new subdivision (h) as follows:
(h) Subdivisions (c), (d), and (e) of this section shall not apply to a title insurance agent that is a licensed attorney who transacts title insurance business from the agent’s law office.
Text of proposed rule and any required statements and analyses may be obtained from:
Paul Zuckerman, New York State Department of Financial Services, One State Street, New York, NY 10004, (212) 480-5286, email: paul.zuckerman@dfs.ny.gov
Data, views or arguments may be submitted to:
Same as above.
Public comment will be received until:
45 days after publication of this notice.
Five-Year Review of Existing Rules
An assessment of public comments received by the agency in response to its publication of a list of rules to be reviewed.
Regulatory Impact Statement
1. Statutory authority: The Superintendent’s authority to promulgate these amendments and the new Part derives from sections 202 and 302 of the Financial Services Law (“FSL”) and sections 107(a)(54), 301, 2101(k), 2109, 2112, 2113, 2119, 2120, 2122, 2128, 2129, 2132, 2139, 2314, and 6409 of the Insurance Law.
FSL section 202 establishes the office of the Superintendent and designates the Superintendent as the head of the Department of Financial Services (“Department”).
FSL section 302 and Insurance Law section 301 authorize the Superintendent to effectuate any power accorded to the Superintendent by the Insurance Law, the Banking Law, the Financial Services Law, or any other law of this state and to prescribe regulations interpreting the Insurance Law, among other things.
Insurance Law section 107(a)(54) defines title insurance agent.
Insurance Law section 2101(k) defines insurance producer to include title insurance agent.
Insurance Law section 2109 addresses temporary licenses for title insurance agents and other insurance producers.
Insurance Law section 2112 addresses appointments by insurers of insurance agents and title insurance agents.
Insurance Law section 2113 requires that title insurance agents and persons affiliated with such title insurance agents provide certain disclosures to applicants for insurance when referring such applicants to persons with which they are affiliated. Section 2113 also requires the Superintendent to promulgate regulations to enforce the affiliated person disclosure requirements and to consider any relevant disclosures required by the federal real estate settlement procedures act of 1974 (“RESPA”), as amended.
Insurance Law section 2119 permits title insurance agents to charge fees for certain ancillary services not encompassed within the rate of premium provided its pursuant to a written memorandum.
Insurance Law section 2120 addresses the fiduciary responsibility of title insurance agents and other producers.
Insurance Law section 2122 addresses advertising by title insurance agents and other insurance producers.
Insurance Law section 2128 prohibits fee sharing with respect to business placed with governmental entities.
Insurance Law section 2132 governs continuing education for title insurance agents and other insurance producers.
Insurance Law section 2139 is the licensing section for title insurance agents.
Insurance Law section 2314 prohibits title insurance corporations and title insurance agents from deviating from filed rates.
Insurance Law section 2324 prohibits rebating, improper inducements and other discriminatory behavior with respect to most kinds of insurance, including title insurance.
Insurance Law section 6409 contains specific prohibitions against rebating, improper inducements and other discriminatory behavior with respect to title insurance.
2. Legislative objectives: Long-sought and critically needed legislation to license title insurance agents was enacted as part of Chapter 57 of the New York Laws of 2014, which was signed into law by the governor on March 31, 2014. By way of background, title insurance agents in New York: (a) handle millions of dollars of borrowers’ and sellers’ funds, (b) record documents, and (c) pay off mortgages. Yet for years, title insurance agents have conducted business in New York without licensing or other regulatory oversight, standards or guidelines. Because, as a matter of practice in New York, the title insurance agents control the bulk of the title insurance business, including bringing in customers, conducting the searches and other title work, the title insurance corporations often have little choice but to deal with title insurance agents who they may otherwise consider questionable or unscrupulous. Without licensing or regulatory oversight, an unscrupulous title insurance agent who was fired by one title insurer could simply take the business to another title insurer, who is usually more than willing to appoint that title insurance agent.
This lack of State regulation over title insurance agents made for an alarming weakness in New York law, and specifically New York law addressing title insurance rebating and inducement. For example, lack of regulatory oversight and licensing created a gaping loophole, which led to serious breaches of fiduciary duties and exploitation by unscrupulous actors to commit fraud in the mortgage origination and financing process. Over the years, this gap in New York law and lack of regulatory oversight allowed these actors to freely engage in theft, abuse, charging of excessive fees, and illegal rebates and inducements to the detriment of consumers, with little fear of prosecution. These abuses cost consumers of the State millions of dollars and at least one New York title insurer became insolvent because of the activities of its title insurance agents.
3. Needs and benefits: Now that New York law requires title insurance agents to be licensed, a number of existing regulations governing insurance producers need to be amended in order include title insurance agents or to address unique circumstances involving them, including affiliated persons’ arrangements and required consumer disclosures. Specifically, Insurance Regulation 9 addresses temporary licenses; Insurance Regulation 18 addresses appointment of insurance agents; and Insurance Regulation 29 regulates premium accounts and fiduciary responsibilities of insurance agents and insurance brokers; and each is amended to include references to title insurance agents. Insurance Regulation 87 addresses special prohibitions regarding sharing compensation with other licensees with respect to certain governmental entities and is amended to address a limited exception for title insurance business insuring State of New York Mortgage Agency and certain other circumstances. Regulation 30 addresses insurance producer compensation transparency and is amended to reflect specific requirements in new Insurance Law section 2113 for title insurance agents. Insurance Regulation 125 governs insurance agents and brokers that maintain multiple offices and is amended to clarify the applicability of the regulation to title insurance agents. Regulation 25 also is amended to address unique circumstances involving title insurance agents who are also licensed attorneys.
New Insurance Regulation 206 addresses a number of miscellaneous issues involving title insurance agents. Some of these changes simply add provisions that are similar to those that apply to other insurance producers; for example, it prescribes the form of applications and requires licensees to notify the Department of any change of business or residence address. Other provisions of Regulation 206 set forth the new disclosure requirements; require title insurance agents to comply with a rate service organization’s annual statistical data call; and address the obligation of title insurance agents and title insurance corporations with respect to title closers. Of particular significance are provisions of the regulations that codify Department opinions regarding affiliated business relations with respect to the applicability of Insurance Law section 6409, which prohibits rebates, inducements and certain other discriminatory behaviors.
4. Costs: Regulated parties impacted by these rules are title insurance agents, which heretofore were not licensed by the Department, and title insurance corporations. They may need to provide new disclosures in accordance with the regulation if they are not already making such disclosures but they already have an obligation to make changes to notices pursuant to the legislation. There are also new reporting requirements to the Department but these are the same that apply with respect to other licensees. In any event, the costs of these new disclosures and reporting requirements should not be significant. The proposed rules also subject title insurance agents to requirements regarding the maintenance of fiduciary accounts that already apply to other insurance producers. The cost impact on title insurance agents will likely vary from agent to agent but should not be significant.
Although the Department already was handling complaints and investigating matters regarding title insurance, because licensing title insurance agents is a new responsibility for the Department, anticipated costs to the Department are at this time uncertain. Existing personnel and line titles will handle any new licensing applications or enforcements issues initially.
These rules impose no compliance costs on any state or local governments.
5. Local government mandates: The new rules and amendments impose no new programs, services, duties or responsibilities on any county, city, town, village, school district, fire district or other special district.
6. Paperwork: The amendments and new rules now apply certain requirements that are applicable to other insurance producers to title insurance agents as well. For example, title insurance agents are made subject to the same reporting requirements as other insurance producers when changing addresses, maintaining records, and submitting applications, and title insurers are required to file certificates of appointment of their title insurance agents with the Department. In addition, to reflect the specific notice requirements of Insurance Law section 2113, the disclosure requirements to insureds under Insurance Regulation 194 are modified for title insurance agents to reflect the statutory requirements. The new law also contains certain new disclosure requirements and the new rules implement those changes, and require certain other disclosures to applicants for insurance, such as a notice advising insureds or applicants for insurance about the different kinds of title policies available to them.
7. Duplication: The amendments do not duplicate any existing laws or regulations.
8. Alternatives: The Department circulated drafts of the proposed rules to a number of interested parties and, as a result, the Department made a number of changes to proposed new Regulation 206, particularly with respect to affiliated business relationships, and title insurance corporation or title insurance agent responsibility for title insurance closers.
With respect to affiliated business relationships, comments ranged from requests that the Department implement specific percentage limitations on business that result from referrals made by affiliated persons to eliminating the requirement that affiliated title insurance agents or title insurance corporations have significant and multiple sources of business. The Department, in interpreting the requirements of Insurance Law section 6409(d), believes that the standards enunciated in the regulation, and which codify longstanding Department opinions, reflect a reasonable interpretation of that statute. With respect to responsibility for title insurance closers, since title closers act to bind the title insurance corporation at the closing, the regulation reflects a balance, consistent with new Insurance Law section 2139(k), which imposes on title insurance corporations and title insurance agents that employ them a due diligence obligation to ensure that the closers, while acting in such capacity, act in a proper and appropriate manner.
9. Federal standards: RESPA, and regulations thereunder, contain certain requirements and disclosures that apply to residential real estate settlement transactions. These requirements are minimum requirements and do not preempt state laws that provide greater consumer protection. The amendments and new rules are not inconsistent with RESPA and, consistent with New York law, provide greater consumer protection to the public.
10. Compliance schedule: Chapter 57 of the New York Laws of 2014 takes effect on September 27, 2014. In order to facilitate the orderly implementation of the new law, the Superintendent was authorized to promulgate regulations in advance of the effective date, but to be make such regulations effective on that date.
Regulatory Flexibility Analysis
1. Effect of the rule: These rules affect title insurance corporations authorized to do business in New York State, title insurance agents and persons affiliated with such corporations and agents.
No title insurance corporation subject to the amendment falls within the definition of “small business” as defined in State Administrative Procedure Act section 102(8), because no such insurance corporation is both independently owned and has less than one hundred employees.
It is estimated that there are about 1,800 title insurance agents doing business in New York currently. Since they are not currently licensed by the Department of Financial Services (“Department”), it is not known how many of them are small businesses, but it is believed that a significant number of them may be small businesses.
Persons affiliated with title insurance agents or title insurance corporations would not, by definition, be independently owned and would thus not be small businesses.
The rule does not impose any impacts, including any adverse impacts, or reporting, recordkeeping, or other compliance requirements on any local governments.
2. Compliance requirements: The proposed rules conform and implement requirements regarding title insurance agents and placement of title insurance business with Chapter 57 of the Laws of 2014, which made title insurance agents subject to licensing in New York for the first time. A number of the rules will make title insurance agents subject to the same requirements that apply to other insurance producers. There are also disclosure requirements unique to title insurance.
3. Professional services: This amendment does not require any person to use any professional services.
4. Compliance costs: Title insurance agents will need to provide new disclosures in accordance with the regulation if they are not already making such disclosures but they already have an obligation to make changes to notices pursuant to the legislation. There are also new reporting requirements to the Department but these are the same that apply with respect to other licensees. In any event, the costs of these new disclosures and reporting requirements should not be significant. The proposed rules now subject title insurance agents to requirements regarding the maintenance of fiduciary accounts that already apply to other insurance producers. The cost impact on title insurance agents will likely vary from agent to agent but should not be significant.
5. Economic and technological feasibility: Small businesses that may be affected by this amendment should not incur any economic or technological impact as a result of this amendment.
6. Minimizing adverse impact: This rule should have no adverse impact on small businesses.
7. Small business participation: Interested parties, including an organization representing title insurance agents, were given an opportunity to comment on draft proposed rules.
Rural Area Flexibility Analysis
The Department of Financial Services (“Department”) finds that this rule does not impose any additional burden on persons located in rural areas, and will not have an adverse impact on rural areas. This rule applies uniformly to regulated parties that do business in both rural and non-rural areas of New York State.
Rural area participation: Interested parties, including those located in rural areas, were given an opportunity to review and comment on draft versions of these rules.
Job Impact Statement
The Department of Financial Services finds that these rules should have no negative impact on jobs and employment opportunities. The rules conform to and implement the requirements of, with respect to title insurance agents and the placement of title insurance business, Chapter 57 of the Laws of 2014, which make title insurance agents subject to licensing in New York for the first time and, by establishing a regulated marketplace, may lead to increased employment opportunity.
