Chapter 058
2010 -- S 2395 SUBSTITUTE A AS
AMENDED
Enacted 06/12/10
A N A C T
RELATING TO
INSURANCE --
Introduced By: Senator David E. Bates
Date Introduced: February 11, 2010
It is enacted by the General
Assembly as follows:
SECTION 1. Title 27 of the General Laws entitled
"INSURANCE" is hereby amended
by adding thereto the following chapter:
CHAPTER
2.6
27-2.6-1.
Title and purpose. – (a) This
chapter shall be known and may be cited as the
"
(b) The purpose of
this chapter is to provide for the effective regulation and supervision
of title insurance and title insurers licensed to write
title insurance in this state.
27-2.6-2.
Application of act and construction with other laws. –
(a) This chapter shall
apply to all persons engaged in the business of title
insurance in this state.
(b) Except where the
context otherwise requires, all provisions of the
general laws applying to insurance and insurance companies
shall apply to title insurance
insurers.
27-2.6-3.
Definitions. – As used in this chapter:
(1) "Abstract of
title" or "abstract" means a written history, synopsis or summary
of the
recorded instruments affecting the title to real property.
(2)
"Affiliate" means a specific person that directly,
or indirectly through one or more
intermediaries, controls, or is controlled by or is under common
control with the person specified.
(3) "Bona fide
employee of the title insurer or title insurance agent" means an
individual
who devotes substantially all of his or her time to
performing services on behalf of a title insurer
or title insurance agent and whose compensation for
those services is in the form of salary or its
equivalent paid by the title insurer or title insurance agent.
(4)
"Commissioner" means the director of the department of business
regulation, or his or
her designee or the commissioner, director or
superintendent of insurance in any other state.
(5)
"Control" (including the terms "controlling,"
"controlled by" and "under common
control with") means the possession, direct or indirect,
of the power to direct or cause the
direction of the management and policies of a person, whether
through the ownership of voting
securities, by contract other than a commercial contract
for goods or nonmanagement services, or
otherwise, unless the power is the result of an official position
or corporate office held by the
person. Control shall be presumed to exist if a person,
directly or indirectly, owns, controls, holds
with the power to vote, or holds proxies representing, ten
percent (10%) or more of the voting
securities of another person. This presumption may be rebutted
by a showing that control does not
exist in fact. The commissioner may determine, after
furnishing all persons in interest notice and
opportunity to be heard and making specific findings of fact to
support the determination, that
control exists in fact, notwithstanding the absence of a
presumption to that effect.
(6) "Direct
operations" means that portion of a title insurer's operations which are
attributable to business written by a bona fide employee.
(7)
"Escrow" means written instruments, money or other items deposited by
one party
with a depository, escrow agent or escrowee
for delivery to another party upon the performance,
of a specified condition or the happening of a certain
event.
(8) "Escrow,
settlement or closing fee" means the consideration for supervising or
handling the actual execution, delivery or recording of
transfer and lien documents and for
disbursing funds.
(9) "Foreign
title insurer" means any title insurer incorporated or organized under the
laws of any other state of the
the
(10) "Net
retained liability" means the total liability retained by a title insurer
for a single
risk, after taking into account any ceded liability and
collateral, acceptable to the commissioner,
maintained by the insurer.
(11) "Non-U.S.
title insurer" means any title insurer incorporated or organized under the
laws of any foreign nation or any province or territory.
(12)
"Person" means any natural person, partnership, association,
cooperative,
corporation, trust or other legal entity.
(13)
"Producer" means any person, including any officer, director or owner
of five
percent (5%) or more of the equity or capital of any person,
engaged in this state in the trade,
business, occupation or profession of:
(i)
Buying or selling interests in real property;
(ii) Making loans
secured by interests in real property; or
(iii) Acting as
broker, agent, representative or attorney or a person who buys or sells any
interest in real property or who lends or borrows money with
the interest as security.
(14) "Qualified
financial institution" means an institution that is:
(i)
Organized or (in the case of a
banking organization) licensed under the laws of the
granted authority to operate with fiduciary powers;
(ii) Regulated, supervised
and examined by federal or state authorities having regulatory
authority over banks and trust companies;
(iii) Insured by the
appropriate federal entity; and
(iv)
Qualified under any additional rules established by the
commissioner.
(15)
"Security" or "security deposit" means funds or other
property received by the title
insurer as collateral to secure an indemnitor's
obligation under an indemnity agreement pursuant
to which the insurer is granted a perfected security
interest in the collateral in exchange for
agreeing to provide coverage in a title insurance policy for a
specific title exception to coverage.
(16)
"Subsidiary" means an affiliate controlled by a person directly or
indirectly through
one or more intermediaries.
(17) "Title
insurance agent" or "agent" means an authorized person, other
than a bona
fide employee of the title insurer who, on behalf of the
title insurer, performs the following acts,
in conjunction with the issuance of a title insurance report
or policy:
(i)
Determines insurability and issues title insurance reports or policies, or
both, based
upon the performance or review of a search or abstract of
title; and
(ii) Performs one or
more of the following functions:
(A) Collects or
disburses premiums, escrow or security deposits or other funds;
(B) Handles escrows,
settlements or closings;
(C) Solicits or
negotiates title insurance business; or
(D) Records closing
documents.
(18) "Title
insurance business" or "business of title insurance"
means":
(i)
Issuing as insurer or offering to issue as insurer, a title insurance policy;
(ii) Transacting or
proposing to transact by a title insurer any of the following activities
when conducted or performed in contemplation of, or in
conjunction with, the issuance of a title
insurance policy:
(A) Soliciting or
negotiating the issuance of a title insurance policy;
(B) Guaranteeing,
warranting or otherwise insuring the correctness of title searches for all
instruments affecting titles to real property, any interest in
real property, cooperative units and
proprietary leases and for all liens or charges affecting the
same;
(C) Handling of
escrows, settlements or closings;
(D) Executing title
insurance policies;
(E) Effecting
contracts of reinsurance.
(iii) Guaranteeing,
warranting or insuring searches or examination of title to real property
or any interest in real property;
(iv)
Guaranteeing or warranting the status of title as to ownership of
or liens on real
property and personal property by any person other than the
principals to the transaction; or
(v) Doing or
proposing to do any business substantially equivalent to any of the activities
listed in this subsection in a manner designed to evade the
provisions of this chapter.
(19) "Title
insurance policy" or "policy" means a contract insuring or
indemnifying
owners of, or other persons lawfully interested in, real or
personal property or any interest in real
property, against loss or damage arising from any or all of
the following conditions existing and
not excepted or excluded:
(i)
Defects in or liens or encumbrances on the insured title;
(ii) Unmarketability of the insured title;
(iii) Invalidity,
lack of priority or unenforceability of liens or encumbrances on the stated
property;
(iv)
Lack of legal right of access to the land; or
(v) Unenforceability
of rights in title to the land.
(20) "Title
insurer" or "insurer" means a company organized under laws of
this state for
the purpose of transacting the business of title
insurance and any foreign or non-United States
title insurer licensed in this state to transact the
business of title insurance.
(21) "Title
plant" means a set of records consisting of documents, maps, surveys or
entries affecting title to real property or any interest in
or encumbrance on the property, which
have been filed or recorded in the jurisdiction for which
the title plant is established or
maintained.
27-2.6-4. Corporate form required. – No person other than a
domestic, foreign or non-
shall issue a title insurance policy or otherwise transact
the business of title insurance in this state.
27-2.6-5.
Authorized activities of title insurers. – Subject
to the exceptions and
restrictions contained in this chapter, a title insurer shall have
the power to:
(1) Do only title
insurance business;
(2) Reinsure title
insurance policies; and
(3) Perform ancillary
activities, unless prohibited by the commissioner by regulation,
including, examining titles to real property and any interest
in real property and procuring and
furnishing related information and information about relevant
personal property, when not in
contemplation of, or in conjunction with, the issuance of a title
insurance policy.
27-2.6-6.
Limitations on powers. – (a) No insurer that
transacts any class, type or kind
of business other than title insurance shall be eligible
for the issuance or renewal of a license to
transact the business of title insurance in this state nor
shall title insurance be transacted,
underwritten or issued by any insurer transacting or licensed to
transact any other class, type or
kind of business.
(b) A title insure
shall not engage in the business of guaranteeing payment of the
principal or the interest of bonds or mortgages.
(c)(1)
Notwithstanding subsection (a) of this section, and to the extent such coverage
is
lawful within this state, a title insurer is expressly
authorized to issue closing or settlement
protection to a proposed insured upon request if the title
insurer or its title agent issues a
preliminary report, binder or title insurance policy. Such
closing or settlement protection shall
conform to the terms of coverage and form of instrument as
approved by the commissioner and
may indemnify a proposed insured solely against loss of
settlement funds only because of the
following acts of a title insurer's named title insurance
agent:
(i)
Theft of settlement funds; and
(ii) Failure to
comply with written closing instructions by the proposed insured when
agreed to by the title insurance agent relating to title
insurance coverage.
(2) A title insurer
shall not provide any other coverage which purports to indemnify
against improper acts or omissions of a person with regard to
escrow, settlement, or closing
services, except for an insured closing letter in a form
approved by the department.
27-2.6-7.
Minimum capital and surplus requirements. – Before
being licensed to do
insurance business in this state, a title insurer shall
establish and maintain a minimum paid-in
capital of not less than five hundred thousand dollars
($500,000) and, in addition, paid-in initial
surplus of at least five hundred thousand dollars ($500,000).
27-2.6-8.
Admitted asset standards. – In determining the
financial condition of a title
insurer doing business under this chapter, the investment
provisions of chapters 27-11 and 27-
11.1 shall apply, except that an investment in a title
plant or plants in an amount equal to the
actual cost shall be allowed as an admitted asset for title
insurers. The aggregate amount of the
investment shall not exceed the lesser of twenty percent (20%)
of admitted assets or forty percent
(40%) of surplus to policyholders, as shown on the
most recent annual statement of the title
insurer on file with the commissioner.
27-2.6-9.
Reserves. – In determining the financial
condition of a title insurer doing
business under this chapter, the
sufficient to cover all known and unknown liabilities including
allocated and unallocated loss
adjustment expense, shall apply, except that a title insurer
shall establish and maintain additional
reserves in accordance with regulations promulgated by the
insurance commissioner.
27-2.6-10.
Liquidation, dissolution or insolvency. – (a)
Chapter 27-14.3 shall apply to
all title insurers subject to the Title Insurance Act,
except as otherwise provided in this section. In
applying the provisions of chapter 27-14.3, the court shall
consider the unique aspects of title
insurance and shall have broad authority to fashion relief that
provides for the maximum
protection of the title insurance policyholders.
(b) Security and
escrow funds held by or on behalf of the title insurer shall not become
general assets and shall be administered as secured creditor
claims defined in chapter 27-14.3.
(c) Title insurance
policies that are in force at the time an order of liquidation is entered
shall not be canceled except upon a showing to the court of
good cause by the liquidator. The
determination of good cause shall be within the discretion of the
court. In making this
determination, the court shall consider the unique aspects of title
insurance and all other relevant
circumstances.
(d) The court may set
appropriate dates that potential claimants must file their claims
with the liquidator. The court may set different dates for
claims based upon the title insurance
policy than for all other claims. In setting dates, the
court shall consider the unique aspects of title
insurance and all other relevant circumstances.
(e) As of the date of
the order of insolvency or liquidation, all premiums paid, due or to
become due under policies of the title insurers, shall be
fully earned. It shall be the obligation of
agents, insureds or
representatives of the title insurer to pay fully earned premium to the
liquidator or rehabilitator.
27-2.6-11.
Diversification requirement. – (a) Without the prior written approval of the
commissioner, a domestic title insurer shall not accept:
(1) Additional
business from a title insurance agent that is not an affiliated company with
the insurer if, when added to other business written
through the title insurance agent during the
same calendar year, that agent's aggregate premiums
written on behalf of the title insurer will
exceed twenty percent (20%) of the title insurer's gross
premiums written during the prior
calendar year, as shown on the title insurer's most recent
annual statement on file with the
commissioner; or
(2) Additional direct
operations business from a single source if, when added to other
direct operations business from the single source during the
same calendar year, the aggregate
premiums written on the direct operations business of the
single source will exceed twenty
percent (20%) of the title insurer's gross premiums written
during the prior calendar year as
shown on the title insurers most recent annual statement on
file with the commissioner. For
purposes of this section a "single source" means a
person that refers business to the title insurer
and any other person that controls, is controlled by, or is
under common control with, that person.
(b) In determining
whether prior approval may be given, the commissioner shall
consider:
(1) The potential
that the acceptance of more business from the title agent or source may
adversely affect the financial solvency of the title insurer;
(2) The availability
of competing title agents or additional sources in the territories in
which the title insurer accepts risks;
(3) The number of
years the title insurer has been in business;
(4) Reinsurance
arrangements mitigating the concentration of business from the agent or
source;
(5) The comparative
profitability of the agent's or source's book of business;
(6) The degree of
oversight of the agent's operations exercised by the title insurer; and
(7) Any other
circumstances deemed by the commissioner to be appropriate.
27-2.6-12.
Policyholder treatment. – (a) When a title insurance report includes an offer
to issue an owner's policy covering the resale of
owner-occupied residential property, the report
shall be furnished to the purchaser-mortgagor or its
representative as soon as reasonably possible
prior to closing. If the report cannot be delivered prior
to the day of closing, the title insurer or
agent shall document the reasons for the delay. The report
furnished to the purchaser-mortgagor
shall incorporate the following statement on the first page
in bold type:
"Please read
the exemptions and the terms shown or referred to herein carefully.
The exemptions are meant to provide you with notice of
matters which are not covered
under the terms of the title insurance policy and should be
carefully considered.
It is important to
note that this form is not a written representation as to the
condition of title and may not list all liens, defects, and
encumbrances affecting title to the
land."
(b) A title insurer
issuing a lender's title insurance policy in conjunction with a mortgage
loan made simultaneously with the purchase of all or part
of the real estate securing the loan,
where no owner's title insurance policy has been requested,
shall give written notice to the
purchaser-mortgagor at the time the commitment is prepared. The notice
shall explain that a
lender's title insurance policy is to be issued protecting the
mortgage-lender, and that the policy
does not provide title insurance protection to the
purchaser-mortgagor as the owner of property
being purchased. The notice shall explain what title policy
insures against and what possible
exposures exist for the purchaser-mortgagor that could be
insured against through the purchase of
an owner's policy. The notice shall also explain that
the purchaser-mortgagor may obtain an
owner's title insurance policy protecting the property owner at
a specified cost or approximate
cost, if the proposed coverages
or amount of insurance is not then known. A copy of the notice,
signed by the purchaser-mortgagor, shall be retained in the
relevant underwriting file at least five
(5) years after the effective
date of the policy.
27-2.6-13.
Duties of title insurers utilizing the services of title insurance agents.
– (a)
The title insurer shall not accept business from a
title insurance agent unless there is in force a
written contract between the parties which sets forth the
responsibilities of each party and, where
both parties share responsibility for a particular
function, specifies the division of responsibilities.
(b) The title insurer
shall, on at least a biennial basis, conduct an on-site review of the
underwriting, claims and escrow practices of the agent which shall
include a review of the agent's
policy blank inventory and processing operations.
(c) A domestic title
insurer shall not appoint to its board of directors an officer, director,
employee or controlling shareholder or any title insurance
agent who wrote one percent (1%) or
more of the title insurer's direct premiums written during
the previous calendar year as shown on
the tile insurer's most recent annual statement on file
with the commissioner. This subsection
shall not apply to relationships governed by section
27-35-1 et seq.
(d) The title insurer
shall maintain an inventory of all policy forms or policy numbers
allocated to each title insurance agent.
(e) The title insurer
shall have on file proof that the title insurance agent is licensed by
this state.
(f) The title insurer
shall establish the underwriting guidelines and, where applicable,
limitations on title claims settlement authority to be
incorporated into contracts with its title
insurance agents.
27-2.6-14.
Prohibition of rebate and fee splitting. – A
title insurer or other person shall
not give or receive, directly or indirectly, any
consideration for the referral of title insurance
business or escrow or other service provided by a title
insurer. This section does not affect a title
insurers ability to pay consideration to persons or entities
who provide core services, as defined
by Real Estate Settlement Procedures Act (RESPA), 12
U.S.C. Section 2607, as amended.
27-2.6-15. Favored agent of title insurer. – A title insurer
shall not participate in any
transaction in which it has actual knowledge that a producer or
other person requires, directly or
indirectly, or through any trustee, director, officer, agent,
employee or affiliate, as a condition,
agreement or understanding to selling or furnishing any other
person a loan, or loan extension,
credit, sale, property, contract, lease or service, that the
other person shall place a title insurance
policy of any kind with the title insurer or through a
particular title insurance agent.
27-2.6-16.
Premium rate filings and standards. – No title
insurer may charge any rates
regulated by the state after the effective date of this act,
except in accordance with the premium
rate schedule and manuals filed with and approved by the
commissioner in accordance with the
provisions of chapter 27-44.
27-2.6-17.
Form filing. – (a) A title insurer or
authorized rate service organization shall
not deliver or issue for delivery or permit any of its
authorized title insurance agents to deliver in
this state, any policy form, in connection with title
insurance written, unless it has been filed with
and approved by the commissioner.
(b) Forms covered by
this section shall include:
(1) Title insurance
policies, including standard form endorsements; and
(2) Title insurance
commitments issued prior to the issuance of a title insurance policy;
(3) An insurer may
use
endorsements.
(c) After notice and
opportunity to be heard are given to the insurer or rate service
organization which submitted a form for approval, the commissioner
may withdraw approval of
the form on finding that the use of the form is contrary
to the legal requirements applicable at the
time of withdrawal. The effective date of withdrawal of
approval shall not be less than ninety (90)
days after notice of withdrawal is given.
(d) Any term or
condition related to an insurance coverage provided by an approved title
insurance policy or any exception to the coverage, except those
ascertained from a search and
examination of records relating to a title or inspection or
survey of a property to be insured, may
only be included in the policy after the term, condition
or exception has been filed with the
commissioner and approved.
27-2.6-18.
Filing by rating bureaus. – (a) A title insurer may satisfy its obligation to file
premium rates, rating manuals and forms as required by this
chapter by becoming a member of,
or a subscriber to, a rate service organization,
organized and licensed under the provisions of this
code, where the organization makes the filing, and by
authorizing the commissioner in writing to
accept the filings on the insurer's behalf.
(b) Nothing in this
chapter shall be construed as requiring a title insurer to become a
member of, or a subscriber to, any rate service
organization. Nothing in this chapter shall be
construed as prohibiting the filing of deviations from rate
service organization filings by any
member or subscriber.
27-2.6-19.
Penalties and liabilities. – (a) If the
commissioner determines that the title
insurer has violated this chapter, or any regulation or order
promulgated thereunder, after notice
and opportunity to be heard, the commissioner may order:
(1) A penalty
pursuant to section 42-14-16 for each violation; and
(2) Revocation or
suspension of the title insurer's license.
(b) Nothing contained
in this section shall affect the right of the commissioner to impose
any other penalties provided for in the insurance code.
(c) Nothing contained
in this chapter is intended to or shall in any manner limit or restrict
the rights of policyholders, claimants and creditors.
27-2.6-20.
Violations of the real estate settlement procedures act (RESPA). – The
commissioner or attorney general may bring an action in a court of
competent jurisdiction to
enjoin violations of RESPA, 12 U.S.C. section 2607, as
amended.
27-2.6-21.
Severability. – If any provision of this
chapter, or the application of the
provision to any person or circumstances shall be held invalid,
the remainder of the chapter and
the application of the provision to persons or
circumstances other than those to which it is held
invalid, shall not be affected.
SECTION 2. This act shall take effect on January 1, 2011 and
shall apply to all
transactions entered into after the effective date.
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LC01609/SUB A
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