NYS to Require Licensing of Title Insurance Agents
NYS to Require Licensing of Title Insurance Agents
By Sari Gabay-Rafiy
Historically, New York State has not required the licensing of title insurance agents. As of September 29, 2014, however, New York will be the 49th state to require that title insurance agents meet certain criteria and be subject to regulatory scrutiny by the Department of Financial Services (“DFS”), the state administrative agency that regulates New York’s financial and insurance industries.
Background
As part of New York State’s budget process and title insurance industry reforms, Bill S6357- D Part V / A8557-D Part V, which subjects title insurance agents to licensure and regulation by DFS, was passed by the New York State Legislature and signed into law on April 1, 2014. As of the writing of this article, final DFS Regulations have not been and issued and the Bill’s application and scope remains to be addressed.
What is clear is that prior to the Bill, New York’s Insurance Laws expressly excluded “any agent or other representative of any title insurance company” from the definition of an insurance agent and allowed for payments of commissions by insurance companies to title insurance agents, but not to other insurance agents.
According to the Bill, however, “title insurance agents” are unequivocally incorporated into the definition of “insurance agent.” Moreover, new Section 2113 imposes certain mandatory disclosure requirements and restrictions on commissions and payments of fees to title insurance agents.
Why Require Licensing?
According to the Memorandum in Support, the Bill is intended to bring title insurance agents under the direct supervision of DFS given that “[t]itle insurance agents handle large amounts of money on a daily basis, title agents collect and remit premiums, hold and manage indemnity escrow accounts, mortgage and transfer taxes and, on occasion, hold and disburse closing proceeds.” The justification for the Bill is to protect the public by “establish[ing] minimum standards of education and technical proficiency” and general rules of conduct for title insurance agents.
To that end, the Bill requires title insurance agents to complete an application, pay a fee, maintain continuing education requirements, timely renew licenses, and comply with other standards under Section 2139. In addition, the Bill confers the regulatory authority of DFS to investigate complaints, impose fines, and suspend or revoke title insurance licenses where appropriate.
Who Needs a License?
According to the definition contained in the Bill, a title insurance agent includes anyone who for commission or other compensation, in connection with the issuance of a title insurance policy:
• sells, or negotiates the sale of a title insurance policy;
• evaluates the insurability of title by reviewing a title search and who either (i) collects or handles title insurance premiums or other related funds or (ii) prepares, marks up or delivers a title insurance commitment;
• prepares, amends or delivers a title insurance policy on behalf of a title insurance corporation; or
• negotiates the clearance of title exceptions, in connection with the issuance of a title insurance policy.
Notably, the Bill deliberately excludes from the definition of “title insurance agent” any salaried officer or employee of a title insurance company or of a licensed title insurance agent who does not receive a commission or other compensation for services that is directly dependent upon the sale of title insurance.
What can be inferred therefore is, as a general rule, a licensed title insurance agency’s regularly salaried employees or officers will not be required to be licensed regardless of such employees’ job responsibilities in connection with the issuance of title insurance policies. Indeed, the language suggests that the form of compensation paid by the title agency may be the determinative factor as to who must apply for a license. As a practical matter, such an interpretation may produce inconsistent results and run afoul of the Legislative intent in promulgating the Bill.
The Five Year Exception
Significantly, the Bill recognizes an exception to the pre-licensing education and written examination requirements of a title insurance agent’s application to anyone who (i) applies to DFS within one year of the Bill’s effect (by September 29, 2015) and (ii) demonstrates that for at least the preceding five years he/she has “regularly and continuously performed the functions of a title insurance agent.” There is an added requirement that such exempt applicant “is competent and trustworthy.” This grandfather clause will likely illicit numerous inquiries necessitating further direction from the legislature and DFS.
Commissions and Disclosures
For those who become licensed by DFS as title insurance agents, complying with the Bill’s restrictions on payment of fees and disclosure requirements may be arduous. Section 2113 will restrict title insurance companies from compensating anyone other than another licensed title insurance agent and certain affiliated business disclosures must be made.
Moreover, at the time of the application for title insurance, a title insurance agent must provide a written good faith estimate of the premium on the policy to be issued and a breakdown of all fees and costs (filing fees, recording charges, and closing costs, etc.) and any compensation that the agent will be paid. If no title insurance agent is involved in the transaction, the title insurance company must provide the disclosures.
Further, disclosures must be made for (i) all non-premium charges (ii) based on a written signed memorandum specifying the amount for each non-premium charge and the total service fee. A copy of the memorandum must be retained for at least three years.
According to the Memorandum in Support of the Bill, the required licensing of title insurance agents will “discourage dishonest practices and ensure consistency throughout the industry.” As part of the State’s budget, the reforms are also designed to increase revenue through application and renewal fees. Whether New York State’s regulation of title insurance agents will ultimately achieve the intended purposes remains to be tested; in the meantime, the implementation of the Bill will certainly propel numerous inquires as to its scope and application.
This article is for informational purposes only and is not intended to give legal advice. For assistance in a New York State Department of Financial Services matter, licensing issue or other legal inquiry in insurance or other field, please contact the author, Sari Gabay-Rafiy, Esq. at (212) 941-5025 or gabay@gabaybowler.com.
