Title Agents: Bill S.2929A Revisits Regulation 208

Regulations implemented by the New York State Department of Financial Services (“DFS”) last year affecting the title insurance industry regarding “acceptable marketing expenses” are being challenged by proposed legislation in the New York State Senate. By way of background, Regulation 208 was implemented by DFS to combat the alleged “unscrupulous” behavior of title agents in passing on expenses for meals, events, or entertainment to the consumer. Regulation 208 was designed to prevent title insurance corporations and agents from using money, deemed as “marketing costs,” to influence attorneys and real estate professionals into referring their clients. DFS was concerned, in part, that marketing costs were being built into insurance premiums, thereby increasing the costs to consumers. Regulation 208 wreaked havoc in the industry, and led to the filing by the New York State Land Title Association of an Article 78 proceeding in the New York State Supreme Court to challenge the Regulation.
At the trial level, the New York State Supreme Court struck down the Regulation, but the Appellate Division reversed that decision this past January, finding that Insurance Law Section 6409(d) (concerning the giving of “other consideration or valuable thing”) is “unambiguous,” has a rational basis, and is subject to broad construction by DFS. The Appellate Division severed two provisions from the Regulation. Specifically, it agreed with the Supreme Court’s conclusion that, “there is no rational basis for DFS to impose an absolute ban on the collection of certain fees by in-house closers while permitting independent closers to collect the same fees as long as the fees are reasonable and the requisite notice is provided to consumers.” It also found no rational basis for capping fees for certain ancillary searches at 200%. The court struck down both the provision regarding an absolute ban on the collection of certain fees as well as the provision regarding capping fees, while upholding the remainder of the Regulation.
Advocates have not given up the fight to reduce the impact of Regulation 208 on the title insurance industry, this time through Bill S.2929A (the “Bill”) proposed by Senator Neil Breslin. The Bill proposes to clarify what is an acceptable expense and to expressly authorize agents to pay for meals with prospective or current clients. The reasoning is because unlike other players in the insurance industry, title insurance agents do not engage in direct to consumer advertising, so insurers and agents need to be able to market themselves and their services to clients and prospective clients, as well as to attorneys and other real estate professionals. Advocates of the Bill claims this should be permissible as long as there is no direct or indirect ‘quid pro quo’ for the placement of a particular piece of title insurance business. According to Senator Breslin, this Bill, “clarifies that the mere presence of common marketing activities absent a quid pro quo does not constitute an illegal inducement under 6409(d).”
If the Bill is signed into law, it will be a win for the title insurance industry, but it is not perceived favorably by DFS. Indeed, DFS has called this “a very bad bill” that will mistakenly roll back Regulation 208 at the expense of the New York homebuyers and will create loopholes to allow agents to continue bad behavior that the Regulation was designed to curtail. DFS’s position can be found in the June 6, 2019 Memorandum written by Maria T. Vullo, former Superintendent of the DFS, to the New York State Senate. That Memorandum opposes Bill S.2929A, and explains that it would “give title insurance companies and agents legislative authority to continue the illegal and unethical practices, disguised as ‘marketing activity’…” Further, the June 6th Memorandum claims that small insurers “face impossible barriers to entry” in the market because they cannot compete with the “gifting referral sources” of the larger more dominant companies.
At the time of writing this article, the Bill has passed Assembly but the Senate version remains in committee and has therefore not yet been presented to the Senate for vote. With strong lobbying efforts on both sides, the fate of the Bill as well as smaller players in the industry, is unknown.

This article is for informational use only and not intended as legal advice.
Thank you to Kathyrn Jones (legal intern at Gabay & Bowler) for her assistance with this article.