HOUSE DOCKET, NO. 2922 FILED ON: 1/18/2013
HOUSE . . . . . . . . . . . . . . . No. 1241
The Commonwealth of Massachusetts
Antonio F. D. Cabral
To the Honorable Senate and House of Representatives of the Commonwealth of Massachusetts in General
The undersigned legislators and/or citizens respectfully petition for the adoption of the accompanying bill:
An act to reform title insurance.
HOUSE DOCKET, NO. 2922 FILED ON: 1/18/2013
HOUSE . . . . . . . . . . . . . . . No. 1241
In the Year Two Thousand Thirteen
An act to reform title insurance.
Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:
SECTION 1. The General Laws are hereby amended by inserting after chapter 174C the following chapter:
The following terms shall have the following meanings:
(1)"Applicant" means a person who applies to a title insurer or title agent for a title insurance policy.
(2) “Associate” means any (i) business organized for profit in which a producer of title insurance business is a director, officer, partner, employee or owner of one per cent or more of the equity capital thereof; (ii) employee of a producer of title insurance business; (iii) franchisor or franchisee of a producer of title insurance business; (iv) spouse, parent or child of a producer of title insurance business who is a natural person; (v) person, other than a natural person, who controls, is controlled by, or is under common control with a producer of title insurance business; or (vi) person with whom a producer of title insurance business or any associate of such producer has any agreement, arrangement or understanding or pursues any course of conduct the purpose or substantial effect of which is to evade the provisions of this chapter.
(3) “Charge” means any fee billed by a title agent or title insurer, or both, for the performance of the services that fall under the scope of the title insurance business. Charge includes, but is not limited to, fees for document preparation and fees for services commenced but not completed. Charge does not include fees collected by a title insurer or title agent in an escrow, settlement or closing when the fees are limited to the amount billed for services rendered by an entity independent of the title insurer or title agent.
(4) “Commissioner” means the Commissioner of Insurance.
(5) “Controlled Business” means any portion of a title insurer’s or title agent’s business of title insurance in the Commonwealth referred to it by a producer of title business or by any associate of such producer where the producer of title business, the associate, or both, have a financial interest in the title insurer or title agent to which business is referred.
(6) “Financial Interest” means any interest, legal or beneficial, that entitles the holder, directly or indirectly, to one per cent or more of the new profits or net worth of the entity in which the interest is held.
(7) “Gross Operating Revenue” means all premiums received by a title insurer or title agent.
(8) “Insured” means the purchaser or named beneficiary of a title insurance policy.
(9) “Net Retained Liability” means the total liability retained by a title insurer for a single risk after taking into account the deduction for ceded liability, if any.
(10) “Premium” means fees for (i) issuing a title insurance policy, including any service charge or administration fee for the issuance of a title insurance policy; (ii) preparing or issuing preliminary reports, property profiles, commitments, binders or like products; or (iii) assuming liability under a contract of reinsurance.
(11) “Producer of Title Insurance Business” or “Producer” means any person, including any officer, director or owner of five percent or more of the equity capital of any person, engaged in the Commonwealth 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 a broker, agent, representative or attorney of a person who buys or sells any interest in real property or who lends or borrows money with such interest as security.
(12) “Refer” means to direct or cause to be directed or to exercise any power or influence over the direction of title insurance business, whether or not the consent or approval of any other person is sought or obtained with respect to the referral.
(13) “Single Risk” means the insured amount of any title insurance policy, except that where two or more title insurance policies are issued simultaneously covering different estates in the same real property, single risk means the sum of the insured amounts of all such title insurance policies, provided a title insurance policy insuring the interest of a mortgagee, a claim payment under which reduces the insured amount of the title insurance policy, shall be excluded in computing the amount of a single risk to the extent that the insured amount of the mortgage title insurance policy does not exceed the insured amount of the fee or leasehold title insurance policy.
(14) “Title Agent” or “Agent” means any person authorized in writing by a title insurer to (i) solicit title insurance business; (ii) collect premiums; (iii) determine the insurability of a risk in accordance with underwriting rules and standards prescribed by the title insurer; or (iv) issue policies of the title insurer. Title agent does not include officers or employees of a title insurer. No person may act as a title agent unless he is an attorney, in good standing, admitted to the Bar of the Commonwealth.
(15) “Title Insurance Business” or “Business of Title Insurance” means (i) issuing as insurer or offering to issue as insurer a title insurance policy or (ii) transacting or proposing to transact by a title insurer or title agent any of the following activities when conducted or performed in contemplation of 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; (C) execution of title insurance policies; (D) effecting contracts of reinsurance; or (E) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this chapter.
(16) “Title Insurance Policy” or “Policy” means a contract insuring or indemnifying against loss or damage arising from actual or alleged (i) defects in or liens or encumbrances on the insured title; (ii) un-marketability of the insured title; or (iii) invalidity or unenforceability of liens or encumbrances on the stated property. Title insurance does not include a preliminary report, binder, commitment or abstract.
(17) “Title Insurer” or “Insurer” means a company engaged in the Commonwealth in the title insurance business.
Section 4. Each title insurer may engage in the title insurance business in this state if licensed to do so by the commissioner. The commissioner shall promulgate such rules and regulations as are necessary to carry out the provisions of this Chapter. The commissioner may assess fees from title insurers designed to mitigate the cost of reviewing license and form applications submitted by title insurers.
Section 5. No title insurer may do any other line of insurance business, except that title insurers may guarantee the obligations of their agents in the normal course of business by issuing closing protection letters. The commissioner may adopt regulations which set requirements concerning the amount of deposits and the establishment and maintenance of unearned premium and loss reserves and other liabilities of title insurance companies for the purpose of protecting policyholders.
Section 6. A title insurer shall have such minimum capital, surplus and reserve requirements as is required by the Commissioner.
Section 7. No title insurance policy may be written unless and until the title insurer or its title agent has conducted a reasonable search and examination of the title and has made a determination of insurability of title in accordance with sound underwriting practices. Evidence of the examination of title and determination of insurability, the sufficiency of which shall be determined by regulations established by the commissioner, shall be preserved and retained in the files of the title insurer or its title agent for a period of not less than ten years after the title insurance policy has been issued. In conducting a reasonable search and examination of title and determination of insurability of title, a title insurer or its agent may rely upon a policy of title insurance previously issued by a title insurer authorized to do business in the Commonwealth when such policy was issued.
Section 8. A title insurer may obtain reinsurance for all or any part of its liability under one or more of its title insurance policies or reinsurance agreements and may also reinsure title insurance policies issued by other title insurers on risks located in the Commonwealth. Reinsurance on policies issued on properties located in the Commonwealth must be obtained from title insurers licensed to transact title insurance business in this state.
Section 9. (a) No title insurer or title agent shall (1) pay, directly or indirectly, to the insured, to any producer of title insurance business, to any associate of a producer or to any other person, any commission, any part of its premiums, fees or other charges or any other consideration or thing of value as inducement or compensation for the referral of title insurance business or (2) issue any title insurance policy in connection with any transaction in which it has paid or intends to pay any commission or any part of its premiums, fees or other charges, or any other consideration or thing of value which it knows to be in violation of this section.
(b) No insured named in a title insurance policy, no producer of title insurance business, no associate of a producer, nor any other person, other than another title agent, may knowingly receive or accept, directly or indirectly, any commission, rebate, consideration, thing of value or inducement referred to in subsection (a) of this section.
Section 10. No title insurer shall pay to any title insurance agent or permit such agent to retain any amount exceeding ten percent of the gross premium for any policy of the title insurer issued by such agent. The maximum commission to a title insurance agent shall not be increased directly or indirectly by an insurer providing anything of value, including services, to an agent for less than the actual cost or fair market value.
Section 11. (a) No title insurer or title insurance agent may accept any order for, issue a title insurance policy to, or provide services to, an applicant if it knows or has reason to believe that the applicant was referred to it by an producer of title insurance business or by any associate of such producer, where the producer, the associate or both, have a financial interest in the title insurer or title agent to which business is referred.
(b) Each title insurer and title agent shall file with the commissioner on forms prescribed by the commissioner a report setting forth the names and addresses of those persons, if any, who have had a financial interest in the title insurer or title agent during the calendar year, who are known or reasonably believed by the title insurer to be producers of title business or associates of producers. Each title insurer shall file the report required under this subsection with its application for a license and within ten days of any time there is a change in the information provided in the last report.
(b) No title insurer or title agent may accept an order for title insurance business, issue a title insurance policy or receive or retain any premium, or charge in connection with any transaction if (1) the title insurer or title agent knows or has reason to believe that the transaction will constitute controlled business for that title insurer and (2) ten percent or more of the gross operating revenue of that title insurer in the calendar year in which the transaction takes place is derived from controlled business.
(c) No license may be issued, renewed or continued for a title insurer or title agent who fails to comply with this section.
Section 12. (a) Premium rates shall not be inadequate, excessive or unfairly discriminatory.
(b) Rates are excessive if the gross operating revenue of a title insurer is more than fifteen percent greater than the average annual payments made to the title insurer’s insureds over a period of five consecutive years.
(c) Rates are inadequate if, in the opinion of the commissioner, they are insufficient to sustain projected losses and expenses.
(d) Premium rates are unfairly discriminatory if, in the unanimous opinion of the commissioner and the attorney general, the premium charged for any classification is not reasonably related to the services performed or the risks assumed by the insurer.
Section 13. (a) A title insurer shall file the premium rate schedules it uses in the Commonwealth with the commissioner and the attorney general as part of its license application and must receive approval of such schedule prior to receiving a license to sell title insurance in the Commonwealth. Changes to the premium rate schedule filed by the title insurer must be approved by both the commissioner and the attorney general.
(b) All rate schedules offered by a title insurer licensed to do business in the Commonwealth shall be posted on the Division of Insurance’s website within thirty days of the schedule’s approval by the commissioner and attorney general.
(c) If at any time after the approval of a rate schedule, the commissioner has reason to believe that the filed rate schedule does not meet the requirements of this section or is otherwise contrary to law, or receives written notification from the attorney general stating that the attorney general has reason to believe the filing does not meet the requirements of this section or is otherwise contrary to law, the commissioner shall hold a hearing within thirty days and shall give written notice of the hearing to all interested parties.
(d) The attorney general may intervene in a public hearing under this subsection and may require additional information as the attorney general considers necessary to ensure compliance with this subsection.
Section 14. (a) A title insurer shall file with the commissioner all forms it proposes to use in this Commonwealth, including (1) title insurance policies, including standard form endorsements and (2) commitments, binders or any other reports issued prior to the issuance of a title insurance policy.
(b) The commissioner shall approve any form filed under this section only if the form is (1) logically and clearly arranged and is understandable to a person of normal intelligence without special insurance or legal knowledge or training; (2) does not contain or incorporate by reference any inconsistent, ambiguous or misleading clauses, exceptions or conditions deceptively affecting the risk purported to be assumed in the affirmative coverage of the contract; (3) does not contain any misleading title, heading or other indication of its coverage; (4) is not printed or otherwise reproduced in such a manner as to render any provision illegible.
(c) A title insurer must receive approval from the commissioner prior to using any such form in the Commonwealth.
(d) If at any time after the approval of a form, the commissioner has reason to believe that the form does not meet the requirements of this section or is otherwise contrary to law, or receives written notification from the attorney general stating that the attorney general has reason to believe the form does not meet the requirements of this section or is otherwise contrary to law, the commissioner shall hold a hearing within thirty days and shall give written notice of the hearing to all interested parties.
(e) The attorney general may intervene in a public hearing under this subsection and may require additional information as the attorney general considers necessary to ensure compliance with this subsection.
Section 15. (a) A title insurer or title agent that issues a mortgagee’s policy of title insurance on a loan made simultaneous with the purchase of all or part of the residential property securing the loan, where no owner’s policy has been purchased, shall inform the borrower in writing that the mortgagee’s policy does not protect the borrower and that the borrower may obtain an owner’s title insurance policy. This notice must be provided before the disbursement of the loan proceeds and before issuance of a mortgagee’s policy. The notice must be on a form approved by the commissioner.
(b) If the borrower elects not to purchase an owner’s title insurance policy, the title insurer or title agent shall obtain from the owner a statement in writing that the notice has been received and that the borrower waives the right to purchase an owner’s title insurance policy. If the buyer refuses to provide the statement and waiver, the title insurer or title agent shall create a record of such refusal in the file. The statement and waiver must be on a form prescribed by the commissioner and must be retained by the title insurer or title agent for at least five years after receipt.
SECTION 16. (a) A title insurer or title agent that issues a policy of title insurance shall inform the applicant in writing that the rates for all title insurance sold in the commonwealth are published by the Division of Insurance. The notice must be on a form approved by the commissioner, must be signed by the applicant and must be retained by the title insurer or title agent for at least five years after receipt. Such form shall also include: (i) the name of the agent selling the insurance policy; (ii) the name of the insurer; and (iii) the charge. A copy of the policy shall be attached to the form and each page thereof shall be initialed by the applicant.
Section 17. The provisions of this chapter, inclusive, shall be severable, and, if any of the provisions are held to be unconstitutional or invalid, the validity of the remaining provisions of said sections will not be affected.
(a) There shall be a commission to study the feasibility of establishing a title insurer owned by the commonwealth or by a public authority constituted by the commonwealth.
(b) The commission shall consist of the attorney general and the secretary of housing and economic development or their respective designees, who shall serve as co-chairs of the commission; the state treasurer or the treasurer’s designee; the state comptroller or the comptroller’s designee; 2 persons to be appointed by the president of the senate, 1 of whom shall be a member of the senate; 1 person to be appointed by the minority leader of the senate; 2 persons to be appointed by the speaker of the house of representatives; 1 of whom shall be a member of the house of representatives; 1 person to be appointed by the minority leader of the house; the executive directors of the Massachusetts Development Financing Agency and the Massachusetts Housing Finance Agency or their designees; president of the Massachusetts Bar Association or the president’s designee; and 6 persons to be appointed by the governor who shall not be employees of the executive branch, 1 of whom shall be drawn from a list of 3 names submitted by the Associated Industries of Massachusetts, 1 of whom shall be drawn from a list of 3 names submitted by the Small Business Association of New England and 2 of whom shall be a professor of law at an institution of higher education in the commonwealth who has researched and published articles on insurance or real property law. Of the governor’s remaining appointments, not more than 2 may be a representative of a financial services firm located in the commonwealth. The governor shall ensure geographic diversity in the governor’s appointments to the commission. The members of the commission shall be appointed not later 90 days after the effective date of this act.
(c) The commission shall examine the technical, legal and financial feasibility of establishing a commonwealth-owned title insurer. The commission shall evaluate the experience of Iowa with state-owned title insurance, identifying the advantages and disadvantages presented to purchasers of title insurance for residential property in Iowa as compared with such purchasers in Massachusetts. The commission shall also examine the existing structure and dynamics of the title insurance market as it currently operates in Massachusetts and shall include in its examination a review of how title risk is determined and title policies are priced. The commission shall also examine the proceeds generated by the sale of title insurance in Massachusetts and shall identify the parties that receive or make payments as a result of underwriting and issuing a typical title insurance policy. The commission shall make recommendations based on its examination as to the extent to which it believes the conduct of the business of title insurance in Massachusetts requires new legislation in order to protect consumers, reduce the price of title insurance or improve the regulation of the conveyance of real property.
(d) The commission shall hold at least 3 public hearings in distinct geographic regions of the commonwealth.
(e) The commission shall publish its findings and recommendations, together with drafts of legislation, if any, necessary to carry those recommendations into effect, in a written report not later than 1 year after the effective date of this act. The report shall be published on the official website of the commonwealth, and shall be contemporaneously filed with the house and senate committees on ways and means and the house and senate chairs of the joint committee on financial services.