05-05: No-Action Request Addressing Hold-Open Commitments
Date: June 15, 2005
The Department issued a no-action position letter for title companies acting within certain conduct guidelines with respect to hold-open commitments. These types of arrangements allow the purchaser to avoid paying the premium required in the purchase of a title insurance policy, while reaping most of the benefits and coverage associated with a title insurance policy.
Hold-open commitments often contain an extended expiration date, some as long as 12 to 18 months and the producer/title agent generally does not intend to actually issue a policy of title insurance. In extending the effective date, the proposed insured retains the right to request a title insurance policy at a later date even if a title claim is known. Claims arising from encumbrances upon the property would be covered even though premium is not paid until after a claim is known.
Based upon the facts provided to the Missouri Department of Insurance, the Department will not take enforcement action on title companies utilizing hold-open commitments if those commitments are issued under the following guidelines:
- The title insurance company will determine whether the title insurance premium rates charged for policies issued on extended hold-open commitments are adequate by taking into account the increased risk of loss.
- The producer will issue an actual title insurance policy and collect the proper premium for such policy, or notify the title insurance company to so issue and collect, with respect to each hold-open commitment made by the producer, so as to avoid potentially deceptive and misleading conduct.
- The title insurance company will issue a title policy and charge the proper premium for such policy with respect to each hold-open commitment of which the title insurance company has been notified and the premium rates applicable to the hold-open commitment business will be adequate to pay the expenses and losses associated with that business and the rates charged other policyholders.
This no-action letter is not meant to state that all conduct falling outside the guidelines set forth in this letter will be challenged by the Department. It does describe the hold-open commitments that the Legal Section of the Department will not challenge.