94-01: The Issuance of an Insured Closing Letter

To:           All Title Insurance Companies and Agents

From:      Jay Angoff, Director

Re:          The Issuance of an Insured Closing Letter

Date:       February 3, 1994

The Department of Insurance is in receipt of information regarding a specific set of facts relative to the issuance of an insured closing letter. The facts as presented state that a title insurance company and/or a title insurance agent has issued an insured closing letter on behalf of a real estate closing firm. The function of the real estate closing firm is to be in charge of effectuating the transfer of real estate between a seller and a buyer of the subject real estate by performing such services as documentation preparation, collection of money and recording the necessary documents. As its business purpose, the real estate closing firm does not sell title insurance. However, the real estate closing firm has demanded that the title insurance company and/or title insurance agent provide an insured closing letter for the benefit of the real estate closing firm. Then the real estate closing firm utilizes the insured closing letter to show the seller and the buyer and their lenders that the real estate closing firm has the financial support of the title insurance company.

Legislation known as Senate Bill 18 enacted during the 1993 legislative session and now codified as law at Section 381.400, Revised Statutes of Missouri effective August 28, 1993 contains the statutory provisions governing the use of insured closing letters. The definition of "insured closing letter" is "a statement issued by a title insurance company to a party to a real estate transaction, acknowledging that the title insurance agency or agent closing a transaction in connection with which the title insurance company's policy is being issued, is a duly licensed and authorized agency or agent of the title insurance company, that the performance of settlement services by such agency or agent from the title insurance company, and promising to be responsible for the misapplication of funds or documents by the agency or agent or its failure to follow written instructions in connection with the closing". Section 381.400.1(4), Revised Statutes of Missouri.

This definition states that it is only the title insurance company which is able to issue the insured closing letter. Furthermore, the insured closing letter can only state that the title insurance company is responsible for its own agency or agent. The statute repeats these mandates in two other provisions: at Section 381.403.2(2), Revised Statutes of Missouri by stating that "Licensees may issue insured closing letters, if the licensee is a title insurance company" and at Section 381.405.3(3), Revised Statutes of Missouri by stating that "The provisions of this subsection shall not prohibit . . . a title insurance company from issuing insured closing letters regarding its own duly licensed agency or agent."

As such, the issuer of the insured closing letter can only be a title insurance company which has been granted a certificate of authority to transact as insurer the business of title insurance. (See definition of "title insurer" at Section 381.031(21), Revised Statutes of Missouri.) The subject for which the insured closing letter addresses is that the named agency or agent is indeed the authorized agent of that title insurance company. In order to be an authorized agency or agent of a title insurance company, that agency or agent has to accomplish two tasks: (1) be licensed by the Department of Insurance and (2) the title insurance company has to grant authorization to the agency or agent to act on its behalf.

First, since a title insurance company can only transact the business of title insurance, Sections 381.031(21) and 381.041, Revised Statutes of Missouri, its duly licensed agencies and agents can only be title insurance agencies and title insurance agents. By statutory definition, title insurance agencies and title insurance agents "act in the solicitation of, negotiation for, or procurement or making of any title insurance contract". Sections 381.031(17) and 381.031(18), Revised Statutes of Missouri. Thus the title insurance agent has to possess the specific license of title insurance agent granted by the Department of Insurance. Since an insurance agency can only act through its agents, the Department of Insurance does not grant agency licenses restricted to specific lines of insurance but rather the agency has to have an appropriately licensed individual acting on behalf of the agency in order to obtain an agency license from the Department of Insurance. Thus, a title insurance agency would have to have a licensed title insurance agent in order to operate.

Secondly, the title insurance company would have to manifest its intent by some act in granting authorization to an agency or agent to act on behalf of the title insurance company. The Department of Insurance through Regulation 20 CSR 700-1.130 deems certain acts to constitute the appointment of an agent to act for the insurance company. Those acts include accepting premium, executing an employment contract and granting binding authority. In addition, the title insurance company is obligated to inform the Department of Insurance of the appointment of an agent. Section 375.022, Revised Statutes of Missouri. No requirement exists in notifying the Department of Insurance which title insurance agencies act on behalf of the title insurance company. However, the title insurance agency has a statutory duty to inform the Department of Insurance of all insurance agents employed or acting in behalf of or through the agency. Section 375.061, Revised Statutes of Missouri.

In conclusion, the only entity authorized to issue an insured closing letter is a title insurance company. The subject of the insured closing letter can only by the duly licensed agency or agent of the issuing title insurance company. No one should be authorized to utilize an insured closing letter in showing responsibility for the acts of another party, unless that other party is the duly licensed agency or agent of the title insurance company which issues the insured closing letter. Given the requirements of the notification of agent appointment, the Department of Insurance will be in a position to strictly enforce the mandates of Section 381.400, Revised Statutes of Missouri pertaining to insured closing letters. Disciplinary action can be taken pursuant to Sections 374.046, 374.280, 375.141.1(1) and 375.881.1(6), Revised Statutes of Missouri which includes monetary penalties and revocation of authority to do business in the State of Missouri. As such, a title insurance company shall immediately terminate any insured closing letter issued: (1) to any individual, who is not a licensed title insurance agent formally appointed by the title insurance company; or (2) to any entity which does not possess an insurance agency license and which does not employ a licensed title insurance agent acting on behalf of the title insurance company. Furthermore, the title insurance company shall terminate any insured closing letter issued prior to August 28, 1993 which is being utilized after August 28, 1993 by an unlicensed agent or unlicensed agency.