96-01: Title Insurance Changes

* This bulletin was repealed by 08-05

To:           All Insurance Companies Writing Title Insurance

From:      Jay Angoff, Director

Re:          Title Insurance Changes

Date:       January 17, 1996

This Bulletin is intended to dispel any existing confusion, and to remind all title insurers, title agents, and title agencies of their legal obligations imposed by the above referenced statutes.

The Department has been advised that there is some confusion among underwriters and their agents regarding agent appointment requirements, and regarding the "controlled business" disclosure requirements. Additionally, the Department has received information indicating that a significant number of title agents may not be in compliance with the law requiring preservation of evidence of the examination of title and determination of insurability. Finally, title plant registration statement filings have revealed noncompliance with the 45-year record requirement mandated by statute.

Appointment Of Agents

Insurers are obligated to appoint those agents who have been authorized to act on their behalf. Similarly, Section 375.022, RSMo requires that the insurer terminate such appointment when the agent is no longer authorized to act on its behalf. Within 30 working days of the appointment or the termination, the insurance company must notify the Director.

The notification of termination must be provided to the Director whether the termination is caused by the resignation of the agent or by the action of the company. Where the cause of the termination is a reason which would permit the Director to revoke, suspend or refuse to issue the agent's license under Section 375.141, RSMo, then the notification must state the circumstances and the cause of the termination.

Regulation 20 CSR 700-1.130 defines those acts which constitute the appointment of an agent for the purposes of Section 375.022, RSMo. These acts may be summarized as follows: (1) Distribution of an insurance application form which, on its face, requires premium remittance upon completion of the application by a consumer; (2) Acceptance of premium from the prospective agent; (3) Acceptance of an insurance application from the prospective agent, for the purposes of underwriting insurance; (4) Execution of an employment contract with the prospective agent; and (5) Granting of binding authority to the agent. Accordingly, if any of the aforementioned acts are committed by an agent, the insurer must notify the Director of the appointment within 30 days.

If an insurer fails to appoint an agent as required, Section 375.158.3, RSMo prohibits the payment of any "commission or other compensation" to the agent. The "knowing" violation of Section 375.022 or Section 375.158.3, RSMo, subjects the company to a possible penalty of $100 per offense, as prescribed in Section 374.280.1, RSMo. If the violation is "willful", Section 374.280.1, RSMo provides for the suspension or revocation of an agent's, agency's or an insurer's license.

Evidence Of The Examination Of Title And The Determination Of Insurability

Section 381.071.3, RSMo requires the preservation of evidence of the examination of title and the determination of insurability for a minimum of 15 years subsequent to the policy issue date. Specifically, the statute provides the following:

Evidence of the examination of title and determination of insurability shall be preserved and retained in the files of the title insurer or its title agent or agency for a period of not less than fifteen years after the title insurance policy has been issued. Instead of retaining the original evidence, the title insurer or title agent or agency may in the regular course of business establish a system whereby all or part of the evidence is recorded, copied, or reproduced by any process that accurately and legibly reproduces or forms a durable medium for reproducing the contents of the original.

The Department considers the following items to be evidence of the examination of title and determination of insurability: (1) Copies of documents, whether filed or recorded, affecting the title to the land to be insured; (2) File notes analyzing or determining the chain of the title; (3) Underwriting memoranda, bulletins or guidelines that are utilized as a basis for making title examination determinations and insurability determinations; and (4) Notes of any conversation(s) with the underwriting insurance company during which the insurability of the subject land is determined.

Currently, most insurance companies delegate the responsibility for maintaining the title policy file to their agents. However, if the agent fails to preserve the statutorily required evidence, the insurer will not be relieved of its liability for the violation of Section 381.071.3, RSMo, by reason of such delegation.

The "knowing" violation of Section 381.071.3, RSMo is punishable by revocation or suspension of the agent's or agency's license as provided by Section 375.141.1(1), RSMo.

Controlled Business Disclosure

Section 381.141.3, RSMo permits a "producer of title business" to refer business to a title company or agent in which the producer has a financial or ownership interest, as long as the relationship is disclosed to the purchaser in writing. More specifically, the statute provides:

Nothing in sections 381.011 to 381.241 shall prohibit any producer or any associate of a producer from referring title business to any title insurer or title insurance agent or agency of his, her or its choice, and if such producer or associate producer has any financial, franchise, or ownership interest in the title insurer, the title insurance agent or agency, from receiving income or profits produced or realized from such financial, franchise or ownership interest so long as the purchaser is made aware in writing of the relationship between the producer or associate producer and the title agent or agency.(Emphasis added)

A "producer of title insurance" is defined in Section 381.03.1(15), as " ... any person, including any officer, director, or owner of five percent or more of the equity or capital of any person, engaged in this state in the trade, business, occupation or profession of:

The "willful" violation of Section 381.141.3, RSMo will subject the title company or agent to possible suspension or revocation of its license, according to Section 375.141.1(1), RSMo.

Title Plant Records

Regulation 20 CSR 500-7.200 requires that the Department maintain a title plant registry. It also requires all title plants to file a "registration statement" for entry into the Department's title plant registry. A title plant as defined by Section 381.031(22), RSMo, must maintain records that show the title to land for the immediate past 45 years.

The Department is currently proposing amendments to Regulation 20 CSR 500-7.200. If adopted, the Department anticipates the amendments would not be effective until August of 1996. Upon the effective date of the proposed amendment however, registration statements would not be accepted from title plants that do not maintain records for the immediate past 45 years.