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Commissioner’s Bulletin # B-36

Title Bulletin No. 36


Re:   Violations of Article 9.22, Chapter Nine,1955 Texas Insurance Code

Article 9.22, Chapter Nine, 1955 Texas Insurance Code, is as follows:

"Art. 9.22. Rebates and Discounts
No commissions, rebates, discounts, or other device shall be paid, allowed or permitted by any company, domestic or foreign, doing the business provided for in this chapter, relating to title policies or underwriting contracts; provided this shall not prevent any title company from appointing as its representative in any county any person, firm or corporation owning and operating an abstract plant in such county and making such arrangements for division of premiums as may be approved by the Board."

The Board of Insurance Commissioners recently completed its investigation of a proposed agency contract appointing a representative to issue title insurance policies; it being necessary under the above statute for the Board to determine in each such instance, (1) that the proposed representative owns and operates an adequate abstract plant in the county in which it is appointed; also for the Board to (2) approve the division of premiums proposed by the contract submitted by the title insurance company.

The investigation revealed that the proposed representative did not as yet own and operate an abstract plant in the county, but was securing its title information from a near-by abstracter, who did have an abstract plant. Hence, the so called abstract company could not qualify to represent any title insurance company for the issuance of its policies, due to the limiting language of Article 9.22. It further appeared (and these are the facts important to this Bulletin) that the so-called abstract company was, and had been for sometime, acting as the representative of the title insurance company submitting the contract, despite the fact that the Board of Insurance Commissioners had not approved an agency agreement of representation between them.

The device used was that the title insurance company had signed a supply of its policies in blank and had delivered them to the so-called abstract company, which filled in the blanks, delivered them as needed to its customers (i.e., customers produced by the representative, or so-called abstract company, not by the title insurance company), collected the premium, all of which it sent to the title insurance company. The title insurance company, in turn, paid the unqualified representative (so-called abstract company) a sum of money called a "service charge". The service charge was not a uniform percentage of the premium, but was said to vary according to the amount of services rendered in each transaction in which a policy was issued. The basis of determining the value of such services in the particular case is not known but was arranged without approval of the Board of Insurance Commissioners.

Apparently the title insurance company and the so-called abstract company, or representative, were of the opinion that this method of issuing policies was proper because it constituted a "home office issue" of the policies. The point was made to the Board, in support of the legality of the arrangement, that the policies were signed in the home office of the title insurance company and that the entire premium was sent to the home office of the company.

The Board pointed out that such a way of doing business is illegal, being in violation of Article 9.22, above quoted, which prohibits payment by an device and limits the appointment of a representative to those owning and operating an abstract plant in the county, with the further limitation that the Board must approve the division of premiums.

In the opinion of the Board of Insurance Commissioners the significant factors in the present instance are, (1) that the title insurance company placed a supply of signed policies beyond its control to be sold and delivered whenever, and on whatever risks, the representative selected; (2) that the business was produced by the representative, not the title insurance company, and (3) that the first knowledge the title insurance company had of the sale and delivery of its policies was when it received the premium, policy data, and charge for services rendered applicable to each particular policy.

It seems obvious to the Board of Insurance Commissioners that the type of sales arrangement here discussed defeats the purpose of Article 9.22, and would, if permitted, justify the title insurance companies operating in Texas to deliver signed policies in bulk to persons, firms, or corporations not owning and operating abstract plants, as required by law, in the counties in which they propose to sell the policies. It would remove from supervision of the Board all such unqualified representatives as so-called abstract companies purchasing title information as needed from others, as well as so-called "closers", who advertise to close a real estate transaction and to act as escrow agents; also real estate brokers, insurance agents in lines other than title insurance, building contractors, mortgage loan solicitors, lumber years, lawyers, and innumerable other persons, firms, and corporations, not owning and operating abstract plants. By this theory signed policies could be delivered for sale to anyone who might desire to sell title insurance, either for the remuneration of the "service charge", or to aid the successful conclusion of other business, such as a real estate sale or mortgage loan placement. Each such representative could arrange to secure title information in whatever way they chose without reference to Board supervision. Article 9.22 is designed to prevent this from happening.

In view of the foregoing, it is the purpose of the Board of Insurance Commissioners, by this Bulletin, to advise all title insurance companies and their representatives operating in Texas that no arrangement substantially similar to the one herein detailed will be approved by the Board of Insurance Commissioners and that such arrangements now in existence should be discontinued.

Inasmuch as the facts of particular cases may vary somewhat, the Board will be glad to consider individually all arrangements submitted to it to determine whether or not the same meet the tests laid down by the Legislature of Texas in Article 9.22 above quoted.

Continuation of any such arrangement described herein will leave the Board no alternative but to cite any title insurance companies involved to show cause why their authority to do business in this State should not be cancelled.

Very truly yours,

/s/ J. Byron Saunders
Casualty Insurance Commissioner

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