Subchapter D. Personal Property Title Insurance

28 TAC §9.501

1. INTRODUCTION. The Texas Department of Insurance proposes new Subchapter D, §9.501, concerning the adoption by reference of amendments to the Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas (Basic Manual). The amendments are proposed to adopt forms, endorsements, and rules for the writing of personal property title insurance. The proposal is necessary to implement SB 1153, enacted by the 80th Legislature, Regular Session, effective September 1, 2007, which adds Chapter 2751 to Title 11, of the Insurance Code. SB 1153 authorizes the writing of title insurance when personal property is used as collateral on a loan. It will ensure attachment, perfection, or priority of a security interest in the property sufficient to protect a security interest in the property.

The Insurance Code §2751.051 requires the Department to prescribe forms for the writing of personal property title insurance in the State of Texas. In addition, Insurance Code §2751.004 requires the Commissioner to adopt rules as necessary to implement and enforce Insurance Code Chapter 2751, which regulates title for certain personal property interests. The amendments to the Basic Manual, which the proposed new section will adopt by reference, were considered at a hearing on October 18, 2007, Docket Number 2672, in accordance with the Insurance Code §§2751.051 and 2751.053. All forms and rules have been proposed for use in commercial transactions. Adopting the new forms and rules to the Basic Manual will result in consistent administration of the marketing of the new product and will facilitate efficient, industry-wide regulation of the new product.

The proposed amendments to the Basic Manual are identified by the item number used at the October 18 hearing. The proposal consists of 57 items. Publication of this proposal is necessary to incorporate these items into the Basic Manual, to give public notice of the proposed items to be adopted, and to give notice of the proposal to deny approval of Items 2007-11 - 19. The Department proposes to deny approval of Items 2007-11 - 19 to ensure uniform application of the rules across all form types. The Department also proposes to change the names of forms submitted with Items 2007-1 - 2, 20 - 26, and 44 - 45 to clarify form types and to provide a generic naming scheme for all forms. In addition, the Department proposes to add a statement on each endorsement to indicate with which form each endorsement may be issued. Further, all forms have been assigned a form number, and all endorsements have been assigned an endorsement number that includes the form number to which the endorsement may be issued. Forms have also been re-formatted to provide uniformity and to reduce page volume. The Department proposes to delete the consumer notice language from Items 2007-23 - 26 in conformity with Commissioner's Bulletin No. B-0023-07, issued May 22, 2007, relating to consumer notice of toll-free telephone numbers and procedures for obtaining information and filing complaints. The Department proposes to change the organizational structure of the Basic Manual to provide a new section for personal property title insurance and to provide new subsection tabs for Insurance Code Chapter 2751, insuring forms and endorsements, procedural rules, and rates rules. Finally, the Department proposes to change Items 54 and 55 to procedural rules to be included in the new section for personal property title insurance.

The following items are proposed for approval:

Item 2007-1 provides a new form, entitled Personal Property Title Insurance Owner's Policy (PPT-1), to provide coverage to owners for filed financing statements and other liens.

Item 2007-2 provides a new form, entitled Personal Property Title Insurance Lender's Policy (PPT-2), to provide coverage to lenders for attachment, perfection, and priority of the security interest.

Item 2007-3 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-2), entitled Aggregation Endorsement (PPT-2.1), to allow aggregation of liability under separate polices when multiple policies are issued in connection with one loan.

Item 2007-4 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-2), entitled Gap Coverage Endorsement (PPT-2.2), to provide coverage between the Date of the Policy and the date of the filing of the financing statement.

Item 2007-5 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-2), entitled Increase in Liability Endorsement (PPT-2.3), to provide an increase in liability in the amount of insurance.

Item 2007-6 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-2), entitled Datedown Endorsement (PPT-2.4), to allow the Date of the Policy to be extended.

Item 2007-7 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-2), entitled Change in Location of Debtor Endorsement (PPT-2.5), to reflect a change in the State of Location of the Debtor.

Item 2007-8 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-2), entitled Mezzanine Endorsement (PPT-2.6), to provide coverage for a lender on a loan transaction involving Mezzanine financing.

Item 2007-9 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-2), entitled Assignment Endorsement (PPT-2.7), to provide coverage to the assignee if the security interest is assigned.

Item 2007-10 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Owner's Policy (PPT-1) or the proposed Personal Property Title Insurance Lender's Policy (PPT-2), entitled Co-Insurance Endorsement (PPT-1.8/2.8), to provide for multiple insurer liability on a single insurance policy and allocate liability amount among insurers.

Item 2007-20 provides a new form, entitled Personal Property Title Reinsurance Agreement (PPT-3), to allow reinsurance of personal property title insurance liability.

Item 2007-21 provides a new form, entitled Commitment Letter for Personal Property Title Insurance (PPT-4), to allow a title insurance company to issue a commitment letter in contemplation of a policy for personal property title insurance.

Item 2007-22 provides a new form, entitled Personal Property Title Insurance Search Policy (PPT-5), to provide coverage for the accuracy of the search of the relevant UCC filing office and to provide coverage for filing office indexing error.

Item 2007-23 provides a new form, entitled Personal Property Title Insurance Filing Policy (PPT-6), to provide coverage for the filing of a UCC financing statement, including correct location of filing, completeness of the financing statement, and perfection of the security interest.

Item 2007-24 provides a new form, entitled Personal Property Title Insurance Combined Search Policy (PPT-7), to provide coverage in one policy for the accuracy of combined searches, such as searching the relevant UCC filing office, searching relevant courts for judgments, searching relevant state records for encumbrances against vehicles, and searching federal court bankruptcy filings.

Item 2007-25 provides a new form, entitled Personal Property Title Insurance Lender's Policy (PPT-8), to provide coverage for the attachment, perfection, and priority of a lender's security interest in the pledged collateral of a debtor.

Item 2007-26 provides a new form, entitled Personal Property Title Insurance Owner's Policy (PPT-9), to provide coverage for owners regarding the lien status of acquired assets.

Item 2007-27 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-8), entitled Seller's Lien Endorsement (PPT-8.1), to provide coverage for liens that have followed the collateral rather than the seller, such as the sale of equipment not in the ordinary course of the seller's business.

Item 2007-28 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-8), entitled Tax Lien Endorsement (PPT-8.2), to provide coverage for federal and state priming tax liens on collateral in which the insured has a UCC security interest.

Item 2007-29 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-8), entitled Mezzanine Endorsement (PPT-8.3), to provide coverage for a lender on a loan transaction involving Mezzanine financing when the equity pledgor is a primary obligor.

Item 2007-30 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-8), entitled Pledged Equity Endorsement (PPT-8.4), to provide coverage for a lender on a loan transaction when the equity pledgor is a secondary obligor.

Item 2007-31 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-8), entitled Change of Name of Insured Endorsement (PPT-8.5), to allow the name and address of the insured on the policy to be changed by endorsement.

Item 2007-32 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-8), entitled Lender's Aggregation Endorsement (PPT-8.6), to allow aggregation of liability under separate polices where multiple policies are issued in connection with one loan.

Item 2007-33 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-8), entitled Renewal Endorsement (PPT-8.7), to provide coverage for advances made subsequent to the issuance of the policy by the insured to the debtor pursuant to a security agreement.

Item 2007-34 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-8), entitled Waiver of Attorney Subrogation Rights Endorsement (PPT-8.8), to allow a title insurance company to waive its subrogation rights of the insured against the insured's or debtor's counsel for malpractice or other causes of actions.

Item 2007-35 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-8), entitled Springing Control Endorsement (PPT-8.9), to provide coverage regarding the protected purchaser status of the lender under UCC Article 8 in the event that the pledgor of the equity being used to secure the loan has not, prior to the issuance of the policy, opted-in to Article 8 governance over the security interest.

Item 2007-36 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-8), entitled Post Policy Tax Lien Endorsement (PPT-8.10), to provide coverage for federal and state priming tax liens on collateral in which the insured has a UCC security interest and future advances on the collateral are anticipated.

Item 2007-37 provides a new endorsement for issuance with the proposed UCC Personal Property Title Insurance Lender's Policy (PPT-8), entitled Borrower's Status Endorsement (PPT-8.11), to provide coverage for a lack of attachment, perfection, priority, or enforcement of the security interest as a result of the legal status of the debtor corporation or corporate officer failure to obtain legal consent or authorization for his or her actions in connection with the loan.

Item 2007-38 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-8), entitled Post Policy Date Judgment Lien Endorsements Endorsement (PPT-8.12), to provide for future lien searches of the relevant records to inform the lender of any subsequent liens filed against the debtor.

Item 2007-39 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Owner's Policy (PPT-9), entitled Owner's Aggregation Endorsement (PPT-9.1), to allow a buyer to aggregate a personal property title insurance policy with a real property title insurance policy in a mixed collateral acquisition.

Item 2007-40 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Owner's Policy (PPT-9), entitled Pending Suits and Judgments Endorsement (PPT-9.2), to provide coverage for the accuracy of the search of relevant court records for pending law suits and judgments.

Item 2007-41 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Owner's Policy (PPT-9), entitled Increase in Tax Lien Coverage Endorsement (PPT-9.3), to provide increased coverage limits above the default amount listed in the insuring clause regarding tax lien coverage of the proposed Personal Property Title Insurance Owner's Policy (PPT-9).

Item 2007-42 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Owner's Policy (PPT-9), entitled Owner's Equity Ownership Endorsement (PPT-9.4), to provide coverage regarding the protected purchaser status of the owner under UCC Article 8.

Item 2007-43 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Owner's Policy (PPT-9), entitled Owner's Policy Insuring Clauses Endorsement (PPT-9.5), to provide increased coverage limits above the default amount listed in the insuring clauses regarding any security interest, lien, or tax lien on the collateral on the proposed Personal Property Title Insurance Owner's Policy (PPT-9).

Item 2007-44 provides a new form, entitled Personal Property Title Insurance Owner's Policy (PPT-10), to provide coverage to owners regarding ownership and lien status of the insured interest.

Item 2007-45 provides a new form, entitled Personal Property Title Insurance Owner's Vacation Interest Policy (PPT-11), to provide coverage to owners regarding ownership status, lien status, and tax lien status of the insured interest in a vacation interest (time share).

Item 2007-46 provides a new form, entitled Personal Property Title Insurance Lender's Policy (PPT-12), to provide coverage for the attachment, perfection, and priority of a lender's security interest.

Item 2007-47 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-12), entitled Landlord's Lien Endorsement (PPT-12.1), to provide coverage for claims by a landlord that may have obtained a priority interest in the lender's collateral.

Item 2007-48 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-12), entitled Lapse Endorsement (PPT-12.2), to provide coverage for a loss of interest in the collateral due to failure to file a continuation of the UCC financing statement.

Item 2007-49 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-12), entitled Prior Owner Endorsement (PPT-12.3), to provide coverage for a UCC financing statement filing against a prior owner of the collateral.

Item 2007-50 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-12), entitled Federal Tax Lien Endorsement (PPT-12.4), to provide coverage for federal tax liens against the debtor, seller, or a prior owner of the collateral.

Item 2007-51 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-12), entitled Mezzanine Financing Endorsement (PPT-12.5), to provide flexible coverage options for a lender on a loan transaction involving Mezzanine financing.

Item 2007-52 provides a new endorsement for issuance with the proposed Personal Property Title Insurance Lender's Policy (PPT-12), entitled Tie-In Endorsement (PPT-12.6), to provide aggregate coverage under multiple personal property title insurance policies such that any loss under one policy is deducted from the aggregate liability of all policies.

Item 2007-53 provides a new procedural rule (PPT P-1) to clarify that all procedural rules in the Basic Manual will apply to personal property title insurance.

Item 2007-54 provides a new procedural rule (PPT P-2) to clarify that all administrative rules in the Basic Manual will apply to personal property title insurance.

Item 2007-55 provides a new procedural rule (PPT P-3) to clarify that all claims handling principles and procedures in the Basic Manual will apply to personal property title insurance.

Item 2007-56 updates the organizational structure of the Basic Manual by inserting a new section tab for personal property title insurance with subsection tabs for Texas Insurance Code Chapter 2751, insuring forms and endorsements, procedural rules, and rates rules.

Item 2007-57 provides a new procedural rule (PPT P-4) to provide a manner for application to the Department for approval of a new or revised personal property title insurance form or a change in rate associated with such a form by requiring that all such applications be made in accordance with Insurance Code §§2703.203-205.

The following items are proposed for disapproval:

Item 2007-11 provides a new Procedural Rule, entitled Expanded Coverage Article 9 Policy of Personal Property Title Insurance, to restrict the proposed Personal Property Title Insurance Lender's Policy (PPT-2), and the proposed Personal Property Title Insurance Owner's Policy (PPT-1) from being issued in consumer transactions and to allow a title insurance company to delete provisions of the policies, add exceptions to a schedule, and add additional provisions to a schedule without seeking promulgation of the new version of the form.

Item 2007-12 provides a new Procedural Rule, regarding the proposed Aggregation Endorsement (PPT-2.1), to require payment of the promulgated premium prior to issuance, to require underwriting requirements be met prior to issuance, to require that multiple personal property title insurance polices be issued in connection with the same indebtedness or loan in conjunction with issuance, and to require the issuing title insurance company to charge the applicable premium for each policy.

Item 2007-13 provides a new Procedural Rule, regarding the proposed Gap Coverage Endorsement (PPT-2.2), to require payment of the promulgated premium prior to issuance, to require underwriting requirements be met prior to issuance, and to require the issuing title insurance company to charge the applicable premium for each policy.

Item 2007-14 provides a new Procedural Rule, regarding the proposed Increase in Liability Endorsement (PPT-2.3), to require payment of the promulgated premium prior to issuance, to require underwriting requirements be met prior to issuance, and to require the issuing title insurance company to charge the applicable premium for each policy.

Item 2007-15 provides a new Procedural Rule, regarding the proposed Datedown Endorsement (PPT-2.4), to require payment of the promulgated premium prior to issuance, to require underwriting requirements be met prior to issuance, and to require the issuing title insurance company to charge the applicable premium for each policy.

Item 2007-16 provides a new Procedural Rule, regarding the proposed Change in Location of Debtor Endorsement (PPT-2.5), to require payment of the promulgated premium prior to issuance, to require underwriting requirements be met prior to issuance, and to require the issuing title insurance company to charge the applicable premium for each policy.

Item 2007-17 provides a new Procedural Rule, regarding the proposed Mezzanine Endorsement (PPT-2.6), to require payment of the promulgated premium prior to issuance, to require underwriting requirements be met prior to issuance, and to require the issuing title insurance company to charge the applicable premium for each policy.

Item 2007-18 provides a new Procedural Rule, regarding the proposed Assignment Endorsement (PPT-2.7), to require payment of the promulgated premium prior to issuance, to require underwriting requirements be met prior to issuance, and to require the issuing title insurance company to charge the applicable premium for each policy.

Item 2007-19 provides a new Procedural Rule, regarding the proposed Co-Insurance Endorsement (PPT-1.8/2.8), to require payment of the promulgated premium prior to issuance, to require underwriting requirements be met prior to issuance, and to require the issuing title insurance company to charge the applicable premium for each policy.

The Department has filed a copy of each of the proposed items with the Secretary of State's Texas Register Section. Persons desiring copies of the proposed items can obtain them from the Office of the Chief Clerk, Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas, 78714-9104. To request copies, please contact Sylvia Gutierrez at 512/463-6327 ( ChiefClerk@tdi.state.tx.us) .

2. FISCAL NOTE. Robert R. Carter, Jr., Deputy Commissioner for the Title Division, has determined that, for each year of the first five years the proposals are in effect, there will be no fiscal impact on state or local government as a result of enforcing or administering the amendments. Mr. Carter has also determined that there will be no measurable effect on local employment or the local economy.

3. PUBLIC BENEFIT/COST NOTE. Mr. Carter has also determined that for each year of the first five years the proposed amendments to the Basic Manual are in effect, there are a number of public benefits anticipated. The adoption of forms, endorsements, and rules for the writing of personal property title insurance will enable the writing of title insurance for personal property, such as business inventory or pledged equity, in Texas when the personal property is used as collateral on a loan. It will ensure attachment, perfection, or priority of a security interest in the property sufficient to protect a security interest in the property. The proposed amendments will also adapt the Basic Manual to implement SB 1153 by enabling the writing of a title insurance product that has not previously been marketed in Texas, but is currently marketed in a majority of the fifty states. The proposal will result in consistent administration of the marketing of the new product and will facilitate efficient industrywide regulation of the new product. No person or entity is required to write the new product or to comply with the proposed amendments. Title companies and agents have the option to write or not write personal property title insurance. For those who opt to write personal property title insurance, the Department has developed estimated costs for compliance based on costs that have been previously used by the Department for similar compliance requirements. The Department estimates that the costs of reproducing the forms will be no more than $.15 per page per form for the cost of a photocopy. Entities and persons will be fully compensated for the reproduction costs by the premiums to be collected under the premium schedule that will be adopted at a later date. Such costs are the result of the enactment of SB 1153, and not the result of the adoption, enforcement, or administration of the proposed amendments.

4. ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS FOR SMALL AND MICRO BUSINESSES. As required by the Government Code §2006.002(c), the Department has determined that the proposed amendments will not have an adverse economic effect on small or micro businesses that opt to write personal property title insurance. No small or micro business is required to write the new product or to comply with the proposed amendments. The Department's analysis of any possible costs for compliance with the proposal that are detailed in the Public Benefit/Cost Note section of this proposal are also applicable for small and micro businesses that opt to write personal property title insurance. Additionally, the proposed rules and forms provide an economic opportunity for the businesses that opt to write personal property title insurance, and businesses will be profitably compensated by a fee schedule. Further, such costs are the result of the enactment of SB 1153, and not the result of the adoption, enforcement, or administration of the proposed amendments. In accordance with the Government Code §2006.002(c), the Department has therefore determined that a regulatory flexibility analysis is not required because the proposal will not have an adverse impact on small or micro businesses.

5. TAKINGS IMPACT ASSESSMENT. The Department has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action and, therefore, does not constitute a taking or require a takings impact assessment under the Government Code §2007.043.

6. REQUEST FOR COMMENTS. To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on December 17, 2007, to Gene C. Jarmon, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas, 78714-9104. An additional copy of the comments must be submitted simultaneously to Robert R. Carter, Jr., Deputy Commissioner, Title Division, Mail Code 106-2T, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. Any request for a public hearing should be submitted separately to the Office of the Chief Clerk before the close of the public comment period. If a hearing is held, written and oral comments presented at the hearing will be considered. Also, any comments received during the hearing held on October 18, 2007, Docket Number 2672, are part of the record and have already been considered for purposes of this proposal.

7. STATUTORY AUTHORITY. The new subchapter is proposed pursuant to the Insurance Code §§2751.051 and 2751.053, as enacted by SB 1153, and the Insurance Code §§2551.003 and 36.001. Section 2751.051 requires the Commissioner to prescribe policy forms. Section 2551.003 authorizes the Commissioner to promulgate and enforce rules prescribing underwriting standards and practices, and to promulgate and enforce all other rules necessary to accomplish the purposes of Title 11, which regulates title insurance. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

8. CROSS REFERENCE TO STATUTES. The following statutes are affected by this proposal:

Rule Number Statute

§9.501 Insurance Code Chapters 2551 and 2751

9. TEXT.

Subchapter D. Personal Property Title Insurance