No. 26791: R590-153. Unfair Inducements and Marketing Practices in Obtaining Title Insurance Business

DAR File No.: 26791
Filed: 03/15/2004, 04:39
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

As a result of a hearing and comments received during the comment period, further suggestions were made and further changes are now being made to this rule.

 

Summary of the rule or change:

The following changes are being made in the rule: 1) the last sentence In Section R590-153-3 is being deleted and moved to Subsection R590-153-5(W) where it replaces the wording regarding title insurance commitments; 2) in Section R590-153-4, the definition of "Bona fide real estate transaction" is being clarified; 3) in Subsection R590-153-5(K), the change clarifies when an employee is not paid a salary, commission, or any other consideration; and 4) in Section R590-153-6, there are two spacing errors that have been corrected. (DAR NOTE: This change in proposed rule has been filed to make additional changes to a proposed amendment that was published in the December 1, 2003, issue of the Utah State Bulletin, on page 41. Underlining in the rule below indicates text that has been added since the publication of the proposed rule mentioned above; strike-out indicates text that has been deleted. You must view the change in proposed rule and the proposed amendment together to understand all of the changes that will be enforceable should the agency make this rule effective.)

 

State statutory or constitutional authorization for this rule:

Sections 31A-2-201 and 31A-23a-402

 

Anticipated cost or savings to:

the state budget:

The changes to this rule will not affect anticipated cost or savings to the state budget. No additional people will need to be hired and no additional revenue will be created or lost as a result.

 

local governments:

The changes to this rule will not affect local government since it deals solely with the relationship of title producers, agencies, and insurers with the Insurance Department.

 

other persons:

The changes to this rule will have no fiscal impact on title producer, agencies, or companies. The changes are for clarification purposes only. The changes will not affect company rate and form filings made to the department. The rates charged and benefits provided to consumers should not be affected by these changes.

 

Compliance costs for affected persons:

The changes to this rule will have no fiscal impact on title producer, agencies, or companies. The changes are for clarification purposes only. The changes will not affect company rate and form filings made to the department. The rates charged and benefits provided to consumers should not be affected by these changes.

 

Comments by the department head on the fiscal impact the rule may have on businesses:

The changes to this rule are strictly for clarification purposes and to correct problems with spacing. They will have no fiscal impact on Utah businesses.

 

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Insurance
Administration
Room 3110 STATE OFFICE BLDG
450 N MAIN ST
SALT LAKE CITY UT 84114-1201

 

Direct questions regarding this rule to:

Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at [e-mail]

 

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

05/03/2004

 

This rule may become effective on:

05/04/2004

 

Authorized by:

Jilene Whitby, Information Specialist

 

 

RULE TEXT

R590. Insurance, Administration.

R590-153. Unfair Inducements and Marketing Practices in Obtaining Title Insurance Business.

R590-153-1. Authority.

This rule is promulgated pursuant to Section 31A-2-201(3)(a), in which the commissioner is empowered to make rules to implement the Insurance Code, and pursuant to the specific authority of Section 31A-23a-402(8), which authorizes the commissioner to define unfair methods of competition or any other unfair or deceptive act or practice in the business of insurance.

 

R590-153-2. Purpose.

The purpose of this rule is to identify certain practices, which the commissioner finds provide unfair inducements for the placement of title insurance business and as such constitute unfair methods of competition. These practices include, but are not limited to, the payment of expenses that are considered normal, customary, reasonable and recurring in the operation of a client of a title insurer, agency or producer.

 

R590-153-3. Scope.

This rule applies to all title insurers, title insurance agencies and title insurance producers and all employees, representatives and any other party working for or on behalf of said entities whether as a full time or part time employee or as an independent contractor.[ Title insurers, agencies and producers who have ownership in, or control of, other business entities may not use those other business entities to enter into any agreement, arrangement, or understanding or to pursue any course of conduct, designed to avoid the provisions of this rule.]

 

R590-153-4. Definitions.

For the purpose of this rule the commissioner adopts the definitions as set forth in Section 31A-1-301, and the following:

A. "Client" means any person, or group, who influences, or who may influence, the placement of title insurance business or who is engaged in a business, profession or occupation of:

(1) buying or selling interests in real property;

(2) making loans secured by interests in real property; and

(3) shall include but not be limited to real estate agents, real estate brokers, mortgage brokers, lending or financial institutions, builders, developers, sub-dividers, attorneys, consumers, [exchange companies, ]escrow companies and the employees, agents, representatives, solicitors and groups or associations of any of the foregoing.

B. "Discount" means the furnishing or offering to furnish title insurance, services constituting the business of title insurance or escrow services for a total charge less than the amounts set forth in the applicable rate schedules filed pursuant to Section 31A-19a-203 or 31A-19a-209.

C. "Trade Association" means a recognized association of persons, a majority of whom are clients or persons whose primary activity involves real property.

D. "Business meals" shall include, but are not limited to, breakfast, brunch, lunch, dinner, cocktails and tips. In no case shall such business meals rise to the level of ceremonies, for example, awards banquets, recognition events or similar activities sponsored by or for clients.

E. "Official Trade Association Publication" means:

(1) a membership directory, provided its exclusive purpose is that of providing the distribution of an annual roster of the association's members to the membership and other interested parties; or

(2) an annual, semiannual, quarterly or monthly publication containing information and topical material for the benefit of the members of the association.

F. "Business Activities" shall include, but are not limited to, sporting events, sporting activities, music and art events. In no case shall such business activities rise to the level of ceremonies, for example award banquets, recognition events or similar activities sponsored by or for clients, or include travel by air, or other commercial transportation.

G. ["Bona fide real estate transaction" means: A transaction in which a preliminary title report is ordered by a seller or the listing broker in behalf of the seller at the time of the listing of a property for sale, and/or the ordering of a commitment to insure at the time an offer to purchase is fully executed, or at such time as an order is placed by a lender or mortgagor at the time of application by a mortgagor for a loan.]"Bona fide real estate transaction" means:

(1) a preliminary title report is issued to a seller or listing agent in conjunction with the listing of a property, or

(2) a commitment for title insurance is ordered, issued, or distributed in a purchase and sale transaction showing the name of the proposed buyer and the sales price, or in a loan transaction showing the proposed lender and loan amount.

 

R590-153-5. Unfair Methods of Competition, Acts and Practices.

The commissioner finds that providing or offering to provide any of the following benefits by parties identified in Section R590-153-3 to any client, either directly or indirectly, except as specifically allowed in Section R590-153-6 below, is a material and unfair inducement to obtaining title insurance business and constitutes an unfair method of competition in the business of title insurance prohibited under Section 31A-23a-402:

A. The furnishing of a title insurance commitment without one of the following:

(1) sufficient evidence in the file of the title insurer, agency or producer that a bona fide real estate transaction exists; or

(2) payment in full at the time the title insurance commitment is provided.

B. The paying of any charges for the cancellation of an existing title insurance commitment issued by a competing organization, unless that commitment discloses a defect which gives rise to a claim on an existing policy.

C. Furnishing escrow services pursuant to Section 31A-23a-406, for a charge less than the charge filed pursuant to Section 31A-19a-209(5) or the filing of charges for escrow services with the commissioner, which are less than the actual cost of providing the services.

D. Waiving all or any part of established fees or charges for services, which are not the subject of rates filed with the commissioner.

E. Deferring or waiving any payment for insurance or services otherwise due and payable, including "holding for resale".

F. Furnishing services not reasonably related to a bona fide title insurance or escrow, settlement, or closing transaction, including, but not limited to computer services, non-related delivery services, accounting assistance, legal counseling.

G. The paying for, furnishing, or waiving all or any part of the rental or lease charge for space, which is occupied by any client.

H. Renting or leasing space from any client, regardless of the purpose, at a rate which is excessive or inadequate when compared with rental or lease charges for comparable space in the same geographic area, or paying rental or lease charges based in whole or in part on the volume of business generated by any client.

I. Furnishing all or any part of the time or productive effort of any employee of the title insurer, agency or producer, for example, [(]secretary, clerk, messenger or escrow officer, to any client.

J. Paying for all or any part of the salary of a client or an employee of any client.

K. Paying, or offering to pay, either directly or indirectly, salary, commissions or any other consideration to any employee who is at the same time licensed as a real estate agent or real estate broker or as a mortgage lender or mortgage company.[a client.]

L. Paying for the fees or charges of a professional, for example, an appraiser, surveyor, engineer or attorney, whose services are required by any client to structure or complete a particular transaction.

M. Sponsoring, cosponsoring, subsidizing, contributing fees, prizes, gifts, food or otherwise providing anything of value for an activity, except as allowed under Subsection R590-153-6(F) of a client. Activities include, but are not limited to "open houses" at homes or property for sale, meetings, breakfasts, luncheons, dinners, conventions, installation ceremonies, celebrations, outings, cocktail parties, hospitality room functions, open house celebrations, dances, fishing trips, gambling trips, sporting events of all kinds, hunting trips or outings, golf or ski tournaments, artistic performances and outings in recreation areas or entertainment areas.

N. Sponsoring, subsidizing, supplying prizes or labor, except as allowed under Subsection R590-153-6(C), or otherwise providing things of value for promotional activities of a client. Title insurers, agencies or producers may attend activities of a client if there is no additional cost to the title insurer, agency or producer other than their own entry fees, registration fees, meals, etc., and provided that these fees are no greater than those charged to clients or others attending the function.

O. Providing gifts or anything of value to a client in connection with social events such as birthdays or job promotions except as provided in Subsection R590-153-6(H). A letter or card in these instances will not be interpreted as providing a thing of value.

P. Providing either directly or indirectly, a compensating balance or deposit in a lending institution either for the express or implied purpose of influencing the placement or steering of title insurance business by such lending institution. This does not preclude transactions with lending institutions, which are in the normal course of business.

Q. Furnishing any part of a title insurer's, agency's or producer's facilities, for example, conference rooms or meeting rooms, to a client or trade association without receiving a fair rental or lease charge comparable to other rental or lease charges for facilities in the same geographic area.

R. Furnishing information packets, listing kits, "farm" packages, reports, or any form of title evidence without first filing a specimen form copy with the commissioner and specifying a rate for which the form is available. The rate may not be less than the actual cost of producing the information and the material furnished.

S. Paying for any advertising on behalf of a client.

T. Advertising jointly with a client on subdivision or condominium project signs, or signs for the sale of a lot or lots in a subdivision or units in a condominium project. A title insurer, agency or producer may advertise independently that it has provided title insurance for a particular subdivision or condominium project but may not indicate that all future title insurance will be written by that title insurer, agency or producer.

U. A direct or indirect benefit provided to a client which is not specified in Section R590-153-6 below, will be investigated by the department for the purpose of determining whether it should be defined by the commissioner as an unfair inducement under Section 31A-23a-402(8).

V. Donations to charitable organizations must:

(1) not be paid in cash; and

(2) if paid by negotiable instrument, be made payable only to the charitable organization; and

(3) be distributed directly to the charitable organization; and

(4) not provide any benefit to a client.

[W. Providing a title insurance commitment, which does not identify the proposed insured party or which does not contain a valid commitment from a title insurer.]W. Title insurers, agencies and producers who have ownership in, or control of, other business entities may not use those other business entities to enter into any agreement, arrangement, or understanding or to pursue any course of conduct, designed to avoid the provisions of this rule.

 

R590-153-6. Permitted Advertising and Business Entertainment.

A. A title insurer, [agencyor]agency or producer may furnish the following without charge, and without additions, addenda or attachments which may be construed as reaching conclusions of the insurer, agency or producer regarding matters of marketable ownership or encumbrances:

(1) A copy of an existing plat map; or

(2) Tax information covering a specific parcel of real estate, for example, tax identification number, assessed owner, assessed value of land and improvements, or the latest tax amount; or

(3) other information regarding real property which the county recorder's office provides to the public free of charge, or at a nominal charge, and in the exact format and content as provided by the county recorder's office.

B. Advertisements by title insurers, agencies or producers must comply with the following:

(1) The advertisement must be purely self-promotional.

(2) Advertisements may not be placed in a publication, including an Internet web page and its links, that is hosted, published, produced for, distributed by or on behalf of a client except as allowed under R590-153-6 (B)(3).

(3) Advertisements in official trade association publications are permissible as long as any title insurer, agency or producer has an equal opportunity to advertise in the publication and at the standard rates other advertisers in the publication are charged.

C. A title, insurer, agency or producer may donate time to serve on a trade association committee and may also serve as an officer for the trade association.

D. A title insurer, agency or producer may have two self-promotional open houses per calendar year for each of its owned or occupied facilities, including branch offices. The title insurer, agency or producer may not expend more than $10 per guest per open house. The open house may take place on or off the title insurer's, agency's or producer's premises but may not take place on the client's premises.

E. A title insurer, agency or producer may distribute self-promotional items having a value of $3 or less to clients, consumers and members of the general public. These self-promotional items shall be novelty gifts which are non-edible and may not be personalized or bear the name of the donee. Self-promotional items may only be distributed in the regular course of business. Self-promotional items may not be given to clients or trade associations for redistribution by these entities.

F. A title insurer, agency or producer may make expenditures for business meals or business activities on behalf of any person, whether a client or not, as a method of advertising, if the expenditure meets all the following criteria:

(1) The person representing the title insurer, agency or [producermust]producer must be present during the business meal or business activity.

(2) There is a substantial title insurance business discussion directly before, during or after the business meal or business activity.

(3) The total cost of the business meal, the business activity, or both is not more than $75 per person, per day.

(4) No more than three individuals from an office of a client may be provided a business meal or business activity by a title insurer, agency or producer in a single day.

(5) The entire business meal or business activity may take place on or off the title insurer's, agency's or producer's premises, but may not take place on the client's premises.

G. A title insurer, agency or producer may conduct educational programs under the following conditions:

(1) The educational program shall address only title insurance, escrow or topics directly related thereto.

(2) The educational program must be of at least one hour duration.

(3) For each hour of education $10 or less per person may be expended, including the cost of meals and refreshments.

(4) No more than one such educational program may be conducted at the office of a client per calendar quarter.

H. A title insurer, agency or producer may acknowledge a wedding, birth or adoption of a child, or funeral of a client or members of his/her immediate family with flowers or gifts not to exceed $50.

I. Any other advertising and/or business entertainment must be requested in writing and approved in advance and in writing by the commissioner.

 

R590-153-7. Enforcement Date.

The commissioner will begin enforcing the provisions of this rule 45 days from the effective date of the rule.

 

R590-153-8. Severability.

If any provision or clause of this rule or its application to any person or situation is held invalid, such invalidity may not affect any other provision or application of this rule which can be given effect without the invalid provision or application, and to this end the provisions of this rule are declared to be severable.

 

KEY: title insurance

2004

Notice of Continuation November 27, 2002

31A-2-201

31A-23a-402