New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on October 22, 2002, representing the position of the New York State Insurance Department.

Re: Abstract companies and title insurance business

QUESTIONS PRESENTED:

  1. May an abstract company guarantee its search of the County Clerk's public documents associated with real estate title?
  2. Must an abstract company be licensed under the Insurance Law?

3) Must an agent or representative of a title insurance corporation be licensed as an insurance agent to sell title insurance on behalf of the title insurance corporation?

CONCLUSIONS:

1) Pursuant to N.Y. Ins. Law § 6408(a) (McKinney 2000), an abstract company does not do a title insurance business so long as the abstract company does not guarantee the correctness of its search of the County Clerk's public documents associated with real estate title.

2) An abstract company would not have to be licensed under N.Y. Ins. Law Article 64 (McKinney 2000) or otherwise under the Insurance Law so long as the abstract company does not guarantee the correctness of its search of the County Clerk’s public documents associated with real estate title.

3) No. Pursuant to N.Y. Ins. Law §§ 2102(a)(1) (McKinney 2000), 2101(a)(4) (McKinney 2000), and 2115(b) (McKinney Supp. 2002) an agent or representative of a title insurance corporation is not required to be licensed as an insurance agent to sell title insurance issued by the title insurance corporation.

FACTS:

An inquiry was made about the legal requirements of starting an abstract company and selling title insurance on behalf of a title insurance corporation. No facts were provided.

ANALYSIS:

An assumption was made that the inquirer would like to start an abstract company and sell title insurance on behalf of a title insurance corporation. The inquirer would examine whether there is good title to real estate based upon a search of the County Clerk's public documents associated with real estate title. He would sell title insurance as an agent or representative of a title insurance corporation.

N.Y. Ins. Law § 6401(a) (McKinney 2000) defines a title insurance corporation for application in N.Y. Ins. Law Article 64 (McKinney 2000) as "a corporation exercising any of the powers described in paragraph one or two of subsection (b) of section six thousand four hundred three of this article." N.Y. Ins. Law § 6403(b)(1) (McKinney 2000) states:

(b) Every title insurance corporation shall, subject to the exceptions and restrictions contained in this chapter, have power to do, in addition to the powers granted by the business corporation law, only the following kinds or any of the kinds of business, of which those specified in paragraphs one and two hereof shall be deemed doing an insurance business:

(1) To make and to guarantee the correctness of searches for all instruments affecting titles to real property, chattels real, and cooperative units and proprietary leases, and for all liens or charges affecting the same. (Emphasis added)

N.Y. Ins. Law § 6408(a) (McKinney 2000) states:

(a) No person, firm, association or corporation shall engage in business as a title insurance corporation except pursuant to the provisions of this article. This prohibition shall not prevent the making, issuing, or furnishing of any abstract, search, examination, survey or certificate of title without guarantee or insurance thereof, nor the doing of any business specified in paragraphs three, four, five and six of subsection (b) of section six thousand four hundred three of this article. (Emphasis added)

An abstract company that provides a guarantee of the correctness of its search would then be doing a title insurance business and would have to become licensed as a title insurance corporation under N.Y. Ins. Law Article 64 (McKinney 2000). An abstract company would not be doing a title insurance business if it did not provide a guarantee of the correctness of its search. There is no requirement in the Insurance Law that an abstract company become otherwise licensed.

N.Y. Ins. Law § 2102(a)(1) (McKinney 2000) states: "No person, firm, association or corporation shall act as an insurance agent, insurance broker, reinsurance intermediary or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter." (Emphasis added). N.Y. Ins. Law § 2101(a) (McKinney 2000) defines "insurance agent" for application in N.Y. Ins. Law Article 21 (McKinney 2000 & Supp. 2002) and pursuant to N.Y. Ins. Law § 2101(a)(4) (McKinney 2000) the term "insurance agent" is excluded from "any agent or other representative of any title insurance corporation." N.Y. Ins. Law § 2115(a) (McKinney Supp. 2002) prohibits the payment by insurers of commissions or other compensation for insurance agency services except to licensed property/casualty insurance agents. Pursuant to N.Y. Ins. Law § 2115(b) (McKinney Supp. 2002), N.Y. Ins. Law § 2115 (McKinney Supp. 2002) does not apply to a title insurance corporation or to any agent or representative of the title insurance corporation. Accordingly, an agent or representative of a title insurance corporation is not required to be licensed as an insurance agent to sell title insurance issued by the title insurance corporation.

For further information you may contact Senior Attorney Robert Freedman at the New York City Office.