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 January 14, 2002, representing the position of the New York State Insurance Department.

Re: N.Y. Ins. Law § 6409(d): Title Insurance Joint Venture

Questions Presented:

1. Does the procurement of title insurance business by a joint venture/title agent from an outside (i.e., non-owner) source, in addition to the business it receives from its owner, constitute an additional source of business so as to permit the owner to share in profits realized by the joint venture/title agent without violating N.Y. Ins. Law § 6409(d) (McKinney 2000)?

2. May the co-owners of a joint venture/title agent share in the profits of such joint venture/title agent where they are collectively the sole source of business for the joint venture/title agent?

Conclusions:

1. Whether or not such arrangement would prevent a violation of N.Y. Ins. Law § 6409(d) (McKinney 2000), is a question of fact that would require examination of the specifics of the proposed arrangement.

Having each co-owner refer its title insurance business to the joint venture/title agent would not necessarily violate Section 6409(d) if the profits to be received are not related to the percentage of business such co-owner refers to the joint venture/title agent.

Facts:

A title insurance corporation will enter into a joint venture with one or more real estate developers and the joint venture will be a title agent. In one scenario, there will be one owner who will, along with an additional, non-owner source, refer its title insurance business to the joint venture/title agent and share in the profits thereof.

In the second scenario, there will be multiple co-owners. Each co-owner will refer its own title insurance business to the joint venture/title agent. However, each co-owner’s interest in the joint venture is predetermined and whatever profits each receives will be based on its ownership interest, not on the amount of business it refers to the joint venture/title agent.

Analysis:

N.Y. Ins. Law § 6409(d) (McKinney 2000) provides:

(d) No title insurance corporation or any other person acting for or on behalf of it, shall make any rebate of any portion of the fee, premium or charge made, or pay or give to any applicant for insurance, or to any person, firm, or corporation acting as agent, representative, attorney, or employee of the owner, lessee, mortgagee or the prospective owner, lessee, or mortgagee of the real property or any interest therein, either directly or indirectly, any commission, any part of its fees or charges, or any other consideration or valuable thing, as an inducement for, or as compensation for, any title insurance business. Any person or entity who accepts or receives such a commission or rebate shall be subject to a penalty equal to the greater of one thousand dollars or five times the amount thereof.

While there is nothing in the Insurance Law that expressly prohibits the type of joint venture/title agency outlined above, N.Y. Ins. Law § 6409(d) (McKinney 2000) prohibits the payment, directly or indirectly, of any remuneration to any person if such remuneration constitutes "an inducement for, or as compensation for, any title insurance business."

Specifically, the inquirer asked whether, in circumstances where there is one owner of a joint venture/title agent, the procurement of title insurance business from one non-owner source would constitute an additional source of business, allowing the owner to share in the overall profits of the joint venture/title agent without violating N.Y. Ins. Law § 6409(d) (McKinney 2000). Generally, where there is one owner that is the sole source of business for the joint venture/title agent, whatever compensation such owner receives, in terms of profits, would constitute a rebate, in violation of N.Y. Ins. Law § 6409(d) (McKinney 2000) because there will not be "multiple sources of business" available to such joint venture/title agent.

Whether or not referral of title insurance business by one additional, non-owner source to the joint venture/title agent qualifies as "multiple sources of business," allowing the owner to share in the profits of the business without violating N.Y. Ins. Law § 6409(d) (McKinney 2000), is a question of fact that requires an examination of the specifics of the proposed arrangement.

The inquirer also asked whether referral of title insurance business to the joint venture/title agent by multiple co-owners satisfies the "multiple sources of business" requirement. The inquirer presents a scenario where, for example, a co-owner owns 50% of the joint venture but only refers 10% of its title business to the joint venture/title agent. In such instance, the owner will receive 50% of the overall profits, which is its ownership interest, not 10%, which would be the amount of business it referred to the joint venture/title agent.

To prevent a violation of N.Y. Ins. Law § 6409(d) (McKinney 2000), any compensation, in terms of profits, to the co-owners must be based on their ownership interest, not on the amount of business they refer to the joint venture/title agent. In addition, there can be no agreement regarding the amount of business each co-owner may generate.

For further information you may contact Senior Attorney D. Monica Marsh at the New York City Office.