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 March 21, 2002, representing the position of the New York State Insurance Department.

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

Question Presented:

Does the proposed business arrangement, the specifics of which are delineated below, violate the Insurance Law?

Conclusion:

The Department has no objection to the proposed business arrangement so long as there will, in fact, be significant profits from multiple sources of business for the joint venture in question and any compensation in terms of profits, to the owners, will be based on their ownership interest and not on the amount of business they refer to the joint venture. In addition, there can be no agreement regarding the amount of business each co-owner may generate.

Facts:

A joint venture/title insurance agent will be formed by a real estate developer and an unaffiliated entity. The joint venture will place business on behalf of the real estate developer and the unaffiliated entity, as well as unrelated third parties. Unaffiliated title insurers would underwrite the title insurance policies.

In addition, the joint venture will be distinct from the real estate developer and the unaffiliated entity in that it would have a separate telephone number, control its own bank accounts and acquire its own federal tax identification number. The joint venture will enter into an agency agreement with title insurers that will authorize it to act as a title agent. The joint venture will also develop and implement a marketing plan and hire a sales representative to attract sources of title business in addition to business referred by the real estate developer and the unaffiliated entity. The sales representative will market the joint venture to prospective clients and participate in industry functions and seminars to engage in networking.

Although the real estate developer will direct a portion of its title insurance business to the joint venture, the profits of the joint venture will be expected to be derived from multiple sources of business and not limited to the business of the developer. The real estate developer’s right to share in the profits will not be related to the amount or percentage of business it refers to the joint venture. In addition, the real estate developer’s return on its percentage ownership interest would derive from the ordinary risks and rewards of the joint venture, in particular, the availability of other sources of business and would depend, in part, on the cost of developing those other sources of business and of servicing the joint venture’s total business.

Analysis:

As stated in a January 14, 2002 letter issued by the Department, where there is one owner that is the sole source of business for the joint venture, 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.

It is submitted that the "profits of the joint venture [in question] will be expected to be derived from multiple sources of business and not limited to the business of the developer." The Department has no objection to the specific business arrangement above, so long as there will, in fact, be significant profits from multiple sources of business for the joint venture, and any compensation in terms of profits, to the owners, will be based on their ownership interest and not on the amount of business they refer to the joint venture. In addition, there can be no agreement regarding the amount of business each co-owner may generate.

This opinion is limited to the specific factual situation above.

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