New York State Seal

STATE OF NEW YORK

INSURANCE DEPARTMENT

25 BEAVER STREET

NEW YORK, NEW YORK 10004

David A. Paterson

Governor

Kermitt J. Brooks

Acting Superintendent

OGC Op. No. 09-07-01

The Office of General Counsel issued the following opinion on July 7, 2009, representing the position of the New York State Insurance Department.

Re: Joint Venture/Title Insurance Agency

Question Presented:

What is the percentage of title business that a joint venture title insurance agency must receive from each source to fulfill the requirement that there are "significant and multiple sources of business" for purposes of complying with the conclusions reached in prior OGC opinions and Insurance Law § 6409(d)?

Conclusion:

There are no hard and fast rules; the Department considers the facts and circumstances of each case when making any determination as to whether there are significant and multiple sources of business for a joint venture title agency.

Facts:

The inquiry is of a general nature, without reference to particular facts.

Analysis:

Insurance Law § 6409(d), styled "Filing of Policy Forms; Rates; Classification of Risks; Commissions and Rebates Prohibited," is relevant to the inquiry. That statute reads:

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.

The statute thus prohibits a title insurance corporation or any other person acting for or on its behalf from giving, directly or indirectly, any portion of its fees, premiums, or charges 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 prospective owner, lessee or mortgagee of real property or any interest therein, as an inducement for or as compensation for any title insurance business.

For purposes of compliance with the rebating prohibition set forth in Insurance Law § 6409(d), and to avoid sham business arrangements, the Department has issued several OGC Opinions stating that a joint venture title insurance agency must have "significant and multiple sources of business" other than from owner sources. See, e.g., OGC Opinion No. 03-03-20 (Mar. 24, 2003); OGC Opinion No. 02-01-20 (Mar. 21, 2002); OGC Opinion No. 02-05-03 (May 2, 2002); OGC Opinion No. 02-11-10 (Nov. 14, 2002).

For example, and as you note, the Department has opined that where there is one owner that is the sole source of business for a joint venture title agency, whatever compensation the owner receives in terms of profits constitutes a rebate in violation of Insurance Law § 6409(d), because the owner's compensation results directly from the amount of title business that the owner brings into the title agency. See, e.g., OGC Opinion No. 01-05-12 (May 11, 2001). In contrast, in a subsequent opinion, the Department concluded that there was no violation of Insurance Law § 6409(d) where a title agent actively conducted business with the general public, and where the co-owners therefore were not the sole source of business for the title agent. See OGC Opinion No. 02-11-10 (November 14, 2002); see also OGC Opinion No. 03-03-20 (March 24, 2003) (explaining in further detail how the requirements of Insurance Law § 6409(d) may be satisfied.

In sum, for purposes of Insurance Law § 6409(d), the Department considers the facts and circumstances of each case when making a determination as to whether a joint venture title agency has "significant and multiple sources of business." See OGC Opinion No. 02-01-20 (Jan. 14, 2002).

For further information you may contact Associate Attorney Pascale Jean-Baptiste at the New York City Office.