Chapter 10-066

Chapter 066

2010 -- H 7709 SUBSTITUTE A AS AMENDED

Enacted 06/12/10

A N A C T

RELATING TO INSURANCE -- RHODE ISLAND TITLE INSURERS

Introduced By: Representatives Marcello, and Pollard

Date Introduced: February 25, 2010

It is enacted by the General Assembly as follows:

SECTION 1. Title 27 of the General Laws entitled "INSURANCE" is hereby amended

by adding thereto the following chapter:

CHAPTER 2.6

RHODE ISLAND TITLE INSURERS ACT

27-2.6-1. Title and purpose. – (a) This chapter shall be known and may be cited as the

"Rhode Island Title Insurers Act."

(b) The purpose of this chapter is to provide for the effective regulation and supervision

of title insurance and title insurers licensed to write title insurance in this state.

27-2.6-2. Application of act and construction with other laws. – (a) This chapter shall

apply to all persons engaged in the business of title insurance in this state.

(b) Except where the context otherwise requires, all provisions of the Rhode Island

general laws applying to insurance and insurance companies shall apply to title insurance

insurers.

27-2.6-3. Definitions. – As used in this chapter:

(1) "Abstract of title" or "abstract" means a written history, synopsis or summary of the

recorded instruments affecting the title to real property.

(2) "Affiliate" means a specific person that directly, or indirectly through one or more

intermediaries, controls, or is controlled by or is under common control with the person specified.

(3) "Bona fide employee of the title insurer or title insurance agent" means an individual

who devotes substantially all of his or her time to performing services on behalf of a title insurer

or title insurance agent and whose compensation for those services is in the form of salary or its

equivalent paid by the title insurer or title insurance agent.

(4) "Commissioner" means the director of the department of business regulation, or his or

her designee or the commissioner, director or superintendent of insurance in any other state.

(5) "Control" (including the terms "controlling," "controlled by" and "under common

control with") means the possession, direct or indirect, of the power to direct or cause the

direction of the management and policies of a person, whether through the ownership of voting

securities, by contract other than a commercial contract for goods or nonmanagement services, or

otherwise, unless the power is the result of an official position or corporate office held by the

person. Control shall be presumed to exist if a person, directly or indirectly, owns, controls, holds

with the power to vote, or holds proxies representing, ten percent (10%) or more of the voting

securities of another person. This presumption may be rebutted by a showing that control does not

exist in fact. The commissioner may determine, after furnishing all persons in interest notice and

opportunity to be heard and making specific findings of fact to support the determination, that

control exists in fact, notwithstanding the absence of a presumption to that effect.

(6) "Direct operations" means that portion of a title insurer's operations which are

attributable to business written by a bona fide employee.

(7) "Escrow" means written instruments, money or other items deposited by one party

with a depository, escrow agent or escrowee for delivery to another party upon the performance,

of a specified condition or the happening of a certain event.

(8) "Escrow, settlement or closing fee" means the consideration for supervising or

handling the actual execution, delivery or recording of transfer and lien documents and for

disbursing funds.

(9) "Foreign title insurer" means any title insurer incorporated or organized under the

laws of any other state of the United States, the District of Columbia, or any other jurisdiction of

the United States.

(10) "Net retained liability" means the total liability retained by a title insurer for a single

risk, after taking into account any ceded liability and collateral, acceptable to the commissioner,

maintained by the insurer.

(11) "Non-U.S. title insurer" means any title insurer incorporated or organized under the

laws of any foreign nation or any province or territory.

(12) "Person" means any natural person, partnership, association, cooperative,

corporation, trust or other legal entity.

(13) "Producer" means any person, including any officer, director or owner of five

percent (5%) or more of the equity or capital of any person, engaged in this state in the trade,

business, occupation or profession of:

(i) Buying or selling interests in real property;

(ii) Making loans secured by interests in real property; or

(iii) Acting as broker, agent, representative or attorney or a person who buys or sells any

interest in real property or who lends or borrows money with the interest as security.

(14) "Qualified financial institution" means an institution that is:

(i) Organized or (in the case of a United States branch or agency office of a foreign

banking organization) licensed under the laws of the United States or any state and has been

granted authority to operate with fiduciary powers;

(ii) Regulated, supervised and examined by federal or state authorities having regulatory

authority over banks and trust companies;

(iii) Insured by the appropriate federal entity; and

(iv) Qualified under any additional rules established by the commissioner.

(15) "Security" or "security deposit" means funds or other property received by the title

insurer as collateral to secure an indemnitor's obligation under an indemnity agreement pursuant

to which the insurer is granted a perfected security interest in the collateral in exchange for

agreeing to provide coverage in a title insurance policy for a specific title exception to coverage.

(16) "Subsidiary" means an affiliate controlled by a person directly or indirectly through

one or more intermediaries.

(17) "Title insurance agent" or "agent" means an authorized person, other than a bona

fide employee of the title insurer who, on behalf of the title insurer, performs the following acts,

in conjunction with the issuance of a title insurance report or policy:

(i) Determines insurability and issues title insurance reports or policies, or both, based

upon the performance or review of a search or abstract of title; and

(ii) Performs one or more of the following functions:

(A) Collects or disburses premiums, escrow or security deposits or other funds;

(B) Handles escrows, settlements or closings;

(D) Records closing documents.

(18) "Title insurance business" or "business of title insurance" means":

(i) Issuing as insurer or offering to issue as insurer, a title insurance policy;

(ii) Transacting or proposing to transact by a title insurer any of the following activities

when conducted or performed in contemplation of, or in conjunction with, the issuance of a title

insurance policy:

(A) Soliciting or negotiating the issuance of a title insurance policy;

(B) Guaranteeing, warranting or otherwise insuring the correctness of title searches for all

instruments affecting titles to real property, any interest in real property, cooperative units and

proprietary leases and for all liens or charges affecting the same;

(D) Executing title insurance policies;

(E) Effecting contracts of reinsurance.

(iii) Guaranteeing, warranting or insuring searches or examination of title to real property

or any interest in real property;

(iv) Guaranteeing or warranting the status of title as to ownership of or liens on real

property and personal property by any person other than the principals to the transaction; or

(v) Doing or proposing to do any business substantially equivalent to any of the activities

listed in this subsection in a manner designed to evade the provisions of this chapter.

(19) "Title insurance policy" or "policy" means a contract insuring or indemnifying

owners of, or other persons lawfully interested in, real or personal property or any interest in real

property, against loss or damage arising from any or all of the following conditions existing and

not excepted or excluded:

(i) Defects in or liens or encumbrances on the insured title;

(ii) Unmarketability of the insured title;

(iii) Invalidity, lack of priority or unenforceability of liens or encumbrances on the stated

property;

(iv) Lack of legal right of access to the land; or

(v) Unenforceability of rights in title to the land.

(20) "Title insurer" or "insurer" means a company organized under laws of this state for

the purpose of transacting the business of title insurance and any foreign or non-United States

title insurer licensed in this state to transact the business of title insurance.

(21) "Title plant" means a set of records consisting of documents, maps, surveys or

entries affecting title to real property or any interest in or encumbrance on the property, which

have been filed or recorded in the jurisdiction for which the title plant is established or

maintained.

27-2.6-4. Corporate form required. – No person other than a domestic, foreign or non-

United States title insurer organized on the stock plan licensed under title 27 as a title insurer

shall issue a title insurance policy or otherwise transact the business of title insurance in this state.

27-2.6-5. Authorized activities of title insurers. – Subject to the exceptions and

restrictions contained in this chapter, a title insurer shall have the power to:

(1) Do only title insurance business;

(2) Reinsure title insurance policies; and

(3) Perform ancillary activities, unless prohibited by the commissioner by regulation,

including, examining titles to real property and any interest in real property and procuring and

furnishing related information and information about relevant personal property, when not in

contemplation of, or in conjunction with, the issuance of a title insurance policy.

27-2.6-6. Limitations on powers. – (a) No insurer that transacts any class, type or kind

of business other than title insurance shall be eligible for the issuance or renewal of a license to

transact the business of title insurance in this state nor shall title insurance be transacted,

underwritten or issued by any insurer transacting or licensed to transact any other class, type or

kind of business.

(b) A title insure shall not engage in the business of guaranteeing payment of the

principal or the interest of bonds or mortgages.

(c)(1) Notwithstanding subsection (a) of this section, and to the extent such coverage is

lawful within this state, a title insurer is expressly authorized to issue closing or settlement

protection to a proposed insured upon request if the title insurer or its title agent issues a

preliminary report, binder or title insurance policy. Such closing or settlement protection shall

conform to the terms of coverage and form of instrument as approved by the commissioner and

may indemnify a proposed insured solely against loss of settlement funds only because of the

following acts of a title insurer's named title insurance agent:

(i) Theft of settlement funds; and

(ii) Failure to comply with written closing instructions by the proposed insured when

agreed to by the title insurance agent relating to title insurance coverage.

(2) A title insurer shall not provide any other coverage which purports to indemnify

against improper acts or omissions of a person with regard to escrow, settlement, or closing

services, except for an insured closing letter in a form approved by the department.

27-2.6-7. Minimum capital and surplus requirements. – Before being licensed to do

insurance business in this state, a title insurer shall establish and maintain a minimum paid-in

capital of not less than five hundred thousand dollars ($500,000) and, in addition, paid-in initial

surplus of at least five hundred thousand dollars ($500,000).

27-2.6-8. Admitted asset standards. – In determining the financial condition of a title

insurer doing business under this chapter, the investment provisions of chapters 27-11 and 27-

11.1 shall apply, except that an investment in a title plant or plants in an amount equal to the

actual cost shall be allowed as an admitted asset for title insurers. The aggregate amount of the

investment shall not exceed the lesser of twenty percent (20%) of admitted assets or forty percent

(40%) of surplus to policyholders, as shown on the most recent annual statement of the title

insurer on file with the commissioner.

27-2.6-9. Reserves. – In determining the financial condition of a title insurer doing

business under this chapter, the Rhode Island general laws requiring the establishment of reserves

sufficient to cover all known and unknown liabilities including allocated and unallocated loss

adjustment expense, shall apply, except that a title insurer shall establish and maintain additional

reserves in accordance with regulations promulgated by the insurance commissioner.

27-2.6-10. Liquidation, dissolution or insolvency. – (a) Chapter 27-14.3 shall apply to

all title insurers subject to the Title Insurance Act, except as otherwise provided in this section. In

applying the provisions of chapter 27-14.3, the court shall consider the unique aspects of title

insurance and shall have broad authority to fashion relief that provides for the maximum

protection of the title insurance policyholders.

(b) Security and escrow funds held by or on behalf of the title insurer shall not become

general assets and shall be administered as secured creditor claims defined in chapter 27-14.3.

shall not be canceled except upon a showing to the court of good cause by the liquidator. The

determination of good cause shall be within the discretion of the court. In making this

determination, the court shall consider the unique aspects of title insurance and all other relevant

circumstances.

(d) The court may set appropriate dates that potential claimants must file their claims

with the liquidator. The court may set different dates for claims based upon the title insurance

policy than for all other claims. In setting dates, the court shall consider the unique aspects of title

insurance and all other relevant circumstances.

(e) As of the date of the order of insolvency or liquidation, all premiums paid, due or to

become due under policies of the title insurers, shall be fully earned. It shall be the obligation of

agents, insureds or representatives of the title insurer to pay fully earned premium to the

liquidator or rehabilitator.

27-2.6-11. Diversification requirement. – (a) Without the prior written approval of the

commissioner, a domestic title insurer shall not accept:

(1) Additional business from a title insurance agent that is not an affiliated company with

the insurer if, when added to other business written through the title insurance agent during the

same calendar year, that agent's aggregate premiums written on behalf of the title insurer will

exceed twenty percent (20%) of the title insurer's gross premiums written during the prior

calendar year, as shown on the title insurer's most recent annual statement on file with the

commissioner; or

(2) Additional direct operations business from a single source if, when added to other

direct operations business from the single source during the same calendar year, the aggregate

premiums written on the direct operations business of the single source will exceed twenty

percent (20%) of the title insurer's gross premiums written during the prior calendar year as

shown on the title insurers most recent annual statement on file with the commissioner. For

purposes of this section a "single source" means a person that refers business to the title insurer

and any other person that controls, is controlled by, or is under common control with, that person.

(b) In determining whether prior approval may be given, the commissioner shall

consider:

(1) The potential that the acceptance of more business from the title agent or source may

adversely affect the financial solvency of the title insurer;

(2) The availability of competing title agents or additional sources in the territories in

which the title insurer accepts risks;

(3) The number of years the title insurer has been in business;

(4) Reinsurance arrangements mitigating the concentration of business from the agent or

source;

(5) The comparative profitability of the agent's or source's book of business;

(6) The degree of oversight of the agent's operations exercised by the title insurer; and

(7) Any other circumstances deemed by the commissioner to be appropriate.

27-2.6-12. Policyholder treatment. – (a) When a title insurance report includes an offer

to issue an owner's policy covering the resale of owner-occupied residential property, the report

shall be furnished to the purchaser-mortgagor or its representative as soon as reasonably possible

prior to closing. If the report cannot be delivered prior to the day of closing, the title insurer or

agent shall document the reasons for the delay. The report furnished to the purchaser-mortgagor

shall incorporate the following statement on the first page in bold type:

"Please read the exemptions and the terms shown or referred to herein carefully.

The exemptions are meant to provide you with notice of matters which are not covered

under the terms of the title insurance policy and should be carefully considered.

It is important to note that this form is not a written representation as to the

condition of title and may not list all liens, defects, and encumbrances affecting title to the

land."

(b) A title insurer issuing a lender's title insurance policy in conjunction with a mortgage

loan made simultaneously with the purchase of all or part of the real estate securing the loan,

where no owner's title insurance policy has been requested, shall give written notice to the

purchaser-mortgagor at the time the commitment is prepared. The notice shall explain that a

lender's title insurance policy is to be issued protecting the mortgage-lender, and that the policy

does not provide title insurance protection to the purchaser-mortgagor as the owner of property

being purchased. The notice shall explain what title policy insures against and what possible

exposures exist for the purchaser-mortgagor that could be insured against through the purchase of

an owner's policy. The notice shall also explain that the purchaser-mortgagor may obtain an

owner's title insurance policy protecting the property owner at a specified cost or approximate

cost, if the proposed coverages or amount of insurance is not then known. A copy of the notice,

signed by the purchaser-mortgagor, shall be retained in the relevant underwriting file at least five

(5) years after the effective date of the policy.

27-2.6-13. Duties of title insurers utilizing the services of title insurance agents. – (a)

The title insurer shall not accept business from a title insurance agent unless there is in force a

written contract between the parties which sets forth the responsibilities of each party and, where

both parties share responsibility for a particular function, specifies the division of responsibilities.

(b) The title insurer shall, on at least a biennial basis, conduct an on-site review of the

underwriting, claims and escrow practices of the agent which shall include a review of the agent's

policy blank inventory and processing operations.

employee or controlling shareholder or any title insurance agent who wrote one percent (1%) or

more of the title insurer's direct premiums written during the previous calendar year as shown on

the tile insurer's most recent annual statement on file with the commissioner. This subsection

shall not apply to relationships governed by section 27-35-1 et seq.

(d) The title insurer shall maintain an inventory of all policy forms or policy numbers

allocated to each title insurance agent.

(e) The title insurer shall have on file proof that the title insurance agent is licensed by

this state.

(f) The title insurer shall establish the underwriting guidelines and, where applicable,

limitations on title claims settlement authority to be incorporated into contracts with its title

insurance agents.

27-2.6-14. Prohibition of rebate and fee splitting. – A title insurer or other person shall

not give or receive, directly or indirectly, any consideration for the referral of title insurance

business or escrow or other service provided by a title insurer. This section does not affect a title

insurers ability to pay consideration to persons or entities who provide core services, as defined

by Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. Section 2607, as amended.

27-2.6-15. Favored agent of title insurer. – A title insurer shall not participate in any

transaction in which it has actual knowledge that a producer or other person requires, directly or

indirectly, or through any trustee, director, officer, agent, employee or affiliate, as a condition,

agreement or understanding to selling or furnishing any other person a loan, or loan extension,

credit, sale, property, contract, lease or service, that the other person shall place a title insurance

policy of any kind with the title insurer or through a particular title insurance agent.

27-2.6-16. Premium rate filings and standards. – No title insurer may charge any rates

regulated by the state after the effective date of this act, except in accordance with the premium

rate schedule and manuals filed with and approved by the commissioner in accordance with the

provisions of chapter 27-44.

27-2.6-17. Form filing. – (a) A title insurer or authorized rate service organization shall

not deliver or issue for delivery or permit any of its authorized title insurance agents to deliver in

this state, any policy form, in connection with title insurance written, unless it has been filed with

and approved by the commissioner.

(b) Forms covered by this section shall include:

(1) Title insurance policies, including standard form endorsements; and

(2) Title insurance commitments issued prior to the issuance of a title insurance policy;

(3) An insurer may use American Land Title Association (ALTA) approved checklists on

endorsements.

organization which submitted a form for approval, the commissioner may withdraw approval of

the form on finding that the use of the form is contrary to the legal requirements applicable at the

time of withdrawal. The effective date of withdrawal of approval shall not be less than ninety (90)

days after notice of withdrawal is given.

(d) Any term or condition related to an insurance coverage provided by an approved title

insurance policy or any exception to the coverage, except those ascertained from a search and

examination of records relating to a title or inspection or survey of a property to be insured, may

only be included in the policy after the term, condition or exception has been filed with the

commissioner and approved.

27-2.6-18. Filing by rating bureaus. – (a) A title insurer may satisfy its obligation to file

premium rates, rating manuals and forms as required by this chapter by becoming a member of,

or a subscriber to, a rate service organization, organized and licensed under the provisions of this

code, where the organization makes the filing, and by authorizing the commissioner in writing to

accept the filings on the insurer's behalf.

(b) Nothing in this chapter shall be construed as requiring a title insurer to become a

member of, or a subscriber to, any rate service organization. Nothing in this chapter shall be

construed as prohibiting the filing of deviations from rate service organization filings by any

member or subscriber.

27-2.6-19. Penalties and liabilities. – (a) If the commissioner determines that the title

insurer has violated this chapter, or any regulation or order promulgated thereunder, after notice

and opportunity to be heard, the commissioner may order:

(1) A penalty pursuant to section 42-14-16 for each violation; and

(2) Revocation or suspension of the title insurer's license.

(b) Nothing contained in this section shall affect the right of the commissioner to impose

any other penalties provided for in the insurance code.

the rights of policyholders, claimants and creditors.

27-2.6-20. Violations of the real estate settlement procedures act (RESPA). – The

commissioner or attorney general may bring an action in a court of competent jurisdiction to

enjoin violations of RESPA, 12 U.S.C. section 2607, as amended.

27-2.6-21. Severability. – If any provision of this chapter, or the application of the

provision to any person or circumstances shall be held invalid, the remainder of the chapter and

the application of the provision to persons or circumstances other than those to which it is held

invalid, shall not be affected.

SECTION 2. This act shall take effect on January 1, 2011 and shall apply to all

transactions entered into after the effective date.

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LC01799/SUB A

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