PRINTER'S NO. 3861
No. 2775 Session of 1994
INTRODUCED BY BUXTON, COLAFELLA, TIGUE, STEIGHNER, VAN HORNE,
YOUNGBLOOD, TRELLO, GIGLIOTTI, PISTELLA AND SERAFINI,
JUNE 14, 1994
REFERRED TO COMMITTEE ON INSURANCE, JUNE 14, 1994
AN ACT
1 Amending the act of May 17, 1921 (P.L.682, No.284), entitled "An
2 act relating to insurance; amending, revising, and
3 consolidating the law providing for the incorporation of
4 insurance companies, and the regulation, supervision, and
5 protection of home and foreign insurance companies, Lloyds
6 associations, reciprocal and inter-insurance exchanges, and
7 fire insurance rating bureaus, and the regulation and
8 supervision of insurance carried by such companies,
9 associations, and exchanges, including insurance carried by
10 the State Workmen's Insurance Fund; providing penalties; and
11 repealing existing laws," further providing for financial
12 requirements, for agents, for prohibition of commissions and
13 other considerations, for rate filing, for making of rates
14 and for penalties; and providing for conditions with respect
15 to escrow, closing and settlement services and title
16 indemnification accounts and for division of fees.
17 The General Assembly of the Commonwealth of Pennsylvania
18 hereby enacts as follows:
19 Section 1. Section 705 of the act of May 17, 1921 (P.L.682,
20 No.284), known as The Insurance Company Law of 1921, added
21 August 14, 1963 (P.L.922, No.439), is amended to read:
22 Section 705. Financial Requirements.--Every title insurance
23 company shall have a minimum capital, which shall be paid in and
24 maintained, of not less than [two hundred fifty thousand dollars
1 ($250,000)] five hundred thousand dollars ($500,000) and, in
2 addition, paid-in initial surplus at least equal to fifty
3 percent of its capital.
4 Section 2. Section 723 of the act is repealed.
5 Section 3. Sections 724 and 726 of the act, added August 14,
6 1963 (P.L.922, No.439), are amended to read:
7 Section 724. Agents; Defined.--[An agent is a person, firm,
8 association, corporation, cooperative or joint-stock company,
9 authorized in writing by a title insurance company directly or
10 indirectly:
11 (1) To solicit risks and collect premiums, and to issue or
12 countersign policies in its behalf; or
13 (2) To solicit risks and collect premiums in its behalf.]
14 (a) A title insurance agent is any licensed person, firm,
15 association, corporation, partnership or any other legal entity
16 authorized, in writing, by a licensed title insurance company to
17 perform the following:
18 (1) Solicits title insurance risks and collects title
19 insurance premiums on behalf of the title insurance company.
20 (2) Issues commitments to insure title, or reports of title,
21 based upon a search and examination of title and/or conducts
22 real estate closing, disburses funds, clears title and records
23 closing documents.
24 (3) Issues and countersigns title insurance policies based
25 on independent determination of insurability following
26 underwriting rules and standards prescribed by the title
27 insurance company.
28 An agent shall assume financial responsibility for all the acts
29 which the agent was appointed to perform by the title insurance
30 company.
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1 (b) No bank, trust company, bank and trust company or other
2 lending institution, mortgage service, mortgage brokerage or
3 mortgage guaranty company or any officer or employe of any of
4 the foregoing shall be permitted to act as an agent for a title
5 insurance company. The word "agent" shall not include approved
6 attorneys, nor shall it include officers and salaried employes
7 of any title insurance company authorized to do a title
8 insurance business within this Commonwealth.
9 Section 726. Agents; To be Licensed.--(a) Agents for a
10 title insurance company shall be licensed in the manner provided
11 for agents of insurance companies in section 603 of the act of
12 May 17, 1921 (P.L.789), known as "The Insurance Department Act
13 of 1921": Provided, however, That in the event that an applicant
14 for an agent's license is presently an agent of a title insurer
15 [or a licensed insurance broker or an attorney at law], the
16 applicant shall not be required to take an examination to
17 qualify for such license. Licenses of title insurance agents
18 shall expire [annually] biennially at midnight of June 30,
19 unless sooner terminated as the result of severance of business
20 relations between the company and the agent, or unless revoked
21 by the commissioner for cause.
22 (b) In addition to the requirements set forth in subsection
23 (a), all agents for a title insurance company shall:
24 (1) Pass an examination given by the Insurance Commissioner
25 or any testing service selected by the commissioner covering the
26 search and examination of title to real property, insurance
27 principles relating to title insurance and the fiduciary duties
28 and procedures of escrow, closing and settlement of real estate
29 transactions.
30 (2) Obtain errors and omissions insurance in an amount
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1 acceptable to the insurer appointing the agent, but in no event
2 in an amount less that two hundred fifty thousand dollars
3 ($250,000) per claim and an aggregate limit of five hundred
4 thousand dollars ($500,000) with a deductible no greater than
5 twenty-five thousand dollars ($25,000). The required errors and
6 omissions insurance shall be paid by the title insurance agent,
7 and a title insurer shall not provide the insurance directly or
8 indirectly on behalf of a title insurance agent. In the event
9 errors and omissions insurance is unavailable generally, the
10 Insurance Department shall promulgate rules for alternative
11 methods to comply with this paragraph.
12 (3) Obtain a fidelity bond in an amount acceptable to the
13 insurer appointing the agent, but in no event in an amount less
14 than two hundred fifty thousand dollars ($250,000). The required
15 bond shall be paid by the title insurance agent, and a title
16 insurer shall not provide the bond directly or indirectly on
17 behalf of a title insurance agent. In the event a fidelity bond
18 is unavailable generally, the Insurance Department shall
19 promulgate rules for alternative methods to comply with this
20 paragraph.
21 (4) Post a surety bond of not less than one hundred thousand
22 dollars ($100,000). The required bond shall be paid by the title
23 insurance agent, and a title insurer shall not provide the bond
24 directly or indirectly on behalf of a title insurance agent. The
25 bond shall secure the performance by the agent of his duties and
26 responsibilities under his issuing agency contracts with each
27 underwriter for which he is licensed. The bond shall be
28 maintained unimpaired as long as the agent continues in business
29 in this Commonwealth and until one year after termination of all
30 title insurance agent licenses held by the agent. The agent
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1 shall be entitled to the return of the bond together with
2 accrued interest after the year has passed, provided that no
3 claim has been made against the bond. In the event a surety bond
4 is unavailable generally, the Insurance Department may
5 promulgate rules for alternative methods to comply with this
6 paragraph. With respect to alternative methods for compliance,
7 the Insurance Department shall be guided by the past business
8 performance and good reputation and character of the proposed
9 title insurance agent. A surety bond is deemed to be unavailable
10 generally if the prevailing annual premium exceeds twenty-five
11 percent of the principal amount of the bond: Provided, however,
12 That title insurers are exempt from the requirement of obtaining
13 a surety bond.
14 (5) An agent shall complete sixteen hours, biennially, of
15 continuing education. The Insurance Commission shall, within
16 three months of the enactment of this subsection, be authorized
17 to promulgate rules and regulations for a continuing education
18 program.
19 (6) Render accounts to the title insurer detailing all
20 transactions and remit all funds and policies due under the
21 contract to the title insurer on a specified basis.
22 (7) Collect and hold in a fiduciary capacity for the account
23 of a title insurer all funds due the title insurer in a bank
24 that is a qualified institution. Each account shall be used for
25 all payments on behalf of the title insurer with whom a title
26 agency contract exists.
27 (8) Keep separate records of business written for each title
28 insurer. The title insurer shall have access and a right to copy
29 all files, accounts and records related to its business in a
30 form acceptable to the title insurer, and the Insurance
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1 Commissioner shall have access to all files, books, bank
2 accounts and records of the title insurance agent in a form
3 usable to the Insurance Commissioner.
4 Section 4. Section 730 of the act is repealed.
5 Section 5. Sections 731, 737(a) and 739(a) of the act, added
6 August 14, 1963 (P.L.922, No.439), are amended to read:
7 Section 731. Commissions; Other Considerations Prohibited.--
8 (a) No title insurance company or agent or approved attorney of
9 a title insurance company shall pay, give or award to an
10 applicant for title insurance any compensation, consideration,
11 benefit or remuneration, directly or indirectly[, except as
12 provided in section 730].
13 (b) The following activities, whether performed directly or
14 indirectly, are deemed per se inducements for the placement or
15 referral of title insurance business by any person and are
16 unlawful:
17 (1) Paying or offering to pay, furnishing or offering to
18 furnish, or providing or offering to provide assistance with the
19 business expenses of any person, including, but not limited to,
20 rent, employe salaries, furniture, copiers, facsimile machines,
21 automobiles, telephone services or equipment or computers.
22 (2) Providing or offering to provide any form of
23 consideration intended for the benefit of any person, including
24 cash, below market rate loans, automobile charges, merchandise
25 or merchandise credits.
26 (3) Placing or offering to place compensating balances on
27 behalf of any person.
28 (4) Advancing or paying or offering to advance or pay money
29 on behalf of any person into escrow to facilitate a closing,
30 except a sum which represents the proceeds of a loan made in the
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1 ordinary course of business.
2 (5) Disbursing or offering to disburse on behalf of any
3 person escrow funds held by a title insurance company or title
4 insurance agent before the conditions of the escrow applicable
5 to the disbursement have been met.
6 (6) Furnishing or offering to furnish all or any part of the
7 time or productive effort of any employe of the title insurance
8 company or title insurance agent to any person for any service
9 unrelated to the title business.
10 (c) Reasonable expenditures for food, beverages,
11 entertainment, educational programs and promotional items
12 constituting ordinary business expenses are deemed not to
13 constitute an inducement for the placement or referral of title
14 business, if the expenditures are correctly reported and
15 properly substantiated as an ordinary and necessary business
16 expense under provisions of the Internal Revenue Code of 1986
17 (Public Law 99-514, 26 U.S.C. § 1 et seq.) and regulations
18 issued thereunder, and the expenditures do not violate any other
19 law.
20 (d) The provision or payment of any form of consideration as
21 an inducement for the placement or referral of title business
22 not specifically set forth in this section shall not be presumed
23 lawful merely because it is not specifically prohibited.
24 (e) The Insurance Commissioner may determine compliance and
25 enforce the provisions of this section by written order,
26 regulation or written consent.
27 Section 737. Rate Filing.--(a) Every title insurance company
28 shall file with the commissioner every manual of
29 classifications, rules, plans, and schedules of fees[,
30 commissions payable to applicants for title insurance] and every
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1 modification of any of the foregoing relating to the rates which
2 it proposes to use. Every such filing shall state the proposed
3 effective date thereof, and shall indicate the character and
4 extent of the coverage contemplated.
5 * * *
6 Section 739. Making of Rates.--(a) In making rates, due
7 consideration shall be given to past and prospective loss
8 experience, to exposure to loss, to underwriting practice and
9 judgment, to the extent appropriate, to past and prospective
10 expenses, including commissions paid to agents [and applicants
11 for title insurance], the expenses incurred by title insurance
12 companies, to a reasonable margin for profit and contingencies,
13 and to all other relevant factors both within and outside of
14 this Commonwealth.
15 * * *
16 Section 6. The act is amended by adding sections to read:
17 Section 739.1. Conditions.--A title insurer or title agent
18 may engage in the escrow, settlement or closing business or any
19 combination of such businesses and operate as an escrow,
20 settlement or closing agent, in connection with the issuance of
21 a title insurance policy, provided that:
22 (1) Funds deposited in connection with any escrow,
23 settlement, closing or title indemnification shall be deposited
24 in a separate fiduciary trust account or accounts in a bank or
25 other financial institution insured by an agency of the Federal
26 Government. Such funds shall be the property of the person or
27 persons entitled thereto in accordance with the provision of the
28 escrow, settlement, closing or title indemnification and shall
29 be segregated by escrow, settlement, closing or title
30 indemnification in the records of the title insurer or title
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1 agent. Such funds shall not be subject to any debts of the title
2 insurer or title agent and shall be used only in accordance with
3 the terms of the individual escrow, settlement, closing or title
4 indemnification under which the funds were accepted.
5 (2) The title insurer or title agent shall maintain separate
6 records of all receipts and disbursements of escrow, settlement,
7 closing or title indemnification funds.
8 (3) The title insurer or title agent shall comply with any
9 rules or regulations promulgated by the Insurance Commissioner
10 pertaining to escrow, settlement, closing or title
11 indemnification transactions.
12 Section 739.2. Division of Fees.--(a) Nothing in this act
13 shall be construed as prohibiting the division of fees between
14 or among a title insurer and its title agent, two or more title
15 insurers and their title agent, two or more title insurers, one
16 or more title insurers and one or more title agents, or two or
17 more title agents, provided such division of fees does not
18 constitute an unlawful rebate or inducement under the provisions
19 of this act.
20 (b) Notwithstanding subsection (a), with respect to any
21 title insurance policy issued after the effective date of this
22 act, no title insurer shall pay to any title insurance agent or
23 permit such agent to retain any amount exceeding that which is
24 promulgated by the Insurance Department on a periodic basis.
25 (c) This maximum retainage shall not be increased directly
26 or indirectly by an insurer providing services to an agent for
27 less than actual cost or fair market value.
28 Section 7. Section 748(a) of the act, added August 14, 1963
29 (P.L.922, No.439), is amended to read:
30 Section 748. Penalties.--(a) The commissioner may, if he
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1 finds that any person or organization has violated any provision
2 of this article, impose a penalty of not more than [fifty
3 dollars ($50)] five hundred dollars ($500) for each such
4 violation, but if he finds such violation to be wilful, he may
5 impose a penalty of not more than [five hundred dollars ($500)]
6 five thousand dollars ($5,000) for each such violation. Such
7 penalties may be in addition to any other penalty provided by
8 law.
9 * * *
10 Section 8. This act shall take effect in 60 days.
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