DAR File No. 31010

Insurance, Administration

R590-153

Unfair Inducements and Marketing Practices in Obtaining Title Insurance Business

NOTICE OF PROPOSED RULE

DAR File No.: 31010
Filed: 02/15/2008, 04:36
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

This rule is being changed for several reasons: 1) to update the rule to keep up with changes in the title and escrow marketplace; 2) to move it to a Title and Escrow Commission rule (change to Rule R592-6); and 3) to make technical changes.

Summary of the rule or change:

The Authority section provides reference to the Title and Escrow Commissions authority to write rules; the Purpose and Scope sections have been combined; the Definition section has been put in alphabetical order, and a new definition included for "Flip transactions". Several subsections in Sections R590-153-4 and R590-153-5 have been moved, without change to the text. Subsection R590-153-5(R) dealing with information packets has been deleted since they are no longer being collected by the department nor charged for by industry due to expense for such things being reduced due to technology. Subsection R590-153-5(P) is also being deleted since it is no longer an issue. Subsection R590-153-6(G) is being changed to clarify that the education programs provided referred to are continuing education programs. Commissioner is being changed to Commission throughout the rule to comply with the transfer of this rule from the Insurance Department to the Title and Escrow Commission. Other technical changes are also being made.

State statutory or constitutional authorization for this rule:

Section 31A-2-404

Anticipated cost or savings to:

the state budget:

This amendment will have no fiscal impact on the Insurance Department or the state's budget. The changes will not result in additional or reduced fees to the department, nor will it result in a change in the workload of department staff.

local governments:

Since this rule deals solely with the relationship between the department and their licensees, it will have no impact on local governments.

small businesses and persons other than businesses:

This amendment will have no fiscal impact on small businesses. The majority of the changes deal with the moving of subsections, change in outlining and rule references, and the deletion of subsections that are no longer issues in the title business. The changes will not require additional filings, fees, or reprinting of forms for any businesses.

Compliance costs for affected persons:

This rule will have no fiscal impact on consumers or licensees. The majority of the changes deal with the moving of subsections within the rule, change in outlining and rule references, and the deletion of subsections that are no longer issues in the title business. Since the changes should have no fiscal impact on the title business, there should be no fiscal impact on their consumers.

Comments by the department head on the fiscal impact the rule may have on businesses:

This rule should have no fiscal impact on businesses. D. Kent Michie, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Insurance
Administration
Room 3110 STATE OFFICE BLDG
450 N MAIN ST
SALT LAKE CITY UT 84114-1201

Direct questions regarding this rule to:

Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at jwhitby@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

03/31/2008

Interested persons may attend a public hearing regarding this rule:

3/10/2008 at 9:00 AM, House Building (behind the Capitol), Room W130, Salt Lake City, UT

This rule may become effective on:

04/07/2008

Authorized by:

Jilene Whitby, Information Specialist

[R590]R592. Insurance, [Administration]Title and Escrow Commission.

[R590-153]R592-6. Unfair Inducements and Marketing Practices in Obtaining Title Insurance Business.

[R590-153-1]R592-6-1. Authority.

This rule is promulgated pursuant to Section [31A-2-201(3)(a)]31A-2-404(2), [in ]which authorizes the Title and Escrow Commission (Commission) to [the commissioner is empowered to ]make rules [to implement]for the administration of the Insurance Code[, and pursuant to the specific authority of Section 31A-23a-402(8), which authorizes the commissioner to define unfair methods of competition or any other unfair or deceptive act or practice in the business of insurance]related to title insurance, including rules related to standards of conduct for a title licensee.

 

[R590-153-2]R592-6-2. Purpose and Scope.

(1) The purpose of this rule is to identify certain practices, which the [commissioner]Title and Escrow Commission finds [provide]creates unfair inducements for the placement of title insurance business and as such constitute unfair methods of competition. These practices include[, but are not limited to,] the payment of expenses that are considered normal, customary, reasonable and recurring in the operation of a client of a title insurer, agency or producer.

(2) This rule applies to all title insurers, title insurance agencies, title insurance producers and all employees, representatives and any other party working for or on behalf of said entities whether as a full time or part time employee or as an independent contractor.

 

[R590-153-3. Scope.

This rule applies to all title insurers, title insurance agencies and title insurance producers and all employees, representatives and any other party working for or on behalf of said entities whether as a full time or part time employee or as an independent contractor.

 

R590-153-4]R592-6-3. Definitions.

For the purpose of this rule the [commissioner]Commission adopts the definitions as set forth in Sections 31A-1-301 and 31A-2-402, and the following:

[A.](1) "Bona fide real estate transaction" means:

(a) a preliminary title report is issued to a seller or listing agent in conjunction with the listing of a property; or

(b) a commitment for title insurance is ordered, issued, or distributed in a purchase and sale transaction showing the name of the proposed buyer and the sales price, or in a loan transaction showing the proposed lender and loan amount.

(2) "Business activities" shall include, sporting events, sporting activities, musical and art events. In no case shall such business activities rise to the level of ceremonies, for example; award banquets, recognition events or similar activities sponsored by or for clients, or include travel by air or other commercial transportation.

(3) "Business meals" shall include breakfast, brunch, lunch, dinner, cocktails, and tips. In no case shall such business meals rise to the level of ceremonies, for example; awards banquets, recognition events or similar activities sponsored by or for clients.

(4) "Client" means any person, or group, who influences, or who may influence, the placement of title insurance business or who is engaged in a business, profession or occupation of:

[(1)](a) buying or selling interests in real property;

[(2)](b) making loans secured by interests in real property; and

[(3)](c) [shall include but not be limited to]including real estate agents, real estate brokers, mortgage brokers, lending or financial institutions, builders, developers, sub-dividers, attorneys, consumers, escrow companies and the employees, agents, representatives, solicitors and groups or associations of any of the foregoing.

[B.](5) "Discount" means the furnishing or offering to furnish title insurance, services constituting the business of title insurance or escrow services for a total charge less than the amounts set forth in the applicable rate schedules filed pursuant to Section 31A-19a-203 or 31A-19a-209.

(6) "Flip transaction" means a series of real estate transactions for the same parcel of property where a final sale or closing provides the funds to complete the previous transactions.

(7) "Official trade association publication" means:

(a) a membership directory, provided its exclusive purpose is that of providing the distribution of an annual roster of the association's members to the membership and other interested parties; or

(b) an annual, semiannual, quarterly or monthly publication containing information and topical material for the benefit of the members of the association.

[C.](8) "Trade Association" means a recognized association of persons, a majority of whom are clients or persons whose primary activity involves real property.[

D. "Business meals" shall include, but are not limited to, breakfast, brunch, lunch, dinner, cocktails and tips. In no case shall such business meals rise to the level of ceremonies, for example, awards banquets, recognition events or similar activities sponsored by or for clients.

E. "Official Trade Association Publication" means:

(1) a membership directory, provided its exclusive purpose is that of providing the distribution of an annual roster of the association's members to the membership and other interested parties; or

(2) an annual, semiannual, quarterly or monthly publication containing information and topical material for the benefit of the members of the association.

F. "Business Activities" shall include, but are not limited to, sporting events, sporting activities, music and art events. In no case shall such business activities rise to the level of ceremonies, for example award banquets, recognition events or similar activities sponsored by or for clients, or include travel by air, or other commercial transportation.

G. "Bona fide real estate transaction" means:

(1) a preliminary title report is issued to a seller or listing agent in conjunction with the listing of a property, or

(2) a commitment for title insurance is ordered, issued, or distributed in a purchase and sale transaction showing the name of the proposed buyer and the sales price, or in a loan transaction showing the proposed lender and loan amount.]

 

[R590-153-5]R592-6-4. Unfair Methods of Competition, Acts and Practices.

The [commissioner]Commission finds that providing or offering to provide any of the following benefits by parties identified in Section [R590-153-3]R592-6-2 to any client, either directly or indirectly, except as specifically allowed in Section [R590-153-6]R592-6-5 below, is a material and unfair inducement to obtaining title insurance business and constitutes an unfair method of competition indirectly, except as specifically allowed in Section the business of title insurance prohibited under Section 31A-23a-402:

[A.](1) The furnishing of a title insurance commitment without one of the following:

[(1)](a) sufficient evidence in the file of the title insurer, agency or producer that a bona fide real estate transaction exists; or

[(2)](b) payment in full at the time the title insurance commitment is provided.

[B.](2) The paying of any charges for the cancellation of an existing title insurance commitment issued by a competing organization, unless that commitment discloses a defect which gives rise to a claim on an existing policy.

[C.](3) Furnishing escrow services pursuant to Section 31A-23a-406[,]:

(a) for a charge less than the charge filed pursuant to Section 31A-19a-209(5); or

(b) the filing of charges for escrow services with the Utah Insurance [commissioner]Commissioner (commissioner), which are less than the actual cost of providing the services.

[D.](4) Waiving all or any part of established fees or charges for services, which are not the subject of rates or escrow charges filed with the commissioner.

[E.](5) Deferring or waiving any payment for insurance or escrow services otherwise due and payable, including ["]holding for resale["] and flip transactions.

[F.](6) Furnishing services not reasonably related to a bona fide title insurance or escrow, settlement, or closing transaction, including[, but not limited to computer services,] non-related delivery services, accounting assistance, legal counseling.

[G.](7) The paying for, furnishing, or waiving all or any part of the rental or lease charge for space, which is occupied by any client.

[H.](8) Renting or leasing space from any client, regardless of the purpose, at a rate which is excessive or inadequate when compared with rental or lease charges for comparable space in the same geographic area, or paying rental or lease charges based in whole or in part on the volume of business generated by any client.

[I.](9) Furnishing any part of a title insurer's agency's or producer's facilities, for example, conference rooms or meeting rooms, to a client or its trade association without receiving a fair rental or lease charge comparable to other rental or lease charges for facilities in the same geographic area.

(10) The co-habitation or sharing of office space with a client of a title insurance producer.

(11) Furnishing all or any part of the time or productive effort of any employee of the title insurer, agency or producer, for example, secretary, clerk, messenger or escrow officer, to any client.

[J.](12) Paying for all or any part of the salary of a client or an employee of any client.

[K.](13) Paying, or offering to pay, either directly or indirectly, salary, commissions or any other consideration to any employee who is at the same time licensed as a real estate agent or real estate broker or as a mortgage lender or mortgage company subject to 31A-2-405 and R592-5.

[L.](14) Paying for the fees or charges of a professional, for example, an appraiser, surveyor, engineer or attorney, whose services are required by any client to structure or complete a particular transaction.

[M.](15) Sponsoring, cosponsoring, subsidizing, contributing fees, prizes, gifts, food or otherwise providing anything of value for an activity of a client, except as allowed under Subsection [R590-153-6(F)]R592-6-5(6) of a client. Activities include[, but are not limited to] "open houses" at homes or property for sale, meetings, breakfasts, luncheons, dinners, conventions, installation ceremonies, celebrations, outings, cocktail parties, hospitality room functions, open house celebrations, dances, fishing trips, gambling trips, sporting events of all kinds, hunting trips or outings, golf or ski tournaments, artistic performances and outings in recreation areas or entertainment areas.

[N.](16) Sponsoring, co-sponsoring, subsidizing, supplying prizes or labor, except as allowed under Subsection [R590-153-6(C),]R592-6-5(2) or otherwise providing things of value for promotional activities of a client. Title insurers, agencies or producers may attend activities of a client if there is no additional cost to the title insurer, agency or producer other than their own entry fees, registration fees, meals, etc., and provided that these fees are no greater than those charged to clients or others attending the function.

[O.](17) Providing gifts or anything of value to a client in connection with social events such as birthdays or job promotions[ except as provided in Subsection R590-153-6(H)]. A letter or card in these instances will not be interpreted as providing a thing of value.

[P. Providing either directly or indirectly, a compensating balance or deposit in a lending institution either for the express or implied purpose of influencing the placement or steering of title insurance business by such lending institution. This does not preclude transactions with lending institutions, which are in the normal course of business.

Q. Furnishing any part of a title insurer's, agency's or producer's facilities, for example, conference rooms or meeting rooms, to a client or trade association without receiving a fair rental or lease charge comparable to other rental or lease charges for facilities in the same geographic area.

R. Furnishing information packets, listing kits, "farm" packages, reports, or any form of title evidence without first filing a specimen form copy with the commissioner and specifying a rate for which the form is available. The rate may not be less than the actual cost of producing the information and the material furnished.

S.](18) Paying for any advertising on behalf of a client.

[T.](19) Advertising jointly with a client on subdivision or condominium project signs, or signs for the sale of a lot or lots in a subdivision or units in a condominium project. A title insurer, agency or producer may advertise independently that it has provided title insurance for a particular subdivision or condominium project but may not indicate that all future title insurance will be written by that title insurer, agency or producer.

[U.](20) Advertisements may not be placed in a publication, including an Internet web page and its links, that is hosted, published, produced for, distributed by or on behalf of a client.

(21) A donation may not be made to a charitable organization created, controlled or managed by a client.

(22) A direct or indirect benefit provided to a client which is not specified in Section [R590-153-6]R592-6-5 below, will be investigated by the department for the purpose of determining whether it should be defined by the [commissioner]Commission as an unfair inducement under Section 31A-23a-402(8).

[V. Donations to charitable organizations must:

(1) not be paid in cash; and

(2) if paid by negotiable instrument, be made payable only to the charitable organization; and

(3) be distributed directly to the charitable organization; and

(4) not provide any benefit to a client.

W.](23) Title insurers, agencies and producers who have ownership in, or control of, other business entities, including I.R.C. Section 1031 qualified intermediaries, may not use those other business entities to enter into any agreement, arrangement, or understanding or to pursue any course of conduct, designed to avoid the provisions of this rule.

 

[R590-153-6]R592-6-5. Permitted Advertising and Business Entertainment.

Except as specifically prohibited in Section R592-6-4 above, the following are permitted:[A. A title insurer, agency or producer may furnish the following without charge, and without additions, addenda or attachments which may be construed as reaching conclusions of the insurer, agency or producer regarding matters of marketable ownership or encumbrances:

(1) A copy of an existing plat map; or

(2) Tax information covering a specific parcel of real estate, for example, tax identification number, assessed owner, assessed value of land and improvements, or the latest tax amount; or

(3) other information regarding real property which the county recorder's office provides to the public free of charge, or at a nominal charge, and in the exact format and content as provided by the county recorder's office.

B.](1) Advertisements by title insurers, agencies or producers must comply with the following:

[(1)](a) The advertisement must be purely self-promotional[.]; and

[(2) Advertisements may not be placed in a publication, including an Internet web page and its links, that is hosted, published, produced for, distributed by or on behalf of a client except as allowed under R590-153-6 (B)(3).

(3)](b) Advertisements in official trade association publications are permissible as long as any title insurer, agency or producer has an equal opportunity to advertise in the publication and at the standard rates other advertisers in the publication are charged.

[C.](2) A title, insurer, agency or producer may donate time to serve on a trade association committee and may also serve as an officer for the trade association.

[D.](3) A title insurer, agency or producer may have two self-promotional open houses per calendar year for each of its owned or occupied facilities, including branch offices. The title insurer, agency or producer may not expend more than $15 per guest per open house. The open house may take place on or off the title insurer's, agency's or producer's premises but may not take place on the client's premises.

(4) Donation to charitable organizations must:

(a) not be paid in cash;

(b) if paid by a negotiable instrument, be made payable only to the charitable organization;

(c) be distributed directly to the charitable organization; and

(d) not provide any benefit to a client.

[E.](5) A title insurer, agency or producer may distribute self-promotional items having a value of $5 or less to clients, consumers and members of the general public. These self-promotional items shall be novelty gifts which are non-edible and may not be personalized or bear the name of the donee. Self-promotional items may only be distributed in the regular course of business. Self-promotional items may not be given to clients or trade associations for redistribution by these entities.

[F.](6) A title insurer, agency or producer may make expenditures for business meals or business activities on behalf of any person, whether a client or not, as a method of advertising, if the expenditure meets all the following criteria:

[(1)](a) [T]the person representing the title insurer, agency or producer must be present during the business meal or business activity[.];

[(2)](b) [T]there is a substantial title insurance business discussion directly before, during or after the business meal or business activity[.];

[(3)](c) [T]the total cost of the business meal, the business activity, or both is not more than $100 per person, per day[.];

[(4)](d) [N]no more than three individuals from an office of a client may be provided a business meal or business activity by a title insurer, agency or producer in a single day[.]; and

[(5)](e) [T]the entire business meal or business activity may take place on or off the title insurer's, agency's or producer's premises, but may not take place on the client's premises.

[G.](7) A title insurer, agency or producer may conduct continuing [educational]education programs that are approved by the Commission, with the concurrence of the commissioner or the Utah Division of Real Estate under the following conditions:

[(1)](a) [T]the continuing [educational]education program shall address only title insurance, escrow or other topics directly related thereto[.];

[(2)](b) [T]the continuing [educational]education program must be of at least one hour in duration[.];

[(3)](c) [F]for each hour of continuing education, $15 or less per person may be expended, including the cost of meals and refreshments[.]; and

[(4)](d) [N]no more than one such continuing [educational]education program may be conducted at the office of a client per calendar quarter.

[H.](8) A title insurer, agency or producer may acknowledge a wedding, birth or adoption of a child, or funeral of a client or members of his/her immediate family with flowers or gifts not to exceed $75.

[I.](9) Any other advertising and/or business entertainment must be requested in writing and approved in advance and in writing by the [commissioner]Commission.

 

[R590-153-7]R592-6-6. Enforcement Date.

The commissioner will begin enforcing the provisions of this rule 45 days from the effective date of the rule.

 

[R590-153-8]R592-6-7. Severability.

If any provision or clause of this rule or its application to any person or situation is held invalid, such invalidity may not affect any other provision or application of this rule which can be given effect without the invalid provision or application, and to this end the provisions of this rule are declared to be severable.

 

KEY: title insurance

Date of Enactment or Last Substantive Amendment: [August 8, 2007]2008

Notice of Continuation: November 9, 2007

Authorizing, and Implemented or Interpreted Law: [31A-2-201; ]31A-23a-402