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You are here: Home . rules . 2003 . 0205-059
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Subchapter A. Basic Manual of Rules, Rates, and Forms for the Writing of Title Insurance in the State of Texas

28 TAC §9.1

The Commissioner of Insurance adopts an amendment to §9.1 which concerns the adoption by reference of certain amendments to the Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas (Basic Manual). The amended section is adopted with changes to the proposed text and to the items adopted by reference as published in the November 7, 2003, issue of the Texas Register (28 TexReg 9709).

The adopted amendment to §9.1 updates the date of the amended Basic Manual. The effective date of the section as published in the proposal was January 1, 2004; the effective date of the section has been changed to April 1, 2004. The amendments to the Basic Manual which the amended section adopts by reference were considered at the rulemaking phase of the 2002 Texas Title Insurance Biennial Hearing. Adopting new rules and forms and modifying or replacing currently existing rules and forms in the Basic Manual facilitate the administration and regulation of title insurance in this state. The adopted amendments to the Basic Manual will clarify and standardize the rules and forms regulating title insurance. The adopted amendments to the Basic Manual are identified by item number and result from consideration at the 2002 Texas Title Insurance Biennial Hearing, Rulemaking Phase, Docket Number 2537, (rulemaking hearing), held on September 24, 2003. Of the remaining Agenda Items, Items 2002-21, 2002-22, 2002-23, 2002-26, 2002-27, 2002-28, 2002-29, 2002-30, and 2002-31 were withdrawn at the rulemaking hearing by their respective submitters, and Items 2002-3, 2002-4, 2002-5, 2002-6, 2002-7, 2002-18, 2002-19, and 2002-25 were not adopted, which decision was set forth in a separate Commissioner´s Order.

The department has made clarification changes and typographical corrections to the items adopted by reference, and based on comments, the department has changed some of the Agenda Items, all as more specifically described herein. Agenda Items 2002-8, 2002-12, and 2002-14 have been changed to reflect grammatical changes that are in conformity with forms used on a national basis, thus promoting uniformity in endorsements relating to access, non-imputation, and contiguity. Agenda Item 2002-24 has been changed to require annual reporting of directly issued policies and to describe more specifically the identifying numbers referenced therein. The later transition period in Agenda Item 2002-33 has been changed to July 1, 2004. Agenda Item 2002-37 has been changed to delete the words "seminar" and "lecture" from the prohibitions in paragraph two as these are more in line with legal educational activities which are allowed, to delete paragraph six regarding an allowance of de minimis expenditures, and to add clarifying language to paragraph seven (now numbered six) that reflects, among other things, a consistent reference to a title insurance transaction(s).

The items that are the subject of this adoption are as follows:

Ten items relate to new endorsements and their corresponding procedural rules. The purpose of these endorsements is to facilitate commercial transactions regarding insurance relating to access, contiguity, restrictions, encroachments, minerals, and provide coverage when additional insureds are added in an estate planning context or when new investors acquire an interest in an existing entity. This reflects a nationwide trend regarding uniformity of these types of endorsements. A brief description of each item follows its listing:

Item 2002-8 - Adoption of a new Access Endorsement (Form T-23). This endorsement would apply only to commercial transactions and would insure specific access to and from a designated public street. Grammatical changes have been made to this form that are in conformity with forms used on a national basis.

Item 2002-9 - Adoption of a new procedural rule (P-54) for the newly adopted Access Endorsement. This procedural rule would authorize the use of the endorsement described in Item 2002-8.

Item 2002-10 - Adoption of a new Restrictions, Encroachments, Minerals Endorsement ­ Owner Policy (Form T-19.1). This endorsement provides insurance to owners in commercial transactions relating to restrictions, encroachments, and minerals, and is the equivalent of the recently adopted Form T-19 for mortgagee policies. This endorsement provides coverage for losses arising out of building setback line violations and other restrictions which have established easements, provided for an option to purchase, a right of first refusal or the prior approval of a future purchaser or occupant, or provided a right of reentry, possibility of reverter or right of forfeiture because of violations of enforceable covenants, conditions or restrictions. Also covered is damage to existing buildings located or encroaching upon any portion of the land subject to any easement excepted in Schedule B that results from the future exercise of any right existing on the date of the policy to use the surface of the land for the extraction or development of minerals excepted from the description of the land or excepted in Schedule B and from a final court order or judgment requiring removal from the land adjoining the insured land of any encroachment, other than fences, landscaping or driveways, excepted in Schedule B.

Item 2002-11 - Adoption of an amendment to procedural rule P-50 for the newly adopted Restrictions, Encroachments, Minerals Endorsement ­ Owner Policy. This amendment to procedural rule P-50 authorizes the use of the newly adopted endorsement described in Item 2002-10 in its application to owner policies.

Item 2002-12 - Adoption of a new Non-Imputation Endorsement (Form T-24). This endorsement applies only to commercial transactions and would be issued when new investors acquire an interest in an existing entity or in an entity in which a prior party, such as an investor, remains a participant. Grammatical changes have been made to this form that are in conformity with forms used on a national basis.

Item 2002-13 - Adoption of a new procedural rule (P-55) for the newly adopted Non-Imputation Endorsement. This procedural rule authorizes the use of the endorsement described in Item 2002-12.

Item 2002-14 - Adoption of a new Contiguity Endorsement (Form T-25). This endorsement applies only to commercial transactions and insures that multiple tracts adjoin each other, subject to underwriting requirements. Grammatical changes have been made to this form that are in conformity with forms used on a national basis.

Item 2002-15 - Adoption of a new procedural rule (P-56) for the newly adopted Contiguity Endorsement. This procedural rule authorizes the use of the endorsement described in Item 2002-14.

Item 2002-16 - Adoption of a new Additional Insured Endorsement (Form T-26). This endorsement applies to either residential or commercial transactions and is issued to name particular parties as additional insureds in connection with estate planning or transfers to family-owned entities.

Item 2002-17 - Adoption of a new procedural rule (P-57) for the newly adopted Additional Insured Endorsement. This procedural rule authorizes the use of the endorsement described in Item 2002-16.

Six items provide clean up language in certain rules and forms, conform language to new statutory requirements, and update statutory references as detailed herein:

Item 2002-1 ­ Adoption of an amendment to the Texas Short Form Residential Mortgagee Policy of Title Insurance (T-2R) and Addendum (T-2R Addendum). This amendment clarifies that additional matters excepted to in the Addendum are not affected by the express insurance provided in Schedule B and adds a reference to Form T-39, Balloon Mortgage Endorsement adopted in a previous hearing. It also adds language to permit subparagraphs of endorsement forms T-17 (Planned Unit Development) and T-19 (Restrictions, Encroachments, and Minerals Endorsement) to be deleted in Schedule A as provided in the procedural rules for those endorsements.

Item 2002-2 ­ Adoption of an amendment to the Tax Deletion Endorsement Form T-30 to conform the tax assessment language to the current mortgagee policy of title insurance.

Item 2002-20 - Adoption of an amendment to the Residential Real Property Affidavit Form T-47 to allow the affiant to specify what changes have been made to the property and to delete the requirement that a copy of the survey be attached to the affidavit.

Item 2002-34 - Adoption of an amendment to the Administrative Rules in Section VI of the Basic Manual to update statutory references, conform current practices concerning notification of ownership change of a corporate title agent, and correct a reference regarding direct operations.

Item 2002-35 ­ Adoption of an amendment to Form T-37, Immediately Available Funds Procedure Agreement to update the form consistent with changes to Article 9 of the Uniform Commercial Code (Chapter 9 of the Texas Business and Commerce Code).

Item 2002-36 ­ Repeal of Procedural Rule P-33 which has expired by its own terms.

Four items reinstitute reporting requirements for directly issued policies, clarify procedures regarding overcharges and institute internal controls related to title agents´ reporting of defalcations, change and modernize certain requirements for continuing education, and establish a new rule regarding rebating and discounts, all as detailed herein.

Item 2002-24 ­ Re-adoption of a procedural rule concerning the reporting to the department of all directly issued policies of title insurance. This adopted rule, newly numbered P-58, will aid the department´s auditing and enforcement of rules regarding payment of services rendered by title companies, agents, and direct operations. Changes have been made to this rule to require annual reporting of directly issued policies and to describe more specifically the identifying numbers referenced therein.

Item 2002-32 - Adoption of an amendment to the Minimum Standards, Specific Instructions and Report Forms for Audit of Trust Funds Required of Texas Title Insurance Agents, Direct Operations, Title Attorneys and Attorneys Licensed as Escrow Officers. This amendment clarifies specific areas and procedures regarding overcharges and markups as well as minimum escrow accounting procedures and internal controls related to title agents´ reporting of defalcations. The amendment also conforms number 21 of the standards with Procedural Rule P-27.

Item 2002-33 - Adoption of an amendment to Procedural Rule P-28, Requirements for Continuing Education for Title Agents and Escrow Officers. This amendment changes and modernizes certain requirements for continuing education, increases the number of continuing education requirements by two hours but allows a later date for a transition period, which has been changed to July 1, 2004, and updates a statutory reference in this procedural rule.

Item 2002-37 - Adoption of a new Procedural Rule P-53 regarding prohibitions of rebates and discounts, specifying parameters of allowed activities, and placing restrictions on multi-state transactions which include Texas land. This amendment will assist in implementing Insurance Code Article 9.30 regarding rebates and discounts, and balances developing normal business relationships while preserving the regulatory provisions that materially advance the state´s interest in the prohibition of rebates addressed by Article 9.30. Changes have been made to this rule to delete the words "seminar" and "lecture" from the prohibitions in paragraph two as these are more in line with legal educational activities which are allowed, to delete paragraph six regarding an allowance of de minimis expenditures, and to add clarifying language to paragraph seven (now numbered six) that reflects, among other things, a consistent reference to a title insurance transaction(s).

The department has filed a copy of each of the adopted items with the Secretary of State´s Texas Register section. Persons desiring copies of the adopted items can obtain them from the Office of the Chief Clerk, Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas, 78714-9104. To request copies, please contact Sylvia Gutierrez at 512/463-6327.

Comment: Several commenters either supported or had no objection to the various new endorsements and corresponding procedural rules that are the subjects of Agenda Items 2002-8 through 2002-17. Commenters supported these items as clarifying and standardizing the rules and forms regulating title insurance as well as facilitating the administration and regulation of title insurance in this state. One commenter submitted grammatical changes to the endorsement forms relating to access, non-imputation, and contiguity, stating that the changes are in conformity with recently adopted national forms and recommending that the changes be incorporated in Agenda Items 2002-8, 2002-12, and 2002-14. One commenter believed that some of the provisions of these new forms should be in the policy of title insurance instead of as a separate endorsement, while another commenter stated that some of the provisions are not needed in the regular policy of title insurance because they may not be needed in every case.

Agency Response: The department agrees with the stated benefits of the new endorsements and procedural rules and agrees with a commenter´s statement that some of the endorsements may not be needed in every instance to justify inclusion in the regular policy of title insurance; however, it is noted that experience with these endorsements will help the department determine whether the frequent use of these endorsements warrants their incorporation into standard policies. The department has also made the grammatical changes to Agenda Items 2002-8, 2002-12, and 2002-14.

Comment:Some commenters supported Agenda Item 2002-20 as providing flexibility in the use of the affidavit concerning a prior survey.

Agency Response: The department agrees.

Comment:Several commenters supported Agenda Item 2002-24 regarding reporting on directly-issued policies as highlighting the use of these types of policies. The commenters also stated that access to statistical information will enable fair play and protection within the business environments. Other commenters contend that an agent will know if such a policy is being issued and that the rule is not necessary and fell away in the past due to its disuse. One commenter pointed out that the reference to "SBI" is outdated and should be changed and that the reference to the standard three digit county code should be more specifically described.

Agency Response: The department believes that it is beneficial to re-institute reporting of directly-issued policies to aid the department´s auditing and enforcement of rules regarding payment of services rendered by title companies, agents, and direct operations. The department has changed the rule to update the reference to the department and to describe more specifically the identifying numbers referenced therein. The department has also changed the reporting period to an annual basis as part of the Texas Title Insurance Statistical Plan for purposes of better compilation and tracking. Thus, the department believes that the rule is necessary and anticipates reporting compliance.

Comment: Several commenters stated support for the updating, clarifying, and streamlining of rules the subject of Agenda Items 2002-32, 2002-34, 2002-35 and 2002-36. One commenter noted concerns regarding immunity aspects of the new defalcation provisions of the Minimum Standards, Specific Instructions and Report Forms for Audit of Trust Funds Required of Texas Title Insurance Agents, Direct Operations, Title Attorneys and Attorneys Licensed as Escrow Officers. Another commenter wanted to add language to include a designated agent of a federally-insured lender to Form T-37, Immediately Available Funds Procedure Agreement.

Agency Response: The department notes the commenter´s concerns regarding immunity and feels that specific safeguards surrounding notification have been built into the rule. The department will consider language regarding a designated agent of a federally-insured lender in future rulemaking proceedings that will provide the opportunity for all interested persons to comment.

Comment: Several commenters supported the efforts to modernize the continuing education requirements for agents contained in Agenda Item 2002-33, although with changes as suggested at the rulemaking hearing by some of the commenters. Specifically, some commenters felt that there should be a transition period regarding the implementation date for increasing the number of hours and that agents should be able to offer their own continuing education courses. The commenters also opposed a reduction in the number of self-study hours and requested the ability to extend the completion of continuing education hours during the late-filing period.

Agency Response: The department agrees with the later transition period, which has been changed to July 1, 2004, but disagrees on allowing agents to offer their own courses, retaining the same number of self-study hours, and allowing completion of courses during the late filing period. The department believes that the suggested changes will not aid in an efficient continuing education process and may prevent or impair full utilization by agents of the benefits of the courses.

Comment:At the rulemaking hearing, Agenda Item 2002-37, regarding the prohibition of rebates and discounts, specifying parameters of allowed activities, and placing restrictions on multi-state transactions which include Texas land, generated many comments and suggested changes. Some commenters suggested deleting the provisions allowing certain payments as long as fair market value was paid as a potential loophole in the rule. Other commenters suggested deleting the provisions regarding a presumption of illegality of certain activities as being an improper attempt to curtail commercial free speech. The department assimilated the various suggestions and republished a version of Agenda Item 2002-37 that sought to balance developing normal business relationships while preserving the regulatory provisions that materially advance the state´s interest in the prohibition of rebates addressed by Article 9.30. This resulted in a subsequent hearing upon request. Many commenters either completely supported the republished version of the newly numbered procedural rule P-53 as providing much needed assistance to independent agents across Texas or supported the concept and purpose of the rule with suggested changes. Except for comments on the multi-state transaction and penalty provisions of the rule, there was an overall consensus that P-53 is a rule that the industry needs and that Texas consumers deserve. One commenter noted that there is a need to stop subsidizing other businesses. Some commenters suggested clarifying certain provisions of the rule or deleting them entirely such as paragraph six concerning the one unsolicited $50 or less item within any one-year period. One commenter stated that adopting procedural rule P-53, with the deletion of paragraph six, will lower the barrier to home ownership and lower closing costs for all homebuyers in the state of Texas. Specifically regarding paragraph six, some commenters pointed to many practical problems associated with the language of that paragraph and suggested deletion of the paragraph in favor of a common sense policy to direct enforcement actions at substantively significant violations rather than matters of de minimis importance. Another commenter suggested adding grammatical changes and another exception in paragraph six so the rule does not prohibit an authorized person from purchasing advertising in any media under bona fide advertising agreements, including media owned, controlled, or held by a producer or affiliate, with attendant parameters regarding fair market value. Other commenters specified the questions that may arise in interpreting the subsidization of producers and in defining certain prohibited practices which, depending on the item involved and to whom it is furnished, may not be considered a rebate.

Agency Response:The department appreciates the overall statements of support from a broad cross-section of commenters regarding the major provisions of the rule that deal with the prohibition of paying or subsidizing advertising or promotional activities of producers. The department agrees with many commenters´ concerns about paragraph six regarding an allowance of de minimis expenditures and has changed the rule by deleting paragraph six and renumbering the remaining paragraphs. The department notes that paragraph six was added based on comments from the rulemaking hearing that de minimis expenditures, such as holiday activities, should not be prohibited. This resulted in many comments questioning its application and suggesting that title agents and title companies were already calculating exponentially the amount of money they would be able to give to realtors and other producers. While the department has accepted the suggestion to delete paragraph six in favor of a common sense policy to direct enforcement actions at substantively significant violations rather than matters of de minimis importance, the department notes that the reaction of title agents and title companies is illustrative of the pervasiveness of rebating activity and the necessity of clear prohibitions of such activity with little room for exceptions. Thus, the department urges title agents and title companies to comply with the rule and not attempt to circumvent it. In this vein, the department must reject a commenter´s grammatical changes and suggestion to insert a paragraph stating an exception for purchasing advertising in any media under bona fide advertising agreements, including media owned, controlled, or held by a producer or affiliate, with attendant parameters regarding fair market value. The department notes that title companies and title agents may certainly advertise their businesses, but as with the de minimis exception, the department will not attempt to define the parameters of such an exception in the rule but instead will direct its enforcement resources to scrutinizing the essence of the advertising activity to determine compliance with the stated intent and purpose of the rule. Clearly, paying a producer an inflated price for advertising, over and above the normal market rate, "subsidizes the business, products, services or promotional activities of a Producer or Affiliate of a Producer." Further, the department believes that the definitions in the rule clarify the grammatical concerns of the commenter. Regarding the examples given by a commenter concerning the furnishing of computer hardware or software to an attorney who is not licensed as an escrow officer but may be doing business regularly with a designated authorized person and the reproduction of recorded public documents for education purposes, the department notes that the Texas Title Insurance Act specifies the allowable practices of an attorney, and the reproduction of a recorded document for educational purposes should not trigger a violation of the rule; however, as noted, the department will direct its enforcement resources to scrutinizing the essence of the activity to determine compliance with the stated intent and purpose of the rule.

Comment:One commenter requested clarification on the auditable records provision of the rule, now numbered paragraph seven, concerning the type of documentation required. The commenter also stated that given the language in paragraphs one and two, paragraph three seems redundant. Further, the commenter requested a new provision be added to the rule to evidence the intent of the department not to disturb the rights of producers to own and operate licensed title agencies or authorized underwriters.

Agency Response: The department understands the commenter´s concerns regarding auditable records and would note that the records of expenditures would be indicative of whether there is compliance with the rule, for example, to the extent that a particular expenditure may present evidence of payment or subsidization of advertising or promotional materials or activities of a producer. The department disagrees that paragraph three is redundant since it relates to any advertising medium which is an additional distinct reference from paragraphs one and two. The department also disagrees with the requested new provision as the department believes that the definitions in paragraph one of the rule are sufficiently clear that a person is not a producer if the person is an authorized person or an affiliate of authorized person(s).

Comment: Additionally in regard to Agenda Item 2002-37, some commenters focused on the multi-state transaction and penalty provisions of the rule and raised objections that the multi-state transaction provision is void for vagueness, beyond the commissioner´s jurisdiction to promulgate, and violates the full faith and credit clause of the United States Constitution and that accordingly, the penalty provision may be seen as excessive. One commenter expressed concern that the rule would create a new minimum floor for rates in other states if there also is any connection to Texas land, and asserted that this will increase costs for commercial businesses who operate in more than one state. Some commenters found ambiguity in the meanings of "transaction(s)" and "normal and customary" in the multi-state transaction provision of the rule and gave various hypothetical situations. Commenters also concluded that this provision of the rule could violate the constitutional principle of equal protection of the law and could also interfere with interstate commerce. One commenter stated that the multi-state issue is a commercial issue and not a homeowner issue. Another commenter pointed out that on commercial transactions, people are not paying the promulgated rate because part of the Texas premium is being sent to other states. One commenter responded to the various constitutional, jurisdictional, and enforcement issues by noting that the multi-state provision of the rule gives fair notice and is consistent with the legislative intent that title insurance be completely regulated. The commenter also recognized that the multi-state provision is not regulating what title companies can do in other states but is indeed regulating the Texas title insurance premium from being used to fund a title insurance transaction outside the state of Texas . The commenter further noted that "normal and customary" is an evidentiary standard and thus would be used to look at the market as a whole and not on a company-specific basis. Other commenters noted the penalty provision of the rule is beneficial because it clarifies the consequences of not following the rule and can be used as self-regulation by the title industry as well as an educational tool.

Agency Response: The department agrees with the commenter that the multi-state provision of the rule gives fair notice and is consistent with the legislative intent that title insurance be completely regulated. Indeed, as set forth in one of the cases cited by commenters stating that the multi-state provision is void for vagueness, in determining whether civil or regulatory statutes are unconstitutionally vague, no more than a reasonable degree of certainty is required. Nor is there a constitutional requirement that a statute define all words or terms used, and courts recognize the myriad of factual situations that may arise and allow statutes to be worded with flexibility, provided the public has fair notice of what is required or prohibited. Further, the case noted that a statute is not automatically void for vagueness simply because it is difficult to determine whether certain marginal acts fall within its language. The purpose of the multi-state provision of the rule is to prohibit a form of rebating in which as part of the multi-state deal, the Texas title insurance premium is used to fund a portion of an out-of-state premium by virtue of a discount or other special reduction in order to obtain the title insurance business. Whether such rebating occurs as part of one transaction or more, enforcement will focus on the essence of the deal to achieve the intent and purpose of the prohibition, all for the benefit of Texas consumers and Texas title insurance rate stability. The multi-state provision of the rule is not intended to regulate title insurance business in another state but rather to ensure that Texas title agents and title companies involved in multi-state transactions conduct such title insurance transactions governed by the Texas Insurance Code in compliance with the Texas Insurance Code. In response to comments, the department has added clarifying language to paragraph seven (now numbered six) that reflects, among other things, a consistent reference to a title insurance trans action(s).

NAMES OF THOSE COMMENTING FOR AND AGAINST THE SECTION

For:American College of Real Estate Lawyers; San Augustine County Abstract Company; Professional Title Services, Inc.; A.A.A. Abstract Companies, Inc.; Pittsburg Title Company; legislator; independent title agents; lawyers.

For with changes:Office of Public Insurance Counsel; Sierra Title Company, Inc., Metro Title Company, Inc., d/b/a Sierra Title of Cameron & Willacy Counties, Sierra Title of North Texas, Inc., Sierra Title of Corpus Christi, L.L.C., and Sierra Title of Hidalgo County, Inc. (Sierra Group); Texas Association of Realtors; Chicago Title Insurance Company; Fidelity National Title Insurance Company/Alamo Title Insurance and Chicago Title Insurance Company/Security Union Title Insurance Company/Ticor Title Insurance Company; First Collateral Services, Inc.; Allegiance Title Company, a wholly-owned subsidiary of First American Title Company; Texas Association of Abstractors and Title Agents; Print and Imaging Association of Mid-America and Print Image International Association; First American Title Insurance Company; individual consumers.

Against:Calpine Corporation.

Against with changes: Stewart Title Guaranty Company; Texas Land Title Association; Independent Metropolitan Title Insurance Agents of Texas; Ticor Title Agency (New Braunfels); Rattikin Title Company (Fort Worth); Texas Society of Professional Surveyors; West Texas Title Company (Lubbock); real estate lawyers; independent title agents.

The amended section is adopted pursuant to Insurance Code Articles 9.07, 9.21, 9.30, and §36.001. Article 9.07 authorizes and requires the commissioner to promulgate or approve rules and policy forms of title insurance and otherwise to provide for the regulation of the business of title insurance. Article 9.21 authorizes the commissioner to promulgate and enforce rules prescribing underwriting standards and practices, and to promulgate and enforce all other rules necessary to accomplish the purposes of Chapter 9, concerning regulation of title insurance. Article 9.30 prohibits the giving, allowance, acceptance or receipt of a rebate, discount, commission, or other thing of value directly or indirectly for solicitation or referral of title insurance business. Section 36.001 of the Insurance Code provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

§9.1. Basic Manual Of Rules, Rates, and Forms for the Writing of Title Insurance in the State of Texas.

The Texas Department of Insurance adopts by reference the Basic Manual of Rules, Rates, and Forms for the Writing of Title Insurance in the State of Texas as amended effective April 1, 2004. The document is available from and on file at the Texas Department of Insurance, Title Division, Mail Code 106-2T, 333 Guadalupe Street, Austin, Texas 78701-1998.



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