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You are here: Home . rules . 2003 . 0210-059
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Subchapter A. Basic Manual of Rules, Rates, and Forms for the Writing Title Insurance in the State of Texas

28 TAC §9.20

The Texas Department of Insurance proposes new §9.20 which concerns amendments to and adoption of procedural rules in the Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas (the Basic Manual). The new section is necessary to reflect amendments to the Basic Manual, which the section adopts by reference and to specify its purpose of amending and adding procedural rules for title insurance. The new Procedural Rule P-53 proposed to be added in the Basic Manual by the proposed new section addresses the payment and receiving/acceptance of rebates in the title insurance industry. Article 9.30 of the Insurance Code prohibits the giving and receiving of a rebate, discount, commission, or other thing of value directly or indirectly for solicitation or referral of title insurance business. Any payment or receipt of a commission, rebate, discount, or other thing of value to or by any person for soliciting or referring title insurance business in violation of Article 9.30 is engaging in the unauthorized business of insurance. Article 9.30 does not prohibit legal promotional and educational activities that are not conditioned upon the referral of title insurance business. Proposed P-53 sets forth the pertinent elements of Article 9.30 regarding the prohibition of rebates and discounts, defines terms such as "authorized person," "producer," and "affiliate of a producer or authorized person," and states the penalties for violation of the rule. Proposed P-53 also provides that an authorized person or its affiliate may provide certain goods or services referenced in the rule if a reasonable fee is collected in advance that is not less than the actual cost to the authorized person or its affiliate, the goods or services are not conditioned upon the referral of business, and any written or visual materials related to the goods or services contain a disclaimer regarding the prohibition of giving or receiving things of value for soliciting or referring title insurance business. Proposed P-53 also provides that an authorized person or its affiliate may purchase promotional space for itself from a producer or its affiliate provided there is a written agreement for monetary consideration at not more than a fair market price and the purchase is not conditioned upon the referral of business to the authorized person or its affiliate. Title agents, companies, and their affiliates will be expected to maintain auditable records documenting compliance with this procedural rule.

The department has filed a copy of the proposed Procedural Rule P-53 with the Secretary of State´s Texas Register section. Persons desiring copies of the proposed procedural rule 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.

Robert R. Carter, Jr., deputy commissioner, title division, has determined that, for each year of the first five years the section is in effect, there will be no fiscal impact on state or local government as a result of enforcing or administering the section. Mr. Carter has also determined that there will be no measurable effect on local employment or the local economy as a result of the proposal.

Mr. Carter has also determined that for each year of the first five years the proposed rule is in effect the public benefits anticipated as a result of the procedural rule will be increased compliance with the anti-rebating statute in the Texas Title Insurance Act (Insurance Code Chapter 9) and a more reasonable focus of resources in the title insurance industry. Persons who are in a position to make or receive a referral of title insurance business will benefit from a more detailed regulation of paying, receiving or subsidizing advertising or promotional material or activities. This clarity along with the provision of penalties will aid in decreasing these practices and the potential to engage in such practices, and the expenses connected with them, which are fed into various ratemaking methodologies. Some people may have engaged in these activities simply to obtain and retain business in the title insurance market. With clear prohibitions as to what is allowed, persons doing the business of title insurance can focus their efforts on providing the best title services available that promote competition for the most competent title insurance providers as opposed to offering and receiving rebates and discounts to and from people in a position to refer or accept title business. To this extent, we expect there to be a cost savings to those persons who must comply with the rule since the department expects that the level of this activity will be reduced, and the cost of title insurance may be affected accordingly. There should be no additional cost for incorporating the required disclaimer on new written or visual materials for those persons who opt to furnish such materials. Printing charges are normally based on the type, paper, and quantity of the order. Adding a required two-sentence disclaimer should not vary that cost. The cost to add the two-sentence disclosure to existing written or visual materials that are otherwise in compliance with Article 9.30, concerning legal promotional and educational activities not conditioned on the referral of title insurance business, is estimated to involve a labor cost of 15 minutes at $.23 per minute. The 2002 Occupational Employment Statistics survey published by the Texas Work Force Commission shows that the mean hourly wage for word processors and typists in Texas is $13.52 and based on this statistic, the labor cost for such clerks is approximately $.23 per minute. The additional cost of adding the disclosure to existing materials as described herein is approximately $.05 for system, printing, and paper. The actual total cost to each person or entity will vary depending on the amount of existing materials. Additionally, it is likely that the addition of the disclosure can be done electronically and with computer systems already in place. The cost per hour of labor will not vary between the large and small or micro-businesses. There is no anticipated adverse economic effect on small or micro-businesses who are required to comply with the proposed section. It is neither legal nor feasible to exempt small or micro-businesses or to waive compliance considering the purpose of the statute under which the rule is to be adopted, that being the prohibition of the paying and receiving/acceptance of rebates. To do otherwise would be contrary to the statute.

To be considered, written comments on the proposal must be submitted no later than 5 p.m. on March 24, 2003, to Gene C. Jarmon, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. An additional copy of the comments must be submitted simultaneously to Robert R. Carter, Jr., Deputy Commissioner, Title Division, Mail Code 106-2T, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. Request for a public hearing should be submitted separately to the Chief Clerk's office.

The new section is proposed 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 authorizes the Commissioner of Insurance to adopt rules for the conduct and execution of the duties and functions of the Texas Department of Insurance only as authorized by statute.

The following statutes are affected by this proposal: Articles 9.07, 9.21, and 9.30

§9.20 Amendments and Adoption of Procedural Rules for Title Insurance. In addition to material adopted by reference under §9.1 of this title (relating to Basic Manual of Rules, Rates, and Forms for the Writing of Title Insurance in the State of Texas (the Basic Manual)), the Texas Department of Insurance adopts by reference, as part of the Basic Manual, procedural rules for title insurance as amended and adopted effective May 1, 2003. This 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 and via the internet at http://www.tdi.state.tx.us

PROPOSAL

Procedural Rule P-53. Rebates and Discounts Prohibited.

1. No person doing the business of title insurance under the authority of the Texas Title Insurance Act of the Insurance Code (in this rule called an Authorized Person) and no Affiliate of an Authorized Person shall, directly or indirectly, pay for or subsidize advertising or promotional materials or activities of any Producer or Affiliate of a Producer in a position to make a referral of title insurance business. For the purposes of this Rule:

a. A Producer is a real estate broker or agent, lender, mortgage company, mortgage broker, builder, developer, attorney or architect or any Affiliate of such a Producer, but a person is not a Producer if the person is an Authorized Person, or an Affiliate of Authorized Person(s), and

b. An Affiliate of a Producer or Authorized Person is an officer, director, agent or employee of such a person, or a member of the immediate family of any of them, or a person who owns, is owned by or is under common ownership with a Producer or Authorized Person, respectively.

2. An Authorized Person shall not, individually or jointly with a Producer, or with a person or group of persons or a company or group of companies that includes a Producer, advertise any particular real property or group of properties. Prohibited activities under this section are those which have the direct or indirect effect of subsidizing the business or advertising or promotional activities of any Producer or Affiliate of a Producer, including but not limited to, providing, paying for, subsidizing the cost of, or sponsoring signs advertising a property or group of properties for lease or sale, electronic or hard copy media describing, promoting or advertising a property or group of properties, or boxes or similar items in which to store such advertising media, or conducting, sponsoring or promoting or paying for any part of an event of or for a Producer or Affiliate of a Producer (such as, without limitation, an open house, holiday party, seminar, lecture or reception or convention event) including, but not limited to, providing or furnishing prizes, food, beverages, gifts, decorations, entertainment or professional services.

3. An Authorized Person shall not provide or pay for any advertising medium that subsidizes the business, products, services or promotional activities of a Producer or Affiliate of a Producer.

4. An Authorized Person shall not provide or pay for furnishings, postage, office supplies, electronic or hard copy documents or media, computer hardware or software, telephones, telephone systems, copiers, fax machines, office equipment, vehicles, administrative, management or staff services, rental space or office facilities for the use of any Producer or Affiliate of a Producer.

5. This Rule does not prohibit an Authorized Person or its Affiliate from producing or distributing promotional and educational materials about title insurance, loans and mortgages, laws and legislation and related matters, provided: a) the Authorized Person or Affiliate is lawfully authorized to do so, b) the name and business symbol of the Authorized Person or its Affiliate, respectively are set out prominently on the cover and first page of the materials, and c) the materials do not depict or include the name or business symbol of a Producer or Affiliate of a Producer.

6. An Authorized Person or its Affiliate may provide or furnish any of the goods or services referenced in paragraphs 2, 3, and 5 of this Rule if, before providing or furnishing the goods or services: a) the Authorized Person or Affiliate charges and collects from the Producer or Affiliate of the Producer, prior to delivery of such goods or services, a reasonable fee for the goods or services; b) providing or furnishing the goods or services is not conditioned upon the referral of business to the Authorized Person or its Affiliate; c) the fee is not less than the actual cost to the Authorized Person or its Affiliate, respectively, to provide or furnish the goods or services; and d) any and all written or visual materials related to the goods or services contain the following disclaimer, "The Texas Insurance Code prohibits the giving or receiving of a thing of value for soliciting or referring title insurance business. The goods or services provided or offered herein are not contingent upon the referral of title business." An Authorized Person or its Affiliate may purchase promotional space for itself in any publication, program, website, or event owned, controlled, or held by a Producer or Affiliate if: a) the Authorized Person or its Affiliate enters into a written agreement with the Producer or its Affiliate that describes the purchase and the consideration paid; b) the Authorized Person or its Affiliate does not pay more than a fair market price; c) the consideration paid is monetary; and d) the purchase is not conditioned upon the referral of business to the Authorized Person or its Affiliate.

7. Authorized persons and their affiliates shall maintain auditable records documenting compliance with this Rule.

8. In addition to any other sanction or penalty which the Commissioner may impose by law, after notice and opportunity for hearing, any person (including a Producer or Authorized Person) found to have violated this Rule is subject to a civil penalty of not more than $10,000 for each act of violation and for each day of violation. The Escrow Officer, Title Insurance Agent or Direct Operation license or the certificate of authority of any person found in violation of this Rule may be suspended or revoked, after notice and opportunity for hearing, for subsequent or repeated violations of this Rule.



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