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You are here: Home . rules . 2003 . 1027-059
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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 Texas Department of Insurance proposes 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 proposed amendment to §9.1 updates the date of the amended Basic Manual. The amendments to the Basic Manual which the proposed amended section will adopt 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 proposed amendments to the Basic Manual will clarify and standardize the rules and forms regulating title insurance. The proposed amendments to the Basic Manual are identified by item number and are a republication of items published for consideration at the 2002 Texas Title Insurance Biennial Hearing, Rulemaking Phase, Docket Number 2537, (rulemaking hearing), held on September 24, 2003, together with proposed amendments and typographical and formatting changes to the items. Republication is necessary to incorporate these items into the Basic Manual, to give notice of the withdrawal, by their respective submitters, of Items 2002-21, 2002-22, 2002-23, 2002-26, 2002-27, 2002-28, 2002-29, 2002-30, and 2002-31, to give notice of the changes to the various proposed items, and to give notice of the decision not to adopt Items 2002-3, 2002-4, 2002-5, 2002-6, 2002-7, 2002-18, 2002-19, and 2002-25, which decision is set forth in a separate Commissioner´s Order. The items which are the subject of this proposal are as follows:

Ten proposals 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, and restrictions, encroachments, and minerals, and to 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. The department has made corrective and clarifying changes to these items, has added the words "if any" to the references to "premium" in the procedural rules, and has assigned form and rule numbers to each item. Regarding the restrictions, encroachments, and minerals endorsement for owner policies, the department proposes to amend its current procedural rule P-50, rather than promulgating a new rule, to accommodate this new endorsement as it applies to owner policies. A brief description of each item follows its listing:

Item 2002-8 - Submission to adopt a new Access Endorsement (Form T-23). This proposed endorsement would apply only to commercial transactions and would insure specific access to and from a designated public street.

Item 2002-9 - Submission to adopt a new procedural rule (P-54) for the proposed new Access Endorsement. This procedural rule would authorize the use of the endorsement described in Item 2002-8.

Item 2002-10 - Submission to adopt a new Restrictions, Encroachments, Minerals Endorsement ­ Owner Policy (Form T-19.1). This proposed 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 proposed 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 - Submission to adopt a new procedural rule for the proposed new Restrictions, Encroachments, Minerals Endorsement ­ Owner Policy. This procedural rule would authorize the use of the endorsement described in Item 2002-10. The department proposes to amend its current procedural rule P-50, rather than promulgate a new rule, to accommodate this new endorsement as it applies to owner policies.

Item 2002-12 - Submission to adopt 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.

Item 2002-13 - Submission to adopt a new procedural rule (P-55) for the proposed new Non-Imputation Endorsement. This procedural rule would authorize the use of the endorsement described in Item 2002-12.

Item 2002-14 - Submission to adopt 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.

Item 2002-15 - Submission to adopt a new procedural rule (P-56) for the proposed new Contiguity Endorsement. This procedural rule would authorize the use of the endorsement described in Item 2002-14.

Item 2002-16 - Submission to adopt 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 - Submission to adopt a new procedural rule (P-57) for the proposed new Additional Insured Endorsement. This procedural rule would authorize the use of the endorsement described in Item 2002-16.

Six proposals would 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 - Submission to amend 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 - Submission to amend the Tax Deletion Endorsement Form T-30 to conform the tax assessment language to the current mortgagee policy of title insurance.

Item 2002-20 - Submission to amend 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 - Submission to amend 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 ­ Submission to amend 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 - Submission to repeal Procedural Rule P-33 which has expired by its own terms.

Four proposals would 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. The department proposes to increase the number of continuing education requirements by two hours but allow a later date for a transition period. Regarding the proposed rebating and discounts procedural rule, the department has assimilated some of the amendments offered by submitters and has set forth a monetary limitation on unsolicited items such as holiday gifts that occur in normal business relationships while preserving the regulatory provisions that materially advance the state´s interest in the prohibition of rebates addressed by Insurance Code, Article 9.30.

Item 2002-24 ­ Submission to re-adopt a procedural rule concerning the reporting to the department of all directly issued policies of title insurance. This proposed 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.

Item 2002-32 - Submission to amend 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 proposed 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 proposal also conforms number 21 of the standards with Procedural Rule P-27.

Item 2002-33 - Submission to amend Procedural Rule P-28, Requirements for Continuing Education for Title Agents and Escrow Officers. This proposed amendment changes and modernizes certain requirements for continuing education and updates a statutory reference in this procedural rule.

Item 2002-37 - Submission to adopt 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 proposed amendment will assist in implementing Insurance Code, Article 9.30 regarding rebates and discounts.

The department has filed a copy of each of the proposed items with the Secretary of State´s Texas Register section. Persons desiring copies of the proposed 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.

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

Mr. Carter has also determined that for each year of the first five years the amendments are in effect there are a number of public benefits anticipated as a result of the amendments to the Basic Manual. Providing more uniform endorsements for mortgagee policies will allow for more efficient closing of transactions. The updating and revising of the minimum standards and escrow requirements, continuing education requirements, and reporting of directly issued policies of title insurance allow for consistent administration, facilitate the efficiency of the department and the closing of transactions. The proposals adapt the Basic Manual to changing business practices. E stablishing a new rule regarding rebating and discounts will effect increased compliance with the anti-rebating statute in the Texas Title Insurance Act (Insurance Code, Article 9.30) and enable 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. There is also likely to be a cost savings to those persons who must comply with the proposed new rule on rebating and discounts since the department expects that the level of this activity will be reduced, and the cost of title insurance may be affected accordingly. The new and updated promulgated forms will impose no additional regulatory costs on companies that decide to participate in the title insurance market, and the costs of reproducing such forms, estimated to be no more than $.15 per form for the cost of a photocopy, should be fully compensated by the existing premium schedule. There are anticipated costs to title agents and escrow officers required to comply with the updated and revised requirements for continuing education. The requirement of an additional two hours of continuing education per reporting period is estimated to be between $20 to $35 per hour which is based on the average cost of an hour of continuing education for title agents and escrow officers. This estimate may be increased somewhat by the reduction of allowable self-study hours from eight to four. These costs may be offset by other changes in the continuing education rule such as those allowing credit for course preparation for those who teach a qualifying continuing education course as well as the rule´s increased accommodation of internet-based courses. As to all the proposals, the department anticipates no differential impact between small, large, and micro-businesses. The cost per hour of labor should not vary between small, large, and micro-businesses. Further, it is neither legal nor feasible to exempt small or micro-businesses or to waive compliance considering the purpose of the efficient regulation of title insurance for which the amendments are to be adopted, and specifically considering the purpose of Article 9.30 under which the proposed new rebating and discount rule is to be adopted, that being the prohibition of the paying and receiving/acceptance of rebates. To do otherwise would be contrary to said statute.

To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on December 8, 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. It is noted that any comments received during the previous rulemaking hearing will be considered part of the record regarding the proposed amendments.

The amended 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 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.

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

§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 January 1, 2004 [April 4, 2002]. 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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