1. INTRODUCTION. The Texas Department of Insurance proposes new §9.40 concerning 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 Basic Manual amendments address procedural rules, rates, and forms relating to mineral interests. These proposed amendments are separate from the additions or amendments proposed to the Basic Manual that were considered at the rulemaking phase of the 2008 Texas Title Insurance Biennial Public Hearing held on October 2, 2008, Docket Number 2690.
This proposal is necessary to adopt new rules, rates, and forms that will ensure that the title insurance coverage for mineral interests, if any, will be uniformly handled throughout the state and across varying types of transactions. The Department became aware that despite a uniform premium and title insurance policy, coverage for mineral interests was being handled differently depending on the type of transaction, location of the transaction, local historical custom, and even the type of plant maintained by the title agent.
The Commissioner investigated mineral coverage issues through a work group convened May 22, 2008 that met with Department staff; and at a July 15, 2008 public hearing, Docket Number 2684. Additionally, a public meeting was held December 16, 2008. At the public meeting, the Texas Land Title Association presented on behalf of industry and other concerned persons a Minerals Agreed Resolution. The Minerals Agreed Resolution consisted of eight documents, including a proposed amended consumer notice, and new and amended procedural rules, rate rules, and endorsement forms that were reported to the Commissioner to be the consensus agreement of the persons involved as a means to uniformly handle and provide title insurance coverage for mineral interests, if any, throughout the state and across varying types of transactions. The Department is proposing these items to the entire title industry and public for formal consideration to be adopted as amendments to the Basic Manual.
For the purposes of this proposal, the Department has assigned the proposed amendments and additions to the Basic Manual, as revised, item numbers 1 - 8 followed by the suffix MAR. Each of these eight items are proposed to be adopted by reference and incorporated into the Basic Manual. The Department has created a brief summary of the substance of each item proposed for adoption and included that summary in this proposal. As indicated in the Item 1-MAR summary, the proposed amendment to the Texas Title Insurance Information disclosure form was amended from the proposal submitted in the Minerals Agreed Resolution based on comments received after the December 16, 2008 public meeting from the Office of Public Insurance Counsel. The proposals also reflect non-substantive changes that resulted from converting the format of the submitted proposals and preparing and identifying them for this proposal.
This proposal combines both rulemaking and ratemaking elements. The ratemaking element will not be conducted as a contested case because the Insurance Code Chapter 40 does not specifically apply to proceedings under Chapter 2703, with the exception of the biennial hearings under the Insurance Code §2703.205. Interested persons may submit either written comments, oral comments at the public hearing, or both. The comment period for both written and oral comments will close at the end of the public hearing, unless extended by the Commissioner.
Proposed item 7-MAR would amend an existing rate in Rate Rule R-29. The Insurance Code §2703.202(a) requires the Commissioner to hold a public hearing before the Commissioner may change a premium rate that has been previously fixed by the Commissioner. Similarly, proposed item 8-MAR adds new Rate Rule R-29.1. Pursuant to the Insurance Code §2703.201, the Commissioner can fix a premium rate following reasonable notice and opportunity for a hearing being afforded to title insurance companies, title insurance agents, and the public. The Insurance Code §2703.206 authorizes the Commissioner to order a public hearing to consider adoption of premium rates and other matters relating to regulating the business of title insurance as the Commissioner determines necessary or proper. Additionally, the Department has received a request from Sierra Title Guaranty Company to hold a public hearing for the purpose of considering amending the existing rate in Rate Rule R-29 under the Insurance Code §2703.202(b). Thus, the Commissioner will hold a public hearing for this proposal, including the amended and new rates as proposed in Item 7-MAR and Item 8-MAR , to occur on April 23, 2009, and continue thereafter at dates, times, and places designated by the Commissioner until conclusion.
The rates indicated in proposed Item 7-MAR and Item 8-MAR have not been determined to be accurate or lawful by the Department. The rates indicated are simply those that were submitted in the Minerals Agreed Resolution. The final rates, if any, for proposed Item 7-MAR and Item 8-MAR shall be determined by the Commissioner based on written and oral comments received through the end of the April 23, 2009 public hearing, or as extended by the Commissioner. Therefore, title insurance companies, title insurance agents and members of the public having an interest in such rates must submit through written comments, or orally at the public hearing, all relevant income and expense information in support of, in opposition to, or for a change in, the proposed items, including the proposed rates in proposed Item 7-MAR and proposed Item 8-MAR.
The following items are proposed for approval:
Item 1-MAR -- Submission by Texas Land Title Insurance Association (TLTA) that has been amended by the Office of Public Insurance Counsel (OPIC). The proposal would amend the Texas Title Insurance Information page by adding information stating the title insurance policy is not intended to be an abstract of title; that the Title Insurance Company is not obligated to determine the ownership of any mineral interests; a general statement that while the Title Insurance Company may refuse to issue the policy without an exclusion or an exception as to Minerals and Mineral Rights in the Policy, optional endorsements are available for purchase; and updated references to the Department.
The OPIC amendment added additional information concerning the optional endorsements available for purchase and the last sentence concerning coverage.
Item 2-MAR -- Submission by TLTA proposing to add Procedural Rule P-5.1 authorizing a Company to insert into a Policy or any other title insuring form a prescribed exception or a prescribed exclusion for minerals in either Schedule A or Schedule B respectively.
Item 3-MAR -- Submission By TLTA proposing to amend Procedural Rule P-50 concerning the use of the Restrictions, Encroachments, Minerals Endorsement with Loan and Owner policies (Forms T-19 or T-19.1 respectively.) by removing the distinction between the use of a Form T-19 with respect to residential and non-residential property, eliminating language concerning receipt of premium, and conforming the policy names.
Item 4-MAR -- Submission By TLTA proposing to add Procedural Rule P-50.1 concerning the use of the Minerals and Surface Damage Endorsement in conjunction with Loan and Owner policies issued on described residential and improved or intended to be improved real property (Form T-19.2) and Loan and Owner policies issued on other types of real property not described for use with Form T-19.2 (Form T-19.3.).
Item 5-MAR -- Submission by TLTA proposing to add the Minerals and Surface Damage Endorsement Form T-19.2 providing coverage for improvements due to mineral exploration or development for use under Procedural Rule P50.1 in conjunction with Loan and Owner policies.
Item 6-MAR -- Submission by TLTA proposing to add the Minerals and Surface Damage Endorsement Form T-19.3 providing coverage for damage to permanent buildings due to mineral exploration or development for use under Procedural Rule P50.1 in conjunction with Loan and Owner policies.
Item 7-MAR -- Submission By TLTA proposing to amend Rate Rule R-29 and raise the minimum premium rate for the issuance of the Restrictions, Encroachments, Minerals Endorsement (Form T-19) and the Restrictions, Encroachments, Minerals Endorsement - Owner Policy (Form T-19.1) from $25.00 to $50.00. Determination of the final rate is subject to the public hearing noticed for April 23, 2009. The proposal also removes references to procedures and forms that should be evident from Procedural Rule P-50.
Item 8-MAR -- Submission by TLTA proposing to add Rate Rule R-29.1 and fix the premium rate for the issuance of the Minerals and Surface Damage Endorsement (Forms T-19.2 and T-19.3) at $50.00. Determination of the final rate is subject to the public hearing noticed for April 23, 2009.
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 may obtain them from the Office of the Chief Clerk, Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas, 78701-3938. To request copies, please contact Sylvia Gutierrez at 512/463-6327.
2. FISCAL NOTE. Robert R. Carter, Jr., Deputy Commissioner for the Title Division, has determined that, for each year of the first five years the proposal is in effect, there will be no fiscal impact on state or local government as a result of enforcing or administering the new section. Mr. Carter has also determined that there will be no measurable effect on local employment or the local economy.
3. PUBLIC BENEFIT/COST NOTE. Mr. Carter has also determined that for each year of the first five years the new section is in effect there are a number of public benefits anticipated as a result of the amendments to the Basic Manual. The updating and revising of the procedural rules, rates and forms relating to mineral interests will allow for consistent administration and the closing of title transactions. The proposal further offers title insurance consumers with the opportunity to obtain new coverage endorsements for improvements under proposed Form T-19.2 (Item 5) or permanent buildings under proposed Form T-19.3 (Item 6).
The new and amended promulgated forms will impose no additional regulatory costs on companies participating in the title insurance market, and the costs of reproducing forms, estimated to be no more than $.15 per page for the cost of a photocopy, should be fully compensated by the existing premium schedule.
Additional costs will be related to the issuance of and potential losses resulting from the proposed endorsements Form T-19.2 or proposed Form T-19.3 (Items 5-MAR and 6-MAR, respectively). These additional costs are based on the proposed Procedural Rules P-5.1 and P-50.1 (Items 2-MAR and 3-MAR, respectively) that require the issuance of the endorsements. It is anticipated that any additional costs for research and issuance related to the endorsements will be minimal because the costs for determining the status of title, determining whether a title insurance company will agree to issue a title insurance policy, and closing the transaction and issuing the policy are already included in the existing premium schedule. Losses resulting from the endorsement, if any, will vary from hundreds of dollars to several hundreds of thousands of dollars or more. Further, because the proposed endorsements provide coverage for improvements and permanent buildings that differs from the coverage currently provided under the title insurance policy, losses under these endorsements are not covered in the existing premium schedule.
While a title insurance company may decline to insure the property, those that decide to issue coverage are entitled to a rate structure that provides adequate and reasonable rates of return for title insurance companies and title insurance. A purpose of this proposal is to establish such rates, if any, for these proposed endorsements. Therefore, these costs will result from a title insurance company making a voluntary business decision to insure certain real property risks based on the payment of the fee, if any, to be determined and adopted by the Commissioner pursuant to this proposal and the public hearing
On a per transaction basis, there will be no difference in the cost of compliance between a large and small business as a result of the proposal since the costs associated with research and issuance of the policy as well as the risk being assumed will be related to the location of the real estate, the location of the agent, and the available title records. Even if the proposal results in some adverse effect on small or micro businesses, the Department has considered the purpose of the applicable statutes, which is to maintain effective regulation of the title insurance industry, including the ensuring protection of consumers and that title insurance companies and title insurance agents receive adequate and reasonable rates of return. As the costs in the proposal arise from a proposed requirement to issue certain endorsements following a decision of the title insurance company and agent to exclude from, or except to, coverage for minerals under the policy, the Department has determined that it is neither legal nor feasible to waive the provisions of the proposal for small or micro businesses.
4. ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS FOR SMALL AND MICRO BUSINESSES. The Government Code §2006.002(c) requires that if a proposed rule may have an economic impact on small businesses, state agencies must prepare as part of the rulemaking process an economic impact statement that assesses the potential impact of the proposed rule on small businesses and a regulatory flexibility analysis that considers alternative methods of achieving the purpose of the rule. The Government Code §2006.001(a)(2) defines "small business " as a legal entity, including a corporation, partnership, or sole proprietorship, that is formed for the purpose of making a profit, is independently owned and operated, and has fewer than 100 employees or less than $6 million in annual gross receipts. The Government Code §2006.001(a)(1) defines "micro business" similarly to "small business" but specifies that such a business may not have more than 20 employees. The Government Code §2006.001(a)(1) does not specify a maximum level of gross receipts for a "micro business."
The Department's analysis of any possible costs for compliance with the proposal that are detailed in the Public Benefit/Cost Note section of this proposal are also applicable for small and micro businesses that opt to write title insurance. Additionally, the proposed rules and forms provide an economic opportunity for title insurance companies and title insurance agents to obtain reasonable and adequate rates of return.
Small and micro businesses will each incur the same costs as large business to comply with the proposed requirements to prepare copies of forms and issue the proposed endorsements Form T-19.2 or proposed Form T-19.3 (Items 5-MAR and 6-MAR, respectively). Should it be shown through comments or at the public hearing for this proposal that small and micro businesses do have greater costs as a group, setting a greater rate solely for small or micro business might tend to place them in an uncompetitive position and be counterproductive. Further, consumers would be charged different rates for the same rate regulated product. An alternative, however, is that to the extent greater costs do exist, small and micro businesses can present those costs for consideration under this proposal such that they can be accounted for in determining the charge that will be established for these endorsements. This alternative is already incorporated in the procedure for this proposal. Finally, considering that the requirement to issue the proposed endorsements is limited to use of the exception of exclusion as provided in Proposed Procedural Rule P-5.1, removing the requirement to issue the endorsements for small and micro businesses would adversely impact consumers and purchasers of title insurance contrary to the provisions of the Insurance Code §2501.002.
In accordance with the Government Code §2006.002(c), the Department has determined the proposal will not have an adverse impact on small or micro businesses resulting from greater costs. However, even if the proposal did result in greater costs, the Department believes that small and micro businesses would, if possible, be ill-served by simply establishing a greater charge for them for the proposed endorsements. Alternatively, the proposal does allow small and micro businesses the opportunity to address that impact though presenting at the public hearing and by comments to this proposal their actual costs for consideration such that those costs can be accounted for in determining the charge that will be established for the proposed endorsements. Finally, in accordance with the Government Code §2006.002(c-1), the Department cannot exempt small and micro businesses from issuing the proposed endorsements because that would adversely impact consumers and purchasers of title insurance by denying them the option to purchase the endorsements contrary to the provisions of the Insurance Code §2501.002.
5. TAKINGS IMPACT ASSESSMENT. The Department has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action and, therefore, does not constitute a taking or require a takings impact assessment under the Government Code §2007.043.
6. REQUEST FOR COMMENTS. To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on April 23, 2009, 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.
The Commissioner will consider the adoption the proposed amendments and additions to the Basic Manual, including rates, in a public hearing under Docket No. 2704 scheduled for April 23, 2009, at 9:30 a.m. in Room 100 of the William P. Hobby Jr.Office Building, 333 Guadalupe Street in Austin, Texas. Written and oral comments presented at the hearing will be considered.
7. STATUTORY AUTHORITY. The new section is proposed pursuant to the Insurance Code §§2551.003, 2703.151, 2703.152, 2703.201, 2703.202, 2703.206, 2703.207, 2703.208, and 36.001. Section 2551.003 authorizes the Commissioner to adopt and enforce rules that prescribe underwriting standards and practices on which a title insurance contract must be issued, that define risks that may not be assumed under a title insurance contract, including risks that may not be assumed because of the insolvency of the parties to the transaction, and that the Commissioner determines are necessary to accomplish the purposes Insurance Code Title 11, which concerns the regulation of title insurance. Section 2703.151 authorizes and requires the Commissioner to fix and promulgate the premium rates to be charged by a title insurance company or by a title insurance agent for title insurance policies or for other forms prescribed or approved by the Commissioner. Section 2703.152 authorizes and requires the Commissioner to consider all relevant income and expense information attributable to engaging in the business of title insurance in this state. Section 2703.201 requires that before a premium may be fixed and a rate may be charged, the Department must provide reasonable notice and a hearing must be afforded to title insurance companies, title insurance agents and the public. Section 2703.202(a) provides that the Commissioner can change a premium rate that has been previously fixed by the Commissioner following notice and a public hearing. Section 2703.202(b) provides that a title insurance company or the Office of Public Insurance Counsel, may request a hearing under Section 2703.202(a). Section 2703.206 authorizes the Commissioner to order a public hearing to consider adoption premium rates and other matters relating to regulating the business of title insurance as the commissioner determines necessary of proper. Section 2703.207 requires notice of a public hearing under §§2703.201, 2703.202 and 2703.206 and of each item to be considered at the public hearing, must provide 60 days notice of the hearing and be sent directly to each title insurance company and title insurance agent and provided to the public in a manner that gives fair notice concerning the hearing. Section 2703.208 provides that an addition or amendment to Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas may be proposed or adopted by reference by publishing notice of the proposal or adoption by reference in the Texas Register. Notice of the proposal under Section 2703.208 must include a brief summary of the substance of the matter to be amended or added, and a statement that the full text of the matter is available for review in the Office of the Chief Clerk of the Department. Section 36.001 authorizes the Commissioner of Insurance to 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.
8. CROSS REFERENCE TO STATUTES. The following statutes are affected by this proposal:
Rule Number Statute
§9.40 Insurance Code Chapters 2551 and 2703
9. TEXT.
§9.40. Procedural Rules, Rates and Forms Relating to Mineral Interests. 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 Texas Department of Insurance adopts by reference as part of the Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas: amended Texas Title Insurance Information page; new Procedural Rule P-5.1; amended Procedural Rule P-50; new Procedural Rule P-50.1; new Minerals and Surface Damage Endorsement Form T-19.2; new Minerals and Surface Damage Endorsement Form T-19.3; amended Rate Rule R-29; and new Rate Rule R-29.1; as amended effective June 1, 2009. 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 78701-3938.