The title insurance companies operating in Texas have, from time to time, asked the Board of Insurance Commissioners, through the office of the Casualty Insurance Commissioner, a great many questions about whether actual or proposed methods of doing business would be in violation of law or regulations, with special regard to paying for the solicitation and development of business. These have had to do with the payment of commissions to others than contract representatives operating abstract plants and to the division of premiums, under various methods, also to persons soliciting businesses outside and away from the company home office, including the increasingly prevalent "branch office" managers. What field of activity is proper for licensed attorneys in relation to solicitation and development of title insurance business, including how they may be recompensed, has also been discussed frequently.
Other questions have had to do with giving of rebates and discounts, and asked whether it constituted a rebate to do such things as the giving of free legal service to a builder, or to give a sign to a subdivision developer, or furnish shrubs for an operating builder, or take customers on hunting trips, or give them free legal forms. Downtown offices have paid parking tickets for customers. It has even been urged that an operative builder, who closes a loan in permanent form in his own name is entitled to credit for the mortgagee's policy premium at some subsequent date when he sells the property to a purchaser acceptable to the lender.
It should not be difficult to determine whether or not a particular course of action constitutes the giving of a premium rebate, or discount. The ordinary definition of a rebate is to make a reduction from or allow a discount to, or to give anything of value, or any inducement amounting to a rebate or discount; a discount being defined as "a deduction from the usual price". (The Winston Dictionary, 1944). The statute (Article 9.22), however, seems to enlarge upon these ordinary definitions of terms by including, as prohibited, the giving or permitting of any kind of indirect or intermediate thing of value, or inducement, whether to the policy buyer or intervening persons in the getting, or paying for, title insurance.
Title insurance premium schedules in Texas are established after due hearing, and once having been fixed must be charged without variation therefrom. Hence, any method of doing business, and all devices, whereby the purchaser of a title insurance policy does not pay the full premium, which has been fixed for that particular coverage, constitutes a rebate in violation of the provisions of Article 9.22 (Rebates and Discounts), 1951 Texas Insurance Code. The existence of a prohibited premium discount may be detected in the same manner.
The problems concerning division of premiums between the title insurance company and others are also governed by Article 9.22 (Rebates and Discounts), 1951 Texas Insurance Code. It is hoped that the general statements and several illustrative situations appearing below will be of assistance to the companies in applying Article 9.22 to specific questions as they arise; they do not purport to be complete but are intended to set forth and illustrate certain basic interpretations involving rebates and discounts. The possible fact situations differ in varying degrees and intermingle to such an extent as to make a complete analysis of them impracticable.
It may be pointed out that the primary responsibility for seeing to it that all title insurance business in Texas is conducted in a proper, lawful manner, in all the details thereof, rests upon the title insurance companies. Each company and its representatives should exercise this responsibility with great care, manifested by an honest attempt to comply with the Statutes and with the rules and regulations governing the doing of a title insurance business in Texas. It is the purpose of the Board to aid the companies in these effort. On the other hand, Article 9.25, 1951 Texas Insurance Code, makes revocation of the permit to do business or forfeiture of corporate charter the penalty for failure to comply with, or violation of, the terms and provisions of Chapter of said Code.
The Board in administering the law in question, must assume that the law is valid and must follow the plain wording thereof. If the intention of the Legislature was different from the wording used, judicial, rather than administrative interpretation should be sought. Neither may an administrative agency enlarge the scope of a statute, nor fail to take cognizance of prohibitions, restrictions and limitations contained in the law.
Present Article 9.22 was formerly Section 21 of Article 1302a, Vernon's Annotated Revised Civil Statutes, and was enacted as Acts 1929, 41st Legislature, p. 77, Ch. 40. The only change in the language of Article 9.22 (formerly Section 21, Article 1302a) was to abbreviate the last four words of Section 21, to wit, "Board of Insurance Commissioners" to the present last word "Board". This shows that the meaning thereof has not been altered in the past 23 years, nor has any material change in wording been made; nor have any amendments affected the statutory provision relative to rebates and discounts since original enactment in 1929. Neither has any court of competent jurisdiction declared these statutory provisions dealing with title insurance rebates and discounts to be unconstitutional, void nor in any degree ineffective as written.
Article 9.22 is as follows:
No commissions, rebates, discounts, or other device shall be paid, allowed or permitted by any company, domestic or foreign, doing the business provided for in this chapter, relating to title policies or underwriting contracts; provided this shall not prevent any title company from appointing as its representative in any country any person, firm or corporation owning and operating an abstract plant in such county and making such arrangements for division of premiums as may be approved by the Board.
It may be noted at the outset that the only statutory authority for a title insurance agency is contained in that part of Article 9.22 which permits arrangements for a division of premiums between issuing companies and persons, firms or corporations "owning and operating an abstract plant in such county". Such arrangements are permitted only as an exception to the prohibition against rebates and discounts, which is the main subject of this article.
It seems plain, therefore, that all others than those owning and operating abstract plants must be bona fide employees of the title insurance company, as differentiated from agents thereof. That is to say, there is no legal restriction upon the direct writing of title insurance by the issuing company but this will be accomplished by the services of employees, not agents, of the issuing title insurance company.
Agents, by the statute, must be limited to those representatives (persons, firms or corporations) owning and operating abstract plants, since only with these may the issuing company divided premiums (after Board approval and limited further to one county). Employees must, then, be limited to those persons whose compensation for services does not come, in whole or in part, directly nor by device, from commissions, rebates, discounts, or other devices, or from division of premiums from the sale of title insurance.
These limitations and prohibitions are clearly stated in the wording of Article 9.22 and are the body of the law, setting forth the intent of the Legislature to prohibit title insurance companies from doing the named acts, with only the one stated exception. The intent of the Legislature is the essence of the law, but the intent is to be derived from the words of the statute itself (Gilmore v. Waples, 188 S. W. 1037). The wording of Article 9.22 seems clear and unambiguous. It need only be applied, as written, to the facts of each instance as it arises.
Consideration of the following situations may prove helpful in applying the quoted law:
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The title insurance company issues its policies through the office of an attorney in an adjoining town, in the same county as the home office of the title company. The attorney does not own and operate an abstract plant but one is owned and operated in its home office by the title insurance company.
The attorney pays the rent for the space he occupies, which has at the entrance signs stating that it is both a law office and a branch office of the title company. He also pays all administrative office expense, such as stenographers, telephone, etc.
He examines titles of applicants for title insurance from data furnished by the company, closes the deal by delivering a policy issued at the home office, collects the premium, retains, or receives back, an agreed percentage thereof, the balance go to the company. Neither the attorney, nor anyone in his office is listed as an employee by the company for Social Security taxes.
The percentage of the premium received by the attorney is called an "attorney's fee" by the company.
Thus far it has been assumed that the attorney does not directly solicit title insurance business, although he may indirectly do so by virtue of the branch office sign at his entrance or on his door and his control of the business of his clients.
If he directly solicited business there would seem to be no doubt that he was an agent of the title insurance company and Article 9.22, requiring ownership and operation of an abstract plant, would apply to him.
If he solicits business indirectly by having, or permitting, a sign stating that the office he occupies is a branch office of the title insurance company, under the stated facts an agency situation would still exist, in our opinion. In either event dividing the premiums with him violates the statute.
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The foregoing discussion does not, however, dispose of the question of whether the relationship between the company and attorney may be entirely beyond the purview of Article 9.22 because of being that of attorney and client, as contrasted with the principal and agent or purely an employer-employee relationship.
To establish a true professional, or attorney and client, relationship the services of the attorney must all be legal services; in other words he must be "practicing law" in the work he does for the title company. Insofar as the attorney furnishes opinions as to the condition of the title to real estate, or advises interested parties as to the purpose and legal effect of the instruments drawn by him in connection with the issuance of title policies; to wit, deeds, notes, mortgages, deeds of trust, mechanic's and materialman's lien contracts, releases, transfers, etc., he is practicing law. (See Hexter Title and Abstract Co. V. Grievance Committee, etc., 179 S. W. (2d) 946)
Thus, the examination of title and rendering of a title opinion to the title insurance company may, to that extent at least, constitute the company a client of the attorney and entitle him to a legal fee from the company for such professional services.
The search and examination of the title necessary to determine the condition or status of the title to be guaranteed is a legitimate expense of the title insurance company. (T may be here noted, however, that the title examination could be made by a non-attorney agent or employee of the company.)
The preparation of the legal instruments above indicated is customarily done at the expense of the buyer and seller, or mortgagor and mortgagee, not the title insurance company, so non of the attorney's remuneration from the company arises from that phase of legal work.
"Closing the deal", as defined in the Texas Title Insurance Manual (Section II, 5a) is an expense of the company and may properly, but not necessarily, be handled by an attorney. Charges made by an attorney for closing the deal would be an indication of the attorney-client relationship, although not conclusive. Other factors should also be considered.
Bearing in mind that the statute prohibits the division of premiums with anyone not owning and operating an abstract plant in the county (Article 9.22), it is important to determine the nature of the attorney's remuneration for his services to the company. Licensed attorneys, as such, are not exempted from the prohibition against division of premiums and can only come within the exception by either owning and operating an abstract plant in the county, or being in the employment of the company.
In this sense an attorney may be deemed in the employment of the company, as his client, if his legal services and resulting fees are not contingent, and are based on their professional value. So called "fees" contingent upon the attorney originating business, dependent upon the issuance of a policy, or measured by the amount of premium, do not indicate the customary relationship of an attorney in the professional employment of his client, the title insurance company.
In the foregoing example the fact that the attorney's remuneration is keyed to the amount of premium is an indication that it is in the nature of a division of premium, or commission, rather than a true legal fee. Legal fees for title examinations may vary according to the value of the property but it is not customary in the practice of law to make the amount of a legal fee dependent upon the amount of title insurance premium, nor upon whether a policy is issued or not. The current recommended schedule of fees of the Travis County Bar Association, which is deemed typical, contains a sliding schedule of fees for abstract examination of city property beginning with $25.00 for property valued at under $1,500.00 up to $75.00 for property valued at $50,000.00 to $75,000.00.
Our conclusion is, therefore, that a title insurance company cannot, in view of Article 9.22, legally divide a title insurance premium with an attorney any more than it could with anyone other than a "person, firm or corporation owning and operating an abstract plant in such county...". Nor is the vice cured by calling the division a legal fee. It follows from the clear language of the statute, in our opinion, that no commissions, rebates, discounts, or other devices shall be permitted or allowed to an attorney, real estate agent, loan broker, developer, builder, nor anyone else, save only an abstracter representative, and then only after the division of premiums has been approved by the Board.
This is in accord with our interpretation, issued 12 April 1948, wherein it was stated, "However, there is nothing in the Title Act to prevent an approved attorney from rendering legal services for the Title Insurance Company in connection with the examination of title or closing of deal, and receiving adequate compensation therefor."
A separate consideration of the facts of each case will reveal whether in fact, the attorney is paid a legal fee for legal services, or is, on the contrary, receiving a division of the premiums.
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Variations of existing "branch office" and "attorney" situations appear in the following examples:
a. A suburban office has a large sign advertising it as a branch office of the named title company. The office is in charge of one who is not an attorney. Orders taken at the suburban office are referred to the home office in the same county, where an abstract plant is owned and operated by the company. Search, examination of title, and obtaining of tax statements is done there and forwarded to the suburban office for closing. Funds collected are deposited in the name of the title company but are disbursed by the operator at the suburban office, who collects the premium. Of the gross premium for each particular transaction involved he sends an agreed percentage to the home office and retains the balance as his compensation for services rendered.
As above pointed out, this arrangement violates the statutory prohibition against division of premiums with one not owning and operating an abstract plan, making it unimportant who pays the administrative expense of the suburban, or "branch", office, as well as who reports the branch office personnel for Social Security tax purposes. Here a certain agreed part or percentage of the premium resulting from each policy handled through the branch office is retained by the individual operating the "branch" office. This, in our opinion, constitutes a "commission" or "division of premiums" as prohibited by Article 9.22.
b. A variation of the situation in a., foregoing, would be that the issuing company does pay all employees, Social Security payments, rent an overhead of the branch office. The full premium for each policy issued on orders originating in the branch is sent to the issuing company, which deducts a flat charge therefrom. The remainder is then divided between the issuing company and the individual operating the branch office.
If the reasoning used in the previous discussions is sound, it will appear that this method still constitutes an illegal division of premiums.
c. A different situation exists in the following set of facts: A title insurance company opens a company office in a county in which it does not own and operate an abstract plant. The office is operated by a salaried employee of the company, who solicits title insurance business and accepts applications for title insurance. The company issues the policy from its home office. The employee in charge of the company office does not receive any part of the resulting premium, being on a straight salary basis.
This procedure is permissible in our opinion. The statute does not proscribe solicitation of title insurance business by the issuing company but only the paying, allowing or permitting of (commissions, rebates, discounts or other devices), or the (division of premiums) with anyone not owning or operating an abstract plant. None of the prohibited practices exist in the stated facts. This seems true even if the company is a single line company, issuing title insurance only, although the method may be more economically employed by so called multiple line companies, so that the employee looks after other lines of insurance also. The answer would be the same in either case.
d. In considering another type of branch office operation, the manager of which probably is, but need not be, an attorney, we may suppose the basic facts to be that all salaries in the branch office, including that of the individual in charge, all Social Security payments, rent, telephone and administrative expenses are paid from accounts carried in the name of the issuing company, the gross amount of premiums collected are deposited to the credit of the title company. The company does not own and operate an abstract plant in the county of the branch office.
In addition to a straight monthly salary the branch office manager has a contract right to receive a year end bonus calculated upon the amount of premiums developed by his branch office, the expense of its operation and the resulting annual net profit to the issuing company from the branch office operation.
No conflict with the provisions of Article 9.22 exists under the foregoing facts, in our opinion. No commission, rebate, discount, or other device having for its illegal purpose the division of premiums is paid or permitted between the issuing title insurance company and its branch manager; (such branch office manager not being a person owning and operating an abstract plant in the county and, therefore, not legally qualified to receive a premium division under the statute)
It is true that the amount of the branch office manager's annual salary, compensation, or remuneration, is dependent to a material extent upon the volume of premiums flowing to the company from his solicitation and efforts. However, his compensation is not tied to a specific part of each premium, nor to any one premium at all but is, on the contrary, gauged by the annual profit of his office as an over all annual operation. We find nothing in Article 9.22 prohibiting this way of determining payment for services since it does not purport to prevent, or restrict, higher pay to company employees in proportion to their production profit, so long as it is not accomplished by payment of a commission, etc. or division of premium, as set out in the limiting provisions of the Article.
Many, and in fact innumerable, variations and combinations of the foregoing illustrations are possible, and it is, accordingly, necessary to consider each case by its own fact basis and upon its own merits. It should be further pointed out that the facts are not necessarily complete in the examples used by it is believed that sufficient basic facts have been given in each case to support the reason for our opinion as to each.
Very truly yours,
BOARD OF INSURANCE COMMISSIONERS
/s/ Joe P. Gibbs
Casualty Insurance Commissioner