TO: ALL TITLE INSURANCE AGENTS
RE: FEES TO ENHANCE TIMELY PAYMENT ON TRUSTEE SALE GUARANTEES
Recently, the following question was posed to the Division of Insurance.
After researching the question and its implications, the Division of Insurance concludes that it is not permissible to pay a fee to a client in order to be paid more timely on outstanding receivables for trustees sales guarantees. Such an action would constitute an illegal rebate which is prohibited by statute.
In 1981, a hearing was held before the Division of Insurance which resulted in the issuance of Order 81-3 by the Director. In Section B. of that order, the Director held that:
This finding was consistent with the fact that the title plant exists to facilitate the issue of a title insurance policy or contract. As noted in that same order, title insurance is different from almost all other kinds of insurance. The premium paid is primarily a service fee that covers the expense of searching, analyzing, sorting, cross checking, and indexing of recorded information so that the history or "chain of title" on a property can be complied. The title premium has a minimal risk bearing capacity. Title insurance is primarily an expense driven product.
Title insurance is different in another respect. Because it is an expense driven product, the premium is earned when the work is completed. This may precede the inception date of actual coverage. The premium for the work completed on a valid order is fully earned in accordance with the rate schedule filed with and approved by the Division of Insurance. Once that work is complete and the appropriate report is completed, payment for the work is due. Any payment of a fee by the title insurance company or title insurance agent to the trustee to secure a loan to pay the premium would be considered a rebate. The order went on to state:
Alaska has a clear definition of an illegal rebate in the title insurance law. It reads:
This statute effectively prohibits payments to an attorney to induce the remission of premium charges. The very offer by an attorney is not legal.
A title insurance company or title insurance agent who fails to bill and collect appropriate premium is also viewed as engaging in a rebate since the uncollected funds have an interest value. The test the Division will apply in determining whether a rebate has occurred is to view the transactions accepted by the title insurance company or title insurance agent from persons or firms who consistently fail to pay in a timely fashion. If no remedial actions are taken or evident, a finding of rebate will occur. This can become a serious issue in view of the penalty provisions for persons engaged in rebate. The statute reads:
The Division of Insurance has become substantially more active in its market conduct examinations of insurers and agents. As those examinations extend to the title insurance business, rebates will be an area of substantial interest.
The title insurance company or title insurance agent should be demanding payment when title is ordered from the trustee.
Done this 9th day of April, 1991 at Juneau, Alaska.