S.C. Code Regs. 69-18 - Title Insurance

Section 1. Purposes. The within Regulation is predicated upon recognition of the fact that, as presently constituted, the title insurance business is characterized by reverse competition, which is to say that competition among title insurers regularly takes the form of insurers vying with each other for the favor of mortgage lenders, attorneys, or others who control, or who may control, the placement of the title insurance with title insurers. Such reverse competition tends to increase title insurance premiums or to prevent lowering of such premiums in order that greater commissions or other allowances may be paid to agents or mortgage lenders for such business as a means of obtaining the placement of business controlled by the agent with the insurer paying the highest commissions. In addition, other inducements are made to mortgage lenders, attorneys, or others who control, or who may control, such business by title insurers as a means of securing the placement of such business with the insurers offering the inducements. The reciprocal of such inducements is that mortgage lenders or others have resorted to practices which constitute or border upon coercion, intimidation, or boycott in order to obtain or increase their participation in the title insurance premiums. Manifestly, reverse competition works to the detriment, rather than in favor of, the consumer who is called upon to pay the title insurance premiums, and this reverse competition operates to thwart normal economic forces which would otherwise tend to lower title insurance premiums.

(a) Inasmuch as acts of coercion, boycott, or intimidation are not saved by the McCarran-Ferguson Act from application of the Federal antitrust and Federal Trade Commission laws, even though such acts relate to the business of insurance, this State is in danger of being ousted of its regulatory authority over title insurance if prevalent practices and abuses are suffered by this State to continue.

(b) Title insurers which abstain from the payment of excessive commissions or the offering of such inducements either because they deem the same to be morally wrong, or because they fear Federal prosecution, cannot operate or expand their operations within this State because of the competitive disadvantage which they suffer through refusing to offer such inducements.

Section 2. Unlawful Rebates and Inducements. No title insurer or other person controlled by it shall pay or offer to pay, either directly or indirectly, any referral commission or fee or any part of the premiums for title insurance or any other consideration whatsoever as an inducement for or as compensation on any title insurance business in connection with which a title insurance policy is issued to any of the following:

(a) Any owner or prospective owner or lessee or prospective lessee of real property or any interest therein.

(b) Any obligee or prospective obligee of an obligation secured or to be secured either in whole or part by real property or any interest therein.

(c) Any person who is acting as or who is in the business of acting as agent, representative, attorney, or employee of any of the persons described in (a) or (b); provided, however, that this subdivision shall not be deemed to preclude payment by a title insurer of normal commission to an agent, representative or attorney of any of the persons described in the said subdivisions (a) or (b), but who is not the employee of any such person, except that if any such person entitled to receive and receiving commission hereunder stands in a fiduciary relation to any of the persons described in subdivisions (a) or (b), he must disclose in writing to such person the rate or amount of the commission to be received; further provided, that the commission received from the insurer may not be shared either directly or indirectly with any other person except a duly licensed agent who is not in the employment or under the control of any of the persons described in subdivisions (a) or (b) hereof.

(1) The rule is based, in part, upon recognition of the fact that the agent, representative or attorney of the purchaser or seller paying for the title insurance policy stands in a fiduciary or quasi-fiduciary relationship with such purchaser or seller and that the receipt by him of money or other economic benefit beyond that which such agent, representative or attorney is entitled to as normal commission for services rendered would be inconsistent with his fiduciary relationship in selecting the title insurance for the purchaser or seller. Given a fair disclosure of the rate or amount of such commission to such purchaser or seller, the payment of reasonable agents' commissions is not inappropriate provided there is no division of such commissions in a manner which constitutes a rebate or a benefit to the lender. It is reasonable to assume that when there is no possibility of an unearned and undisclosed material personal benefit or rebate to the said agent, representative or attorney of the purchaser or seller, he would either make no recommendation as to the title insurer or would recommend a listing of title insurers known to be competitive in terms of price or service in order to enhance his own business reputation and competitive position.

(i) In connection with any such disclosure in writing pursuant to paragraph (1) of this subsection, the agent, representative or attorney shall inform the purchaser or seller in writing of his right to choose the title insurer notwithstanding the recommendation of any such agent, representative, or attorney. Such writing shall also fairly and fully inform the purchaser of the limitations of the mortgagee-type title insurance policy as regards protection of the owner's separate interest in the property and shall inform him as respects the availability and cost of an owner's-type policy from the title insurer. If the particular title insurer represented by the said agent, representative or attorney does not provide owner's-type coverage, the written disclosure must state that many insurers provide both mortgagee-type policies and owner's-type policies.

(2) Any of the following activities by a title insurer will be deemed to constitute an unlawful rebate or inducement, but the listing of such activities is not to be construed as exhaustive of such unlawful activities and it may not be inferred that an omission from the listing constitutes a justification for engaging in a particular practice which has not been specifically listed. The term "such person" as used herein refers to any person described in subdivisions (a), (b), or (c) of Section 2:

(A) Charging either more or less than the scheduled rate for a policy of title insurance.

(B) Furnishing a preliminary title report, printed copies of covenants, conditions, and restrictions, or plats, maps, and like materials without charge to any such person. Any charge made for any such reports or materials must have a reasonable relation to the cost of production and the same shall be the same to all persons.

(C) Furnishing reports containing publicly recorded information, appraisals, estimates of income production potential, information kits or similar packages containing information about one or more parcels of real property helpful to any such person without making a charge that is commensurate with the actual cost of the work performed and the material furnished.

(D) Delaying the issuance of a policy beyond the close of escrow and crediting or deferring the charge therefor in order to qualify a later transaction for a lower rate.

(E) Providing, or offering to provide, either directly or indirectly a "compensating balance" or deposit in a lending institution either for the express or implied purpose of influencing the extension of credit by such lending institution to any such person or for the express or implied purpose of influencing the placement or channeling of title insurance business by such lending institution.

(F) Paying for, or offering to pay for, the fees or charges of an outside professional, such as an attorney, engineer, appraiser, or surveyor, whose services are required or useful by any such person to structure or complete a particular transaction.

(G) Paying for, or offering to pay for, the salary or any part of the salary of an employee of any such person, or paying for, or offering to pay for, the salary or any part of the salary of a relative of any such person.

(H) Paying, or offering to pay, any fee to any such person for making an inspection or appraisal of property whether such fee bears a reasonable relationship to the services performed or not.

(I) Furnishing or offering to furnish, paying for or offering to pay for, furniture, office supplies, telephones, equipment or automobiles to any such person, or paying for, or offering to pay for, any portion of the cost of renting, leasing, operating or maintaining any of the aforementioned items.

(J) Paying for, furnishing, or waiving, or offering to pay for, furnish, or waive, all or any part of the rent for space occupied by any such person.

(K) Renting, or offering to rent, space from any such person, regardless of the purpose, at a rent which is excessive when compared with rents for comparable space in the geographic area, or paying, or offering to pay, rent based in whole or in part on the volume of title insurance business generated by any such person.

(L) Paying for, or offering to pay for, entertainment, vacations, business trips, convention expenses, travel expenses, membership fees, registration fees, lodging or meals on behalf of any such person, directly or indirectly or supplying letters of credit, credit cards or any such benefits to any such person for any purpose whatsoever.

(M) Paying for or furnishing, or offering to pay for or furnish, any brochures, billboards, or advertisements appearing in newspapers, on the radio, or on television, or other advertising or promotional material published or distributed by or on behalf of any such person whether used in connection with the promotion, sale, or encumbrance of real property or not.

(N) Paying for or furnishing, or offering to pay for or furnish, any business form to any such person other than a form regularly used in the conduct of the title insurer's business and furnished solely for its convenience in the conduct of its normal business.

(O) Buying from or selling to, or exchanging with, or offering to buy from, sell to, or exchange with any such person, shares of stock in the title insurer or any business concern controlling or controlled by or affiliated with the title insurer except for purchases or exchanges made through a general public offering.

Section 3. Rates, Rating Plans, and Rating Organizations. On or before the one hundred twentieth day following the effective date of this Regulation, title insurers shall file, or cause to be filed in their behalf by a duly constituted and qualified rating organization, their rates for title insurance policies together with the rating plans and rating systems used by them in the making of rates; and such rating plans and rating systems shall be so structured as to produce rates which are adequate, not excessive and not unfairly discriminatory. Such rates whether made and filed by the insurer independently or in its behalf by a lawfully constituted rating organization shall be adequate, not excessive, and not unfairly discriminatory and shall be approved by the Chief Insurance Commissioner prior to their use.

Notes

S.C. Code Regs. 69-18