Second Regular Session
Sixty-first General Assembly
LLS NO. R980915.01 BWM
STATE OF COLORADO
BY SENATORS Wattenberg, Schroeder, Chlouber, Hernandez, Matsunaka, Ament, Phillips, and Rizzuto;
also REPRESENTATIVES May, Schauer, Taylor, Spradley, Reeser, Dyer, Agler, Entz, George, Grossman, Kreutz, Morrison, Smith, and Sullivant.
BUSINESS AFFAIRS & LABOR
SENATE JOINT RESOLUTION 98-028
CONCERNING EXPRESSION OF THE INTENT OF THE GENERAL
ASSEMBLY WITH RESPECT TO THE IMPACT OF THE COLORADO INSURANCE
ANTIREMUNERATION STATUTE ON OWNERSHIP INTERESTS IN THE TITLE
INSURANCE INDUSTRY.
WHEREAS, It has come to the attention of the General
Assembly that the Division of Insurance in the Department of Regulatory
Agencies, upon advice from the Attorney General=s
Office, is interpreting the impact of section 1011108
(1) (c), Colorado Revised Statutes, (hereinafter referred to as
the "antiremuneration statute"), on ownership
interests in the title insurance industry; and
WHEREAS, The General Assembly is aware that the Insurance
Commissioner intends to reflect such interpretation in rules relating
to title insurance companies and title insurance agents and permitted
ownership interests for such entities; and
WHEREAS, The General Assembly recognizes that a policy
of title insurance is issued in the majority of real estate transactions
in Colorado; and
WHEREAS, In most instances, the selection of a title
insurance company or title insurance agent is not generally made
on the basis of consumer comparison shopping, but may be influenced
by a real estate broker or agent, escrow agent, lawyer, builder,
developer, or lender; and
WHEREAS, Unlike casualty insurance, which offers
protection against a future risk of loss, title insurance protects
against losses resulting from encumbrances or defects ascertainable
at the time a title policy issues; and
WHEREAS, Generally, the consumer lacks the time and
economic incentive to become informed regarding title insurance,
which can cause the consumer to be captive and vulnerable to excessive
title insurance rates; and
WHEREAS, The title insurance industry often aims
its competitive effort at the producer of title insurance business,
rather than the ultimate consumer, because the selection of a
particular title insurance company or title insurance agent may
often be made by a representative of the person that ultimately
pays for the policy; and
WHEREAS, The antiremuneration statute prohibits
a title insurance company or title insurance agent from giving
or receiving, in any form, remuneration for the referral of title
insurance business; and
WHEREAS, The General Assembly believes it to be important
for the protection of consumers and for the stability of the title
insurance industry in this state for the Insurance Commissioner
to interpret the antiremuneration statute in a manner that
clearly delineates permitted ownership interests in the title
insurance industry as well as circumstances that would violate
the law; and
WHEREAS, The General Assembly wishes to express its
intent with respect to the interpretation of the antiremuneration
statute as it applies to permitted ownership interests in the
title insurance industry; now, therefore,
Be It Resolved by the Senate of the Sixtyfirst
General Assembly of the State of Colorado, the House of Representatives
concurring herein:
(1) The plain meaning of the words of
the antiremuneration statute do not prohibit all ownership
interests between and among title insurance companies or title
insurance agents and producers of title insurance business;
(2) The plain meaning of the words of
the antiremuneration statute indicate that tying ownership
interest to the referral of title insurance business is a violation
of the law;
(3) Because the determination of any violation
of the antiremuneration statute requires an examination
of individual ownership interests between and among title insurance
companies or title insurance agents and producers of title business,
the Insurance Commissioner should include questions in the application
for authority and in the annual licensing process for title insurance
companies and title insurance agents geared toward verifying whether
the applicant or licensee engages or will engage in activities
that would give rise to a violation of the antiremuneration
statute. The Insurance Commissioner shall make a determination
as to whether an entity violates or will violate the antiremuneration
statute when the Commissioner is able to determine either from
an investigation of conduct or from an application whether:
(a) The purpose of an ownership interest
is or will be substantially unrelated to the referral of business;
(b) Dividends, director fees, or other
returns on investment paid are or will be directly proportionate
to an owner=s
percentage ownership interest in the company;
(c) An owner=s
percentage ownership interest is or will be directly proportionate
to the amount of capital that the owner contributed to the business;
(d) The cost of the ownership opportunity
is or will be the same or equivalent for all investors;
(e) The ownership opportunity in the title
insurance company or title insurance agent is not now and will
not be solely limited to those interested investors in a position,
directly or indirectly, to refer title insurance business;
(f) The ownership interest is or will
be free of incentives or disincentives that tend or will tend
to influence the referral of title insurance business to a title
insurance company or a title insurance agent;
(g) The return on ownership interest is
or will be constructed to insulate against kickbacks or referral
fees;
(h) The title insurance company or title
insurance agent does or will actually and independently render
substantially all core title services for which its customers
are charged;
(i) The title insurance company or title
insurance agent does not or will not limit its customer base to
those entities that are associates of the agency or company;
(j) An equity investor or any other person
making a referral from an agent or employee of such equity investor
has, does, or will, at or before the time of the referral, provide
to each person whose business has been or will be referred, a
disclosure of those matters required to be disclosed under the
federal "Real Estate Settlement Procedures Act", 12
U.S.C. Secs. 2601 to 2617, all rules adopted pursuant to said
federal law, and any additional matters required to be disclosed
pursuant to rules of the Insurance Commissioner.
(4) In evaluating such factors, the Insurance
Commissioner should not consider the labeling of a payment as
a "dividend", "interest", or other appropriate
term determinative of whether such a payment would be permissible
under the antiremuneration statute.
(5) In evaluating such factors, the Insurance
Commissioner may presume a violation of the antiremuneration
statute if, during any twelvemonth period, any applicant
or licensee writes an aggregate amount of premiums on business
derived from a producer or producers of title business that owns
or has an ownership interest in the applicant or licensee, or
any of the producer's or producers' directors, shareholders, members,
managers, employees, or agents, and which exceeds premiums on
all other title insurance business of the applicant or licensee.
(6) If the Insurance Commissioner relies
upon information from title insurance companies to verify information
for purposes of enforcement of the antiremuneration statute,
the commissioner should require that such title insurance companies
verify title insurance agents=
applications for authority and those documents provided in the
annual licensing process.
(7) Market conduct examinations to determine
compliance with the antiremuneration statute should focus
on title insurance agents as well as title insurance companies.
Be It Further Resolved, That copies of this Resolution be transmitted to the Colorado Insurance Commissioner and to the Colorado Attorney General.