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.


Created: 4/17/98 Updated: 4/17/98