Title Insurance Agent Obligations and Agency Requirements

Issued and entered July 10, 2001 by Frank M. Fitzgerald, Commissioner of Financial and Insurance Services 
 

Illegal Rewards and Remuneration

An owner selling real estate is ordinarily required to purchase a title insurance policy for the benefit of the buyer. In the sale of residences, real estate brokers and salespersons (brokers), on behalf of their clients, control the placement of title insurance. Title insurance agents and agencies (agencies) direct their competitive efforts at the brokers.

All parties to the transaction benefit when agencies compete to provide the best service. However, when agencies compete by giving prohibited rewards or remuneration to brokers, unfair competition results which, among other things, may lead to diminished services. Agencies are prohibited from rewarding or remunerating persons for leads or prospects by Section 1207(3) of the Insurance Code of 1956, as amended (the Code), MCL 500.1207(3); MSA 24.11207(3), which provides:

Except as provided in section 1212 and subsection (4), an agent shall not reward or remunerate any person for procuring or inducing business in this state, furnishing leads or prospects, or acting in any other manner as an agent.

Several methods for illegally rewarding or remunerating brokers for referrals have been reported to the Office of Financial and Insurance Services (OFIS). These methods include: 1) agencies giving brokers equipment, such as fax machines, car phones, and computers; 2) agencies leasing space from brokers or renting conference rooms from the brokers for closings in order to induce referrals; 3) agencies performing services previously performed by brokers, including holding escrow deposits and hiring delivery persons for brokers; 4) agencies have, to secure the business of a broker, hired the broker's secretary and left the secretary in place to do closings and other work for the broker.

The rewards or remunerations described above, and similar rewards or remuneration, are prohibited by Section 1207(3) above. The Commissioner has a record of rigorous enforcement of that section.

Substantial penalties may be imposed for the violation of this section. Upon finding a violation of Section 1207(3), the Commissioner will issue a cease and desist order under Section 1244(1), may revoke or suspend the license of the agency involved, and can impose the following types of penalties:

1. Civil fines of not more than $300.00 for each violation, up to an aggregate fine of $10,000.
2. A refund of any overcharges.
3. Restitution to cover incurred losses, damages, or other harm attributable to the acts
   of the person found to be in violation of this chapter.

Title Agency Names

In the course of conducting the business of insurance, some agencies have been using the words "title company" for their agency name designation without using the accompanying term "agency" to clearly identify the business as an agency representing a title insurance underwriter.
Of course, title insurance agencies are not insurance companies, which are licensed under Section 402 of the Code, MCL 500.402: MSA 24.1402. Agents are licensed under Section 1201 of the Code, MCL 500.1201; MSA 24.11201, that defines the requirements and authority of an agent.

Attorney General Opinion 5756, issued on August 19, 1980, addresses the issue of whether an insurance agency may use the word "insurance" in their corporate name. The Attorney General stated:

It is my opinion, therefore, that 1972 PA 284, §213, supra, does not preclude the use of the word "insurance" in the name of a corporate insurance agency, provided that the word "insurance" is used in conjunction with the word "agency" so as not to mislead the public or imply that the corporation is an insurance company.

This statutory requirement, as substantiated by the opinion of the Attorney General, is to ensure that the public is not misled through the name of the agency into believing the agency is an insurance company and licensed as a company under the Code, subject to all financial and other appropriate company regulations found in the Code.

The Commissioner considers the use of the word "insurance," or the use of the word "company" in an agency name to be misleading unless the word "agency" is used in conjunction with these words. For example, a corporate name such as ABC Title Company would imply the existence of a title insurance underwriter rather than a title insurance agency, which would mislead the public or imply that the corporation is an insurance underwriter.

An agency that engages in misleading conduct would fail to maintain the standards of trustworthiness set forth in MCL 500.1204(4), MSA 24.11204, and an agency found to be untrustworthy may have its license suspended or revoked under MCL 500.1242(2), MSA 24.11242.

Recognizing that a transition period is needed, the Commissioner will allow each agency until January 1, 2002 to make the necessary changes. There are three ways an agency may use to accomplish adding the word "agency" to their name to appear on all public and non public communications:

1. An agency may make the change by adding the word "agency" under its current name.
2. An agency may add the word "agency" to its legal corporate name and file the new corporate name with the OFIS.
3. An agency may file an assumed name under the Business Corporation Act and with OFIS that includes the word "agency".

It does not matter which option an agency chooses to use as long as the word "agency" appears on all public and non public communications.

This bulletin supersedes Bulletin 88-2, issued June 21, 1988.

Bulletin 77-2 titled "Broker Owned Title Insurance Agencies" is withdrawn.

Bulletin 87-1 titled "Broker Owned Title Insurance Agencies" is withdrawn.

Any questions regarding this bulletin should be directed to:

Office of Financial and Insurance Services
Division of Insurance
Market Conduct and Investigations
611 West Ottawa Street
P.O. Box 30220
Lansing, Michigan 48909-7720

Phone: (517) 335-1725
Toll Free (877) 999-6442