Opinion ID: 1036249
Heading Depth: 2
Heading Rank: 1

Heading: Background- Title Insurance

Text: Typically, insurance protects against a contingency that might occur in the future, such as a fire or flood. Title insurance is different-it protects against past claims against the insured real estate, such as forged signatures on transfer documents, unpaid real estate taxes, and liens that cloud title on the property. Title insurance is also unique in two ways significant to this case: first, in how it is provided and, second, in how it is marketed and regulated. Before a title company issues a title insurance policy, it must research the state of title to the property in question, which is done using an archive called a tract index or title plant. 1 Admin. R. (AR) at 469, 514. The Washington Insurance Code requires a title insurance company to own, lease, or maintain a complete set of tract indexes in every county where it transacts business. RCW 48.29.020(2), .040(1 ). A title company can satisfy this requirement by retaining a duly authorized agent with a complete set of tract indexes in a county where it transacts business. RCW 48.29.040(1 ). An agent is any person appointed by an insurer to solicit applications for insurance on its behalf. Former RCW 48.17.010 (1985). 2 The insurance code also governs the process for appointing an agent. RCW 48.17. 160. 1 This process is called abstracting. First Am. Title Ins. Co. v. Oep't of Revenue, 144 Wn.2d 300, 302, 27 P.3d 604 (2001). 2 This definition was in effect at the time of the administrative proceedings at issue in this 2 No. 87215-5 Some title insurers utilize a type of agent called an underwritten title company (UTC). A title insurer that wishes to market its policies in a small county might not own a title plant there; a prospective UTC might own a title plant in that county but be legally unable to sell insurance. 3 Therefore, the title insurer and the UTC agree to sell their services as a bundle. The consumer buys the title insurer's policy, supported by the UTC's abstracting work. First Am. Title Ins. Co. v. Oep't of Revenue, 144 Wn.2d 300, 304, 27 P.3d 604 (2001 ). A UTC may offer other services as well. For tax purposes, a UTC is not a mere insurance agent or broker, but rather generates business for its own account .... 4 /d. at 305. Title insurance is also special in that it is purchased as part of the closing of a real estate transaction. Sometimes title insurance is mandatory in order to secure the funds to close on the transaction. In many cases, consumers have little real opportunity to shop around or to make an informed decision about what title insurance policy to buy; to the consumer, title insurance is just one more expensive step in the dizzying, convoluted and often confusing flurry of paperwork and signings that culminate in the closing of the home purchase. AR at 469-70. Many consumers case. The present statute defines a title insurance agent as a business entity licensed under the laws of this state and appointed by an authorized title insurance company to sell, solicit, or negotiate insurance on behalf of the title insurance company. RCW 48.17.01 0(16). 3 For instance, the UTC might not meet the insurance code's minimum capital stock requirements to sell title insurance. RCW 48.29.020(3); RCW 48.05.340. 4 In First American Title Insurance Company, we specifically disclaimed any reliance on principles of agency. 144 Wn.2d at 304 n. 1. Therefore, First American Title is not controlling authority as to our agency analysis below and is not further discussed in this opinion. 3 No. 87215-5 ultimately buy title insurance from whomever a real estate agent, bank, or other major party to the transaction recommends. This model is called reverse competition because title companies do not cater to their consumers' needs, but to the needs of the middlemen who can recommend a consumer to a title insurer. AR at 470. Indeed, title companies spend nearly all of their marketing budgets wining and dining middlemen in order to gain referrals. /d. Because this model creates significant potential for abuse, both the legislature and Office of the Insurance Commissioner (OIC) impose strict restrictions on gifts and other inducements to middlemen. At the time of the administrative proceedings below, former RCW 48.30.150 (1990) provided that [n]o insurer, general agent, agent, broker, solicitor, or other person shall, as an inducement to insurance, or in connection with any insurance transaction, provide in any policy for, or offer, or sell, buy, or offer or promise to buy or give, or promise, or allow to, or on behalf of, the insured or prospective insured in any manner whatsoever: (3) Any prizes, goods, wares, or merchandise of an aggregate value in excess of twenty-five dollars. Similarly, OIC enjoys broad authority to define unfair or deceptive trade practices, RCW 48.30.01 0(2), and the commissioner has clarified through rule making that (1) RCW 48.30.140 and 48.30.150, pertaining to rebating and illegal inducements, are applicable to title insurers and their agents. (2) It is an unfair method of competition and an unfair or deceptive act or practice for a title insurer or its agent, directly or indirectly, to offer, promise, allow, give, set off, or pay anything of value exceeding twenty-five dollars, calculated in the aggregate over a twelve-month period on a per person basis in the manner specified in RCW 48.30.140(4), to any person as an inducement, payment, or reward for placing or causing title insurance business to be given to the title insurer. 4 No. 87215-5 Former WAC 284-30-800 (1990) (emphasis added). 5 The present case involves alleged violations of former WAC 284-30-800 on the part of CTIC's duly appointed agent, as described below.