Last week the New York State Land Title Association was again notified of the Appellate Division decision on the appeal of the Supreme Court order annulling Regulation 208. On December 26, 2019, the Appellate Division has again unanimously reversed the Supreme Court’s decision annulling Regulation 208. This Bulletin is being sent to advise our Policy issuing Agents of the reversal and the (again) re-instatement of portions of Regulation 208.
Regulation 208, Sections 228.2, and others, have been re-instated, making certain marketing activities prohibited under 6409D of New York’s Insurance Law.
A word on 6409D of the Insurance Law: 6409D of the insurance law prohibits the payment, offering or making of any rebate or giving a thing of value, either directly or indirectly, to the applicant or the applicant’s representative, as compensation for any title insurance business. Section 228.2 provides that no title insurance corporation, title insurance agent, or any other person acting for or on behalf of such title insurance corporation or title insurance agent, including any employee or independent contractor thereof, shall offer or make any rebate, directly or indirectly, or pay or give any consideration or valuable thing, to any applicant, or to any person, firm or corporation acting as an agent, representative, attorney or employee of the actual or prospective owner, lessee, mortgagee of the real property or any interest therein, as an inducement for, or as compensation for, any title insurance business, including future title insurance business, and maintaining existing title insurance business, regardless of whether provided as a quid pro quo for specific business. The penalties associated with the violation of these sections of the law, run to both the giver and the receiver.
6409D provides: Any person or entity who violates this section shall be subject to a penalty of (1) five thousand dollars; or (2) up to ten times the amount of any compensation or rebate received or paid in the case of a title insurance corporation or title insurance agent; or (3) up to five times the amount of any compensation or rebate received or paid; or (4) in the case of an applicant for title insurance that covers real property used predominantly for residential purposes, and which consists of not more than four dwelling units, other than hotels and motels, an amount not to exceed the compensation or rebate received or paid, when such applicant knew that it was a violation to receive such rebate, or other consideration or valuable thing; provided, however, if such applicant did not know that it was a violation to receive such rebate, or other consideration or valuable thing, he or she shall not be assessed a penalty under this subdivision.
Effective immediately: Section 228.2 prohibits any payment, expense, compensation or benefit to any applicant or applicant’s representative, either current or future, associated with the following activities:
- Meals and beverages;
- Entertainment, including tickets to sporting events, concerts, shows or artistic performances;
- Gifts, including cash, gift cards, gift certificates, or other items with a specific monetary face value;
- Outings, including vacations, holidays, golf, ski, fishing, and other sport outings, gambling trips, shopping trips, or trips to recreational areas, including country clubs;
- Parties, including cocktail parties and holiday parties, open houses;
- Providing assistance with business expenses of another person, including but not limited to rent, employee salaries, advertising, furniture, office supplies, telephones, telecommunications, computers and other electronic devices and business equipment, or automobiles, or leasing, renting, operating, or maintaining any of such items, for use by other than a title insurance corporation or title insurance agent;
- Use of premises, unless a fair rental fee is charged that is equal to the market value in the premises’ geographical area;
- Paying the fees or charges of any professional representing an insured as part of a real estate transaction, such as an attorney, engineer, appraiser, or surveyor, or paying rent or all or any part of the salary or other compensation of any employee or officer of any current or prospective customer; and
- Providing or offering to provide non-title services, without a charge that is commensurate with the actual cost thereof.
Thus, both the activity and expenses associated with the activity are prohibited when the Agent is paying for either a current or prospective applicant or the applicant’s representative.
The regulation does however provide guidance on permitted activity and permitted expenses. The following expenses and activities are permissible provided that they are without regard to insured status or conditioned directly or indirectly on the referral of title business, and offered with no expectation of, or obligation imposed upon, to refer, apply for or purchase insurance. In addition, any expenses incurred pursuant to this subsection must be reasonable and customary, and not lavish or excessive:
- Advertising or marketing in any publication, or media, at market rates;
- Advertising and promotional items of a de Minimis value that include a permanently affixed logo of a title insurance agent or title insurance corporation;
- Promotional or marketing events including complementary food and beverages that are open to and attended by the general public;
- Continuing legal education events including complementary food and beverages that are open to any member of the legal profession;
- Complementary attendance offered by a title insurance corporation, title insurance agent as a host of a marketing or promotional event, including food and beverages available to all attendees so long as (a) title insurance business is discussed for a substantial portion of the event including a presentation of title insurance products and services, (b) such events are not offered on a regular basis or as a regular occurrence, and (c) at least twenty-five diverse individuals from different organizations not affiliated with the host attend or were, in good faith, invited to attend in person;
- Charitable contributions made by negotiable instrument made payable only to the charitable organization in the name of the title insurance corporation or title insurance agent; and political contributions.
It is important to understand that the items listed above are intended as examples of permitted and prohibited practices under Insurance Law 6409(d) and should not be considered as exclusive or exhaustive.
The limitations on ancillary charges under section 228.5 Ancillary or other discretionary fees continues to be annulled by the prior January 15, 2019 decision. According to Circular Letter No. 2a (2019), the DFS has advised that: Title Insurance Corporations and title insurance agents are therefore not required to comply with the provisions of 228.5.
In the event you have any questions regarding the above please contact Stewart Title Legal Department at 212-922-0050 and speak with any Underwriting Counsel.
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