By: Smithee H.B. No. 4338
A BILL TO BE ENTITLED
AN ACT
relating to title insurance agents and title insurance companies.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 2501.004(b), Insurance Code, is amended
to read as follows:
(b) To provide for the safety and protection of
policyholders, the department shall require that an abstract plant
[be]:
(1) be geographically arranged;
(2) cover a period beginning not later than January 1,
1979, and be kept current; and
(3) be adequate for use in insuring titles, as
determined by the department.
SECTION 2. Section 2602.002(a), Insurance Code, is amended
to read as follows:
(a) This chapter is for:
(1) the purposes and findings stated in Sections
441.001, 441.003, 441.005, and 441.006; [and]
(2) the protection of holders of covered claims; and
(3) the protection of consumers served by agents.
SECTION 3. Section 2602.003(6), Insurance Code, is amended
to read as follows:
(6) "Impaired title insurance company" means a title
insurance company that is[:
[(A) placed in:
[(i) temporary or permanent receivership
under a court order based on a finding of insolvency; or
[(ii) conservatorship after the
commissioner determines that the company is insolvent; and
[(B)] designated by the commissioner as an
impaired title insurance company or is:
(A) placed by a court in this state or another
state under an order of supervision, conservatorship,
rehabilitation, or liquidation;
(B) placed under an order of supervision or
conservatorship under Chapter 441;
(C) placed under an order of rehabilitation or
liquidation under Chapter 443; or
(D) otherwise found by a court of competent
jurisdiction to be insolvent or otherwise unable to pay obligations
as they come due.
SECTION 4. Sections 2602.011(a) and (e), Insurance Code,
are amended to read as follows:
(a) The commissioner shall notify the association of the
existence of an impaired title insurance company not later than the
third day after the date on which the commissioner gives notice of
the designation of impairment or learns the title insurance company
is impaired as described by Sections 2602.003(6)(A)-(D). The
association is entitled to a copy of any complaint seeking an order
of receivership with a finding of insolvency against a title
insurance company at the time the complaint is filed with a court.
(e) The commissioner may require that the association
notify the insureds of the impaired title insurance company and any
other interested party that the company is impaired [of the
designation of impairment] and of the person's rights under this
chapter. Notification by publication in a newspaper of general
circulation is sufficient notice under this section.
SECTION 5. Section 2602.110, Insurance Code, is amended to
read as follows:
Sec. 2602.110. EXPENSES OF ADMINISTERING IMPAIRED INSURER
[RECEIVERSHIP OR CONSERVATORSHIP]. The association may advance
money necessary to pay the expenses of administering the
supervision, rehabilitation, receivership, [or] conservatorship,
or, as determined by a court, other insolvency [estate] of an
impaired title insurance company or impaired agent, on terms the
association negotiates, if the company's or agent's assets are
insufficient to pay those expenses.
SECTION 6. Section 2602.152, Insurance Code, is amended to
read as follows:
Sec. 2602.152. AMOUNT OF FEE. Annually or more frequently,
the board shall determine the amount of the guaranty fee[, not to
exceed $5], considering the amount of money to be maintained in the
guaranty fee account that is reasonably necessary for efficient
future operation under this chapter.
SECTION 7. Sections 2602.153(b) and (d), Insurance Code,
are amended to read as follows:
(b) The following [covered] claims shall be paid from
guaranty fees only and may not be paid from assessments:
(1) covered claims against trust funds or an escrow
account of an impaired agent under Section 2602.252; [and]
(2) expenses incurred in complying with Subchapter J;
(3) conservator and receiver expenses under Section
2602.254; and
(4) administrative expenses with respect to the estate
of an impaired agent under Section 2602.110.
(d) Guaranty fees may be used only for payment of:
(1) [covered] claims described by Subsection (b) [or
(c)]; and
(2) expenses related to an audit or an examination
conducted by the department or the association [and review expenses
under Section 2602.103(b)].
SECTION 8. Section 2602.251, Insurance Code, is amended to
read as follows:
Sec. 2602.251. COVERED CLAIMS IN GENERAL. An unpaid claim
is a covered claim if:
(1) the claim is made by an insured under a title
insurance policy to which this chapter applies;
(2) the claim arises out of the policy and is within
the coverage and applicable limits of the policy;
(3) the title insurance company that issued the policy
or assumed the policy under an assumption certificate is an
impaired title insurance company that has been placed in
receivership or conservatorship; and
(4) the insured real property or a lien on the property
is located in this state.
SECTION 9. Sections 2602.401(a) and (b), Insurance Code,
are amended to read as follows:
(a) If an assessment has been made under this chapter for an
impaired title insurance company or association funds have been
provided for the company, the company, on release from the
supervision, rehabilitation, conservatorship, [or] receivership,
or other proceeding in which the company was found by a court of
competent jurisdiction to be insolvent or otherwise unable to pay
obligations as they come due, may not issue a new or renewal
insurance policy until the company:
(1) has repaid pro rata in full to each holder of a
participation receipt the assessment amount paid by the receipt
holder or its assignee; and
(2) has repaid in full the amount of guaranty fees paid
by the association.
(b) If an assessment has been made under this chapter for an
[impaired] agent or guaranty fees have been provided for the agent,
the agent, on release from the supervision, conservatorship,
rehabilitation, [or] receivership, or other proceeding in which the
agent was found by a court of competent jurisdiction to be insolvent
or otherwise unable to pay obligations as they come due, subject to
dischargeability, may not act as an agent [issue a new or renewal
insurance policy] until the agent has repaid in full the amount of
guaranty fees paid by the association.
SECTION 10. Chapter 2602, Insurance Code, is amended by
adding Subchapter J to read as follows:
SUBCHAPTER J. ADDITIONAL DUTIES OF ASSOCIATION
Sec. 2602.451. APPLICABILITY. This subchapter applies, at
the commissioner's discretion and regardless of whether there are
covered claims against an agent, to any agent that is designated by
the commissioner as an impaired agent or that is placed under an
order of supervision, conservatorship, rehabilitation, or
liquidation or is otherwise found by a court of competent
jurisdiction to be insolvent or otherwise unable to pay obligations
as they come due.
Sec. 2602.452. ACTIONS FOR CERTAIN AGENTS. At the
commissioner's discretion, the commissioner may require the
association, at the association's expense, to take on behalf of the
agent the following actions:
(1) close real estate transactions;
(2) disburse escrow funds;
(3) pay existing liens against real property;
(4) record documents; and
(5) issue final title insurance policies.
SECTION 11. Section 2651.002, Insurance Code, is amended by
amending Subsection (c) and adding Subsection (d) to read as
follows:
(c) The completed application must state that:
(1) the proposed agent is:
(A) an individual who is a bona fide resident of
this state;
(B) an association or firm composed only of Texas
residents; or
(C) a Texas corporation or a foreign corporation
authorized to engage in business in this state;
(2) the proposed agent has unencumbered assets in
excess of liabilities, exclusive of the value of abstract plants,
as required by Section 2651.012;
(3) [(2)] the proposed agent, including a
corporation's managerial personnel, if applicable, has reasonable
experience or instruction in the field of title insurance;
(4) [(3)] the title insurance company:
(A) knows that the proposed agent has a good
business reputation and is worthy of the public trust; and
(B) is unaware of any fact or condition that
disqualifies the proposed agent from receiving a license; and
(5) [(4)] the proposed agent qualifies as a title
insurance agent under this chapter.
(d) Except as provided by Section 2651.0021(d), an agent
applying for an initial license under this subchapter must provide
evidence that the agent and its management personnel have
successfully completed a professional training program that
complies with Section 2651.0021. The program must have been
completed within one year preceding the date of application.
SECTION 12. Subchapter A, Chapter 2651, Insurance Code, is
amended by adding Section 2651.0021 to read as follows:
Sec. 2651.0021. PROFESSIONAL TRAINING PROGRAM. (a) The
commissioner shall adopt by rule a professional training program
for a title insurance agent and the management personnel of the
title insurance agent.
(b) The professional training program must be designed to
provide information regarding:
(1) the basic principles and coverages related to
title insurance;
(2) recent and prospective changes in those principles
and coverages;
(3) applicable rules and laws;
(4) proper conduct of the license holder's title
insurance business;
(5) accounting principles and practices and financial
responsibilities and practices relevant to title insurance; and
(6) the duties and responsibilities of a title
insurance agent.
(c) Professional training program hours may be used to
satisfy the continuing education requirements established under
Section 2651.204.
(d) A professional training program course must be offered
by:
(1) a statewide title insurance association,
statewide title agents' association or professional association,
or local chapter of a statewide title insurance or title agents'
association or professional association;
(2) an accredited college or university;
(3) a career school or college as defined by Section
132.001, Education Code;
(4) the State Bar of Texas;
(5) an educational publisher;
(6) a title insurance company authorized to engage in
business in this state;
(7) a company that owns one or more title insurance
companies authorized to engage in business in this state;
(8) a public school system in this state; or
(9) an individual accredited as an instructor by an
entity described by Subdivisions (1)-(8).
(e) An individual is exempt from the professional training
requirement of this section if the individual has held in this state
for at least five years a position as management personnel with a
title insurance agent, or a comparable position, as determined
under rules adopted by the commissioner.
SECTION 13. Section 2651.011, Insurance Code, is amended to
read as follows:
Sec. 2651.011. PRIVILEGED COMMUNICATIONS; FINANCIAL
INFORMATION. (a) Any information, including a document, record, or
statement, and including information provided to or received from
the commissioner under Subsection (b) or (c), required to be made or
disclosed to the department under this subchapter, other than
Section 2651.001, is not public information subject to Chapter 552,
Government Code, is [:
[(1)] a privileged communication, [;] and is
[(2)] not admissible in evidence in a court action or
proceeding except under a subpoena issued by a court of record. This
subsection does not apply to a document, record, or statement
required to be made or disclosed to the department under Chapter 36.
(b) A title insurance company may provide information to, or
receive information from, the commissioner about a financial matter
that would reasonably call into question the solvency of an agent
that the company appointed. An entity, other than the title
insurance company appointing the agent, may not request or receive
the information described by this subsection from the commissioner.
(c) Each title insurance agent shall, on a quarterly basis,
provide the department with a copy of the agent's quarterly
withholding tax report furnished by the agent to the United States
Internal Revenue Service. The title insurance agent must also
provide to the department proof of the payment. An agent that does
not have employees shall, on a quarterly basis, certify to the
department that there has not been a material change in the agent's
financial condition.
(d) The commissioner by rule may prescribe the types of
information under Subsections (b) and (c) that are privileged under
Subsection (a).
SECTION 14. Subchapter A, Chapter 2651, Insurance Code, is
amended by adding Sections 2651.012 and 2651.013 to read as
follows:
Sec. 2651.012. UNENCUMBERED ASSETS. (a) In this section,
"unencumbered assets" means:
(1) cash;
(2) assets that do not have any lien against them;
(3) assets that have value, such as furniture,
fixtures, equipment, computers, and software in excess of any
encumbrances; and
(4) investments such as mutual funds, certificates of
deposit, and stocks and bonds.
(b) Except as provided by Subsection (e), an agent must
maintain unencumbered assets in excess of liabilities, exclusive of
the value of abstract plants, in the following amounts unless the
commissioner establishes different amounts by rule:
(1) if the agent maintains its principal office in a
county with a population of 10,000 or more but less than 50,000:
$25,000;
(2) if the agent maintains its principal office in a
county with a population of 50,000 or more but less than 200,000:
$50,000;
(3) if the agent maintains its principal office in a
county with a population of 200,000 or more but less than one
million: $100,000; and
(4) if the agent maintains its principal office in a
county with a population of one million or more: $150,000.
(c) Except as provided by the commissioner by rule, an agent
that maintains its principal office in a county with a population of
less than 10,000 is exempt from this section.
(d) An agent that maintains a principal office in more than
one county must meet the asset standards for the largest county for
which the agent will hold a license.
(e) An agent may elect to:
(1) maintain unencumbered assets as required by this
section; or
(2) place a deposit with the department in the manner
authorized by Section 2652.102.
(f) An agent that holds a license on September 1, 2009, and
that has held the license for at least three years on that date is
not required to comply with Subsection (b) on September 1, 2009, but
shall increase the unencumbered assets held by the agent, or make
and increase the required deposit, until the agent is in compliance
with the required capitalization amounts in accordance with the
schedule established by this subsection. The agent must hold
unencumbered assets, or make a deposit in an amount, such that:
(1) if the agent has been licensed at least three years
but less than four years:
(A) the agent has at least 33 percent of the
required capitalization amount on September 1, 2010;
(B) the agent has at least 66 percent of the
required capitalization amount on September 1, 2011; and
(C) the agent has at least 100 percent of the
required capitalization amount on September 1, 2012;
(2) if the agent has been licensed at least four years
but less than five years:
(A) the agent has at least 25 percent of the
required capitalization amount on September 1, 2010;
(B) the agent has at least 50 percent of the
required capitalization amount on September 1, 2011;
(C) the agent has at least 75 percent of the
required capitalization amount on September 1, 2012; and
(D) the agent has at least 100 percent of the
required capitalization amount on September 1, 2013;
(3) if the agent has been licensed at least five years
but less than six years:
(A) the agent has at least 20 percent of the
required capitalization amount on September 1, 2010;
(B) the agent has at least 40 percent of the
required capitalization amount on September 1, 2011;
(C) the agent has at least 60 percent of the
required capitalization amount on September 1, 2012;
(D) the agent has at least 80 percent of the
required capitalization amount on September 1, 2013; and
(E) the agent has at least 100 percent of the
required capitalization amount on September 1, 2014;
(4) if the agent has been licensed at least six years
but less than seven years:
(A) the agent has at least 16.66 percent of the
required capitalization amount on September 1, 2010;
(B) the agent has at least 33.32 percent of the
required capitalization amount on September 1, 2011;
(C) the agent has at least 49.98 percent of the
required capitalization amount on September 1, 2012;
(D) the agent has at least 66.64 percent of the
required capitalization amount on September 1, 2013;
(E) the agent has at least 83.3 percent of the
required capitalization amount on September 1, 2014; and
(F) the agent has at least 100 percent of the
required capitalization amount on September 1, 2015;
(5) if the agent has been licensed at least seven years
but less than eight years:
(A) the agent has at least 14.29 percent of the
required capitalization amount on September 1, 2010;
(B) the agent has at least 28.58 percent of the
required capitalization amount on September 1, 2011;
(C) the agent has at least 42.87 percent of the
required capitalization amount on September 1, 2012;
(D) the agent has at least 57.16 percent of the
required capitalization amount on September 1, 2013;
(E) the agent has at least 71.45 percent of the
required capitalization amount on September 1, 2014;
(F) the agent has at least 85.74 percent of the
required capitalization amount on September 1, 2015; and
(G) the agent has at least 100 percent of the
required capitalization amount on September 1, 2016;
(6) if the agent has been licensed at least eight years
but less than nine years:
(A) the agent has at least 12.5 percent of the
required capitalization amount on September 1, 2010;
(B) the agent has at least 25 percent of the
required capitalization amount on September 1, 2011;
(C) the agent has at least 37.5 percent of the
required capitalization amount on September 1, 2012;
(D) the agent has at least 50 percent of the
required capitalization amount on September 1, 2013;
(E) the agent has at least 62.5 percent of the
required capitalization amount on September 1, 2014;
(F) the agent has at least 75 percent of the
required capitalization amount on September 1, 2015;
(G) the agent has at least 87.5 percent of the
required capitalization amount on September 1, 2016; and
(H) the agent has at least 100 percent of the
required capitalization amount on September 1, 2017; and
(7) if the agent has been licensed at least nine years:
(A) the agent has at least 11.11 percent of the
required capitalization amount on September 1, 2010;
(B) the agent has at least 22.22 percent of the
required capitalization amount on September 1, 2011;
(C) the agent has at least 33.33 percent of the
required capitalization amount on September 1, 2012;
(D) the agent has at least 44.44 percent of the
required capitalization amount on September 1, 2013;
(E) the agent has at least 55.55 percent of the
required capitalization amount on September 1, 2014;
(F) the agent has at least 66.66 percent of the
required capitalization amount on September 1, 2015;
(G) the agent has at least 77.77 percent of the
required capitalization amount on September 1, 2016;
(H) the agent has at least 88.88 percent of the
required capitalization amount on September 1, 2017; and
(I) the agent has at least 100 percent of the
required capitalization amount on September 1, 2018.
(g) This subsection and Subsection (f) expire September 2,
2018.
Sec. 2651.013. DIVISION OF PREMIUM HELD IN TRUST; RULES.
(a) The funds held by a title insurance agent that are owed to a
title insurance company, another title insurance agent, or a direct
operation arising from a division of premium, whether as determined
under rules adopted by the commissioner or by agreement among the
parties, are considered to be held in trust for the title insurance
company, other title insurance agent, or direct operation.
(b) This section does not require, and the commissioner may
not require by rule, that funds described by Subsection (a) be held
in a separate account or be subject to an audit of the department.
SECTION 15. Subchapter D, Chapter 2651, Insurance Code, is
amended by adding Section 2651.158 to read as follows:
Sec. 2651.158. CERTIFICATION OF UNENCUMBERED ASSETS. (a)
Unless the agent has elected to make a deposit with the department
under Section 2651.012(e), the annual audit of escrow accounts must
be accompanied by a certification by a certified public accountant
that the title insurance agent has the appropriate unencumbered
assets in excess of liabilities, exclusive of the value of its
abstract plants, as required by Section 2651.012.
(b) The commissioner by rule shall establish:
(1) a procedure to be used by an agent and the agent's
certified public accountant to determine the value of categories of
assets; and
(2) the method by which the certification required by
this section must be made.
SECTION 16. Subchapter E, Chapter 2651, Insurance Code, is
amended by adding Section 2651.205 to read as follows:
Sec. 2651.205. POSSESSION OF GUARANTY FILE. (a) A title
insurance agent may not give possession of the agent's guaranty
file to any third party, including a landlord or storage facility,
unless the third party:
(1) accepts possession of the file subject to the
right of access of the title insurance company involved in the
transaction that the file documents, whether the right of access
exists by contract or other statutory basis; and
(2) agrees to maintain the confidentiality of
nonpublic information in the title insurance agent's file according
to state and federal laws that govern the title insurance agent.
(b) If the title insurance agent ceases operations without
complying with rules adopted by the commissioner, the Texas Title
Insurance Guaranty Association shall take possession of each
guaranty file of the agent and make the file available to the title
insurance company involved in the transaction that the file
documents.
(c) A title insurance company may not enter into a new
contract or agreement or amend an existing contract or agreement
with an individual, firm, association, or corporation to act as the
company's agent unless the contract or amendment contains a
requirement that any lease, storage agreement, or other contract
entered into by the agent that may relate to files maintained by the
agent contains the following language:
"The (landlord or other party entering into the agreement)
acknowledges that Section 2651.205 of the Texas Insurance Code
guarantees access to title insurance files to the Texas Title
Insurance Guaranty Association and certain title insurance
companies that the tenant represents and the right of access
supersedes any landlord's lien on any other property or the right to
deny the association or a title insurance company access to the
premises. The (landlord or other party entering into the
agreement) agrees to maintain the confidentiality of nonpublic
information in the title insurance agent's file according to state
and federal laws that govern the title insurance agent."
(d) In this section, "title insurance agent" includes an
agent owned in whole or in part by a title insurance company and
includes a direct operation.
SECTION 17. Section 2602.153(c), Insurance Code, is
repealed.
SECTION 18. An abstract plant that exists on September 1,
2009, but that does not, on that date, cover a period beginning not
later than January 1, 1979, as required by Section 2501.004,
Insurance Code, as amended by this Act, is not required to comply
with that section before January 1, 2014.
SECTION 19. Section 2651.158, Insurance Code, as added by
this Act, applies beginning with annual audits conducted under
Subchapter D, Chapter 2651, Insurance Code, for the 2011 calendar
year.
SECTION 20. (a) Not later than September 30, 2009, the
commissioner of insurance may, by order, delay the implementation
of Section 2651.205, Insurance Code, as added by this Act, if the
commissioner determines that rules to implement that section are
necessary to the effective administration of that section.
(b) Section 2651.205, Insurance Code, as added by this Act,
applies only to the conduct of a title insurance agent, and a
contract or agreement executed or renewed by a title insurance
agent, on or after:
(1) January 1, 2010, if the commissioner of insurance
does not issue an order under Subsection (a) of this section; or
(2) the effective date of rules adopted by the
commissioner, if the commissioner of insurance does issue an order
under Subsection (a) of this section.
(c) The conduct of a title insurance agent, and a contract
or agreement executed or renewed by a title insurance agent, before
the date determined under Subsection (b) of this section are
governed by the law as it existed immediately before the effective
date of this Act, and that law is continued in effect for that
purpose.
SECTION 21. This Act takes effect September 1, 2009.