Appellate Court Deals Blow to Title Insurance Industry

John Jordan | January 2019

The public building of New York State Supreme Court located in the Civic Center neighborhood of Lower Manhattan in New York City

NEW YORK—A New York State Appellate Court has overturned an earlier lower court ruling and has upheld controversial state regulations that restrict what state regulators have termed excessive marketing costs and other unscrupulous activity in the title industry.

The Appellate Division, First Department, on Jan. 15 reversed a ruling last July by New York Supreme Court Judge Eileen Rakower who overturned Regulation 208 enacted earlier this year by the New York State Department of Financial Services. Regulation 208, which drew the ire of the state’s title industry, eliminated title company marketing expenditures, substantially reduced ancillary fees handed out in connection with the production and processing of title applications and also barred pick-up fees and other gratuities given to Title Closers.

The appellate court in its ruling did have some criticism of the regulation, but reversed the earlier court ruling and upheld Regulation 208.

“Although we find that some of the provisions of Insurance Regulation 208 lack a rational basis, we cannot conclude that DFS simply created policy on a clean slate to balance conflicting interests in the absence of legislative guidance (see id. at 11-14),” the court stated. “In our view, Insurance Regulation 208 represents a valid exercise of DFS’s general legislative authority and an appropriate elaboration of Insurance Law § 6409(d).”

The ruling continued, “Petitioners state that some of the regulations are similar to legislation that has been expressly rejected by the Senate, and that the State Senate in January 2018 passed a bill to amend Insurance Law § 6409(d) to clarify that usual and customary inducements are permitted, but it has not advanced to the Assembly (2018 NY Senate Bill S6704). However, the recent passage of this bill by one house of the bicameral body falls short of demonstrating that the Legislature has been trying to change this policy”

DFS Superintendent Maria T. Vullo praised the appellate court ruling and noted, “After an investigation and a thorough regulatory process, DFS took the appropriate step in finalizing Regulation 208 in October 2017. As I have maintained throughout this years-long process, the practice of using high-priced tickets, meals, lavish gifts and strip clubs as inducements for title insurance business is prohibited by New York Insurance Law, and those improper expenditures may not be passed on to consumers. New Yorkers all across the state can now rest assured that Regulation 208 will provide real relief from inflated title insurance premiums.”

The judge’s ruling stems from an Article 78 proceeding filed last year by the New York State Land Title Association, Inc., the Great American Title Agency Inc. of White Plains and Venture Title Agency, Inc. The affected industries sought to overturn the regulations and argued that the regulations were arbitrary and capricious and would have resulted in devastating economic impacts and the closure of some businesses.

Mylan Denerstein, an attorney representing the New York State Land Title Association, stated, “The New York Land Title Association is reviewing the decision, which states that the Department of Financial Services overstepped its bounds on some issues and used its power to clarify other issues. In the end, the title insurance industry will continue to protect and serve New Yorkers as they make what is usually the most expensive purchase of their lives.”

John Jordan
Editor, Real Estate In-Depth