Untitled Texas Attorney General Opinion ( 1947 )

R-309 OFFICE OF THE ATTORNEY~GEMSRAL AVSTIN.TEXAS I PRICE DANIEL .mTTORNEY GENERAL June 30, 1947 Hon. J. UP.Gibbs.~ Casualty Insurance Dlvlalon Board of ItistianceCommlsslon8rs Austin 14, Texas Oplnlon No. v-280 Re: Clarlflcatlon and am-, pliilcatlon of Opinion No. O-7300, coIlwmling Seotltin21.o? Article 1302-a v. ~C S tive ti dlvl;lo;l'o~?'a- premium8 with abstraet- .' 'em representing title lnsuranoe companles;and thmmsaning of "an abstract plant" as used therein. Attention: Mr. Ned Prioe Dlrector,Tltle Section Dear 8i.r: ,Yourrequest for advice of this departmmt states that Opinion Ho;,o-7300, readered'under a former Attorney General, does not adequately cbver questions before your department ln'the sdmlnlstratlon~f your du- tl6s tinderRouse Bill 153, Chapter 40, Aots of the~41rt Legislature,~regular seipsion,,1929, page '77, and +mend- ments thereto, ~publlshed as Artiole 1302-a of Vernon's civil statutes. You request ampllflcatlon and clarlfica- tion of Opinion No. o-7300. Your statement and questions I-8&i: "The &estlous now submitted relate to 98pr888ntat1v8s~ of title gWm?mty compan- ies under Seotlon 21 of Art1018 1302-a of the Revised ciVi1 St8tUtM Of 1@9. .U8 m8 UOt ~lnqulrlngwith respeot to abstracters~who~are s,implgconduotlng an abstract business or who are simply oomplling abstracts. Our questions relate to suoh a %epresentatlvel of a title Hon. J. P. Gibbs, Page 2, V-280' oompny in the COllW8 of his business of rep- resenting the company in soliciting, writing, or Oth8rwls8 participating In the Issuance or 88l’ViCiII.g Of tit18 iIl8llkVX.lC8 pO11C188. "Questions: "1. What constitutes such an abstract plant, as the term 1s used in Seotlon 21, Article 1302-a, Of the R8ViS8d Civil Statute&, as will qualify tW 'person, firm, or corpora- tion, owning and operating an abstract plant in such Oounty' for appointment by any title. company as 1ts:representatlve and permit the making of such arrangements for'divislon of premiums between~the title company and Its representatlve.as may be approved by the Board Commis~sloners. In this connec- of.1ZlSU'aIliZ8 tiOIL:p1e688define, and specify as fully a8 convenient: :?(a)!!?h&characterof +ecords .., ‘, .:requlred. ";( b)~"' The mlnlmum area that such records must cover. "(d) Whether or not the Depart-. mant may require that th8 1 contraot -of appointment, 'j~ "and division 0f~premiums, 3rmst.a$eolfgthe area for which 'therepresentatlve~ l.18app&.nted 'In orders'that ~,the Dspart~ilt~may be sure ~" :;~' such representatlv8 has the requ1,slteabstract plant .' ~.ror suen.area. .~.'.; ., ,,, "2. May the ioskof Insurance Commls- sionera withhold Its approval to an arrange- nmmt for the division of premiums between the title company a@ Its representative until evl&enoe 1~'submltted td the Board showing i that such representative owns and operates an abstraot::planta&defined or explained by you .: Hon. J. P. Gibbs, Pege 3, v-280 in answer tc~Qusstion l? “3. ,May the Board Of InSUrana8 CO&Sit+ aloners disapprove, or ~*evokeits approval Of, an aFMbllg8mentWith r8f8l%nO8 to dlvl- SiOIlOf pP8UliUIllSentered into between the title company and ita representative if th8 Board later learns that the abstract plant of th8 representative does not in fact con- form to, or does not in fact continue to conform to the requirements of an abstract plant as such Is defined or explained by yOn in 811SW82’ to Question 1." T'. Article 1302-a, V. C. S., oontaini provlslons authorizing and r8guLatlng the conduct 0r ~th8 title ln- EIaPBPCbbuSb8SS in %XBa, and IS 8Sp8Cially appliOa@lO to those phaSe%?i.of the tit18 lnSUrenC8 Industry whlah are peoullar ln the'field of InsUranoe. It tends to combIn the formerly distinct bUsin8ss of tit16 gparan- ty Wlth.th8 business of tit18 lnSuranO8 and ob$ously contemplate8 that th8 b~slneas of guaranteeing ax&in- suring titles is to b8 oonsldered'as insurance bu~lness and18 tob8 eonduoted andregulatedlnamanner slml1;ar to the conduat and regUlat.lonof the lnsuranee business gemrally. 'I. SeatiOn 21 Of Arti@ 1302-a r8edS: ' "Ho commlsslons, rebates, discounts or other devioe shall b8 paid, allowed or per- mitted, by any oompany; donmetlo or foreign, dolxigthe'buslness provided for in this Aot, l'818tillgt0 tit18 @.iC18S-OzlUUI%8lWiti~-~ oontrecta; provlded~this shall not prevent any title,company from appointing as Its representative In any county any person,flrm or corporatlon.ownlng and operating an ab- atraot plant In auoh county and making such arrangements,for dlvlalon of~preml~ms as may be approved by ~%a8Board of Insurance Commis- sioners ." Substantially the same questions as now presented were codsldsTed.under a fomPbr Attorney 08neral in Opinion No. O-7300.. w8~wll1 therefor reoonslder th8 problems pZ'8- sented in CoMB~tion with Opinion No. 0-7300, and will Sp- proaoh the mattersas on8 of first lmpF8aslon. Hon. J. P. Gibbs, Page 4, V-280 The problems raised In your first Inquiry and 8t this tims have b88n the sub jeot 0s mch controversy among thoS8,engaged in the tit18 iIlSUraIlC8 and abstrsot- IDg .. _ business. soxm .._ 0s_ th8 tit18 _ _-. lnSUranC8 - _ COSTpaIli8S and tnelr representatives naV8 oullt up, and lnveSt8ClConSld- 8r8bl8 Sums in, eXt8nSiV8 faCiliti8S for the plvtparatlon of abstracts, and heve.formed a definite conception of tb minimum fyliiti8S r8qUlslt8 to what Is termed by them 8 abstraot plant, as contemplated by Seotlon 21. GE==98 OOmp8ni8S and lYlpr8Sent8tiV8SaZW faced With COmpe- tltlon by companies appointing representatives who main- tain 18SS than such minlmom fSClilti8S, and who, it Is feared, will, by the inadequacy of their faclllties,E8use p0liCi8S to be Written on bad titles, thereby Causing eventual lmpalrment of th8 finaWl stability Of the corn pani8S they represent. It is feared by them that a break down will occur in the high standard of security offered by the title insurance industry. :Able briefs have been submitted to this OfflC8 by those maintaining that such minimums are contemplated by Section 21, and nunmrous conf8ren~8s have been held wherein th8S8 parties have presented orally many roraeful and persuasive armnts on their points. Equally able briefs and argumsnts h8v8 been pr8sented by those opposed to such construction of Section 21. In Spit8 Of the 8V8r inCB3aSlIIgtempo Of th8 controversy during th8 eighteen years 0s operation under this Act, W8 have found the Legislature apparently satis- fied with its provisions, ,therehaving been no amendments to Section 21 enacted. Nor, in so r8.ras can b8 ascer- tained, was any attempt msde.dUt'lI33 th8~r8a8nt~S8sslon 0r the Legislature to clarify or smpllfy this section. Our lnvestlgatlon reveals that the title insurance industry continues to enjoy an 8lStostnegligible loss ratio, and an increasing volume of business. Section 21 contains provlslons common to statu- tory regulations of other lines of lnsurance,~prohlbltlng the granting of commissions, rebates,,dlscounts, and other concessions to insurance buyers considered to COnStitUt8 detrinmntal and unfair competition, and which lead to dis- crimination by the company as between insured in the cost of insurance. As stated in Couch on Insurance, Volume 3, Section 584, page 1872: "The object or Intent of statutes aimed against discrimination and rebates is that Hon. J. P. Gibbs, Page 5, V-280 uniform rates shall be established and maln- .talned,a0 as to'secure all persons equality 8s to burden.3imposed, &g We11 811to b8IEiflt8 derived, by preventing dlsorlminatlon by ln- surer8 In favor of 1ndlvlduals of the seme class, either as to premiums charged or dlvl- 'd8ndS allOWed, or, 8s has been stated, in or- der that prosp8ctlvejlnsurants 0s the same class shall not b8 unfairly treated or dls- crimlnated against, by Inducements being given to one of such class, which are not available t0 811 th8r8in.” The proviso in Section 21 8ff8CtS an exception to the prohibition against commissions, rebates, discounts, 8tC. It provide8 in effect that the 8ppOintUb9ntby a ti- tie Insurance company of 8 prson, firm or corporation own- ing and operating an abstract plant 8s its FepreS8ntattiV8, with compensation to the r8pr8s8ntatlw on 8 divis$on of basis, shall not aonstitute a violation 0s the P``IUIUIIIS rule against dlsorlmlnation 8nd unfair comp8tltlon where such arrangement is subject to supervision by the Board of Insurance Gommlsslon8rs. In suoh oases, it makes lawful thatwhich oth8rWiSe might be unlawful. !Pheclauses 0s the caption 0s the Act describing the VaI'iOUSs8OtiOnS thereof 828 set Out 1n the s8mb 88- 'qUeFM8 as the sections described. Our Interpretation of the soaps and purpose of Section 21 1s supported by the language of the caption or the Aat'ln that It describes 'Section 21 as "prohibiting commlsslons, rebates and dls- -cotintsby corporations doingbusiness Under this Act." This 1s the only language contained In the caption speali- iCally d8SCriptlv8 of Section 21. !Ch8only subject oon- tslned ln this Claus8 of the caption 18 "OOnrmisS1OnS, rebates and discoUnts" and nothing is oontalned In this laIl@lSg8t0 lndlCat8 the pW3088 Of SeCtiOn 21 t0 be Oth8rWiS8. ConSld8r8tlOnS of oonstltUt1onal1ty impel us t0 OOIKItrU8the body Of the Aat in 8 manner COnSiSt8nt with the stated purpose of th8 Act, as oontalned in the U8ptiOn. The caption Is, 0s oo~rse always considered as ,,valldeVld8llC8Of the 18giSl+iV8 int8nt. w8 mllsttherefore 88S~lM that the proviso was Intended t0 pl'888rV8a praOtiC8 in 8XiStellO88t tha tims of the paSSag8 of the'ACt, 8nd was designed to prOteat th3 oompanles from a possible Interpretation whloh would pro- hibit a division of premiums as payment for legitimate UIld8I'WI'itiIlg S8rVic88 performd by 8bStrSCt3PS, and 8t the Hon. J. P. Gibbs, page 6, V-280 SSmS tims to.afford supervIsIon by the Board of such division In order to.pr8v8tltabUs8S 0s th8 d8 ag8itMt rebates, 8tCi Given thls Interpretation, any uncertaln- ty illth8 18ngUSi38Of g8OtiOn 21 iS minlmited. The pUr- DOS8 of the proviso 1s alear , consistent with the cap- tlon, consistent with the usual regulation of other fields Of inSur8ne8 IAOtiVity8IldCOnSiSt8nt with the Il8g8tiV8 lS.w8g8 used in the prOViS0. Under this COl$eptiOn Of SeCtiOn 21, th8 phriUl8 "owning and operating an 8bStrWt plant in such Oounty" appears to be descriptive or the person,.rirm or corpora- and With tion who may be appointed aS a "l'8pI'8S8nt8tiV8n whom the company may arrange for a "division of preml~ms.~ It 8ffOI'dSthe Company the pFiVil8g8 Of Using such per- sons, firms and corporations on such 8 basis. The ser- vices of..abstrsctersin the title Insurance industry go beyond mtre production 8nd are ,akln to underwriting and .inspection of proposed risks. The industry has developed 8 schems of compensation based upon 8 division qf premiums 8nd.th8 proviso pre~e~ves,th8t nwthod of doing business. In OCR oplnlon, the representative contemplated RIUSt,it the tims Of~8ppOintmdnt, be8ngeg8d in the busl- 1168s0s preparing abstracts or title to, and Lnterests in, land In the county in,which he or It is appointed 88 a representative;.that ths.representatlve must own and oper- ate such busln8Ss; an&that such business must be cond~ote from and at a~definite place In the county, before ~%h8 Board Is authorlted to approve an arrangelasntfor division of premiums. It IS this p&U38 Of bUSin8S8, piUS the SqUip .lssnttherein designed for and used In the prepar.+tion0s abstracts which constitutes the "plant" of the representa- tiw . It SlUStbe definite and aSe8rt8in8ble. In OUX' opinion, the Board may require a r8aSOnabl8 showing that the88 requirenunts 8XiSt before 8X8OUting hits,approval oe the division 0s premiums =r8ng8m8nti we further belie*8 that If at any tlSW, .8ny of the n-d conditions cease -to 8XiSt, the Board iS warraited and required to Withdraw or suspend Its approval of the division of premiums arrange- ment. w8 do not b8li8V8 that the extent Or charaOt8r of faCtilti88 owned and Utilised by the 8bStraOt8rS al'8th subject Of an exact formula or standard. Nor oan we antic1 pate the C~USE3tanc8S S~rS``nding a Situation which may i VO1V8 the US8 Of 8 IWpr8SentEitiV8t0 Qff8Ct a rebate Or UnlawfUl ConrmiSSiOnto an insured or others in the prOCUr msnt of business. These W8 matters which Will h8V8 t0 be Hon. J. P. Gibbs, Peg8 7, V-280 determined by th8 Board ln~eeoh SltU8tiOn wh8re It Is znpd upon to 8pprov8 a~d1vlslon of premiums arrange- . Ii8 do, hOW8V8r9bei18V8 that the langW38 Of %CtiOn 21 F8StriCtS the aCtiVitieS Of th8 X'8~S8llt8tiV8 to the county In which he owns and operates 8 plant. This appsars to b8 Clearly required by the langusgt of Section 21 authorlSlng the appointment "In any county , 0s 8 "person, firm or corporation own3 nd operating an ab- stract plant In such county." (U~eL3orlng ours.) To sum up, we do not believe that any partlau- lar typs or character of reoords ar8 n8o8ssarlly required by.thls StatUti, so long as they ar8 SUfflCl8nt for Satual operation of an abstzact busln8ss. In this regard, 811 that 18 required 1s that th8 r8presentatlve be bona fide 8ngSg8d in performing th8 servioes 0s an abstraoter, .the partiaular msthods and faCiiit188 whloh h8 US88 being pri.Slarilya mat- ter for his determination In aocomplfshing his undertaking t0 the tit18 inallFaM8 Companies and to th8 public. Whether he maintains all reoords 0r 8 partioular oharact8r, whether th8y oowr a particular ar8a, or whether th8y oover a par- ticuhr time, being merely 8Vid8ntiary matter8 on the queS- tion 0s wh8th8r a plant In fact exists. The Board appears to be given ample authority to pr8v8nt abuSes,or-the privilege grant@ by Se&ion 21. The who?8 axwngement ,rordivision 0s p33mlum~ appears to be subjeot to Sup8rvislon by the Board. Certainly no title Insuranoe oompany could complain 0s a disapproval 0s a dlvlslon of premiums arr8ngemBnt, or withdrawal of such approve1 if such disapproval or withdrawal of approval 1s predlcet8d upon the existence 0s a situation vloletive 0s this ~iict.Responslb1llty appear8 to r8st first UPOn th8 company.to a8oertaln that It do88 not appoint or continue Its appointment of one who does not qualify under the Act as a r8CepreS8nt8tiVe. %O COnditiOQS 8XiSt as a COIiditiOn precedent to lawful operations through a "r8pr8s8ntatlv8" under.Sectlon 21. First, the representative must be the owner and operator 0s an abstract plant, and seoond, the arrangement must b8 approved by the Board. The malnlssue Is drawn by the aontendlRg parties on the question 0s th8 a0 letm8ss 0s the abstract plant cont%mpZated by SectionMth8r or not the statute oontemplates a "complete" plant 8s 8 oond1tion precedent to approval by the Board of the premium division srraagements or to appolntmnt by th8 title Insurance OOSWQi8s. Hon. J. P. Gibbs, Pat38 8, V-280 AS Indicated by OUrremarks, W8 ~%'8':~00lWillO8d that Section 21 18 directed solely to the matter ol;dls- crimlnatlon. Be that as it may, In OCR searoh for erl- d8nC8 Of th8 tigiSl8tiV8 intent, W8 have 6xamlned th8 legislstlve history of this Act. Thetext of th8 orlgi- nal bill In the form originally introduced In the House 0s Representatives and as now on file In the OffiC8 or the %3CX'8taryOf State, Used the phrsS8 "8 COm let.8 abstract plant" In Section 21. UponoommI335&EEmmen- dation, this speclflc lang~sge wss:ohanged by smendnwnt prior.to passage by the House, and as changed, carri8d~ into the Act as passed by the g8n8t8, deleting the Word8 'a COstP18t8"and substituting in 118U thereof, the Word ~an",thereby indicating a sp8clflc intent to r8j8Ct the 'iaz8 that a "complete" plant lsIleC8SSary to an 8ppOint- ment an&approval of the division of premiums arrange- mat by the Board. w8 CaIIIIOt; Of COt.IrS8, Writi into : this 18W that which the Ieglslature~has speclflcally IY3jeOt8d. To require th8 r8pr8s8ntatlves~'faciliti8S to. :~cover 811 0s the records.on 811 0s ,the lands in a patio- ular county might have the 8ff8Ct 0s closing the door to those experienced and qual%fled'abstraoters who at wish to restrict their servloes to -only those lands within a county on which there ar8 adequate records to afford the compiling of a useful abstraot. From onr lnvestlgetion, W8 find that thel'8are SitUStiOlISin SOIM OOUnti88 WhQFS abstraotsrs have not attempted to maintain records on certain portions or th8 lands within the county beoause Of Utter COnfuSiOn in thOS8 l'8COrdS. Again, we ,888no reason to closi the door to those who wish to limit their cOVerag Of the r8OOrds On oertaln lands to only thO88 going back to th8 date .Of'a particular subdivision or survey; Suoh a llmltatlon-woUld appear to'b8 justified Where f&OS8 contlernedwith titles within that partloular area, by common CoLILIent,~ assume the '.titlesto b8 good back of certain subdivisions or sUrveys8,-- and that buyers are.not warranted to go to the expense of procuring and examining copl8s or abstracts Of the older records and lnstrUments. Thi-sis also trU8 where printed base 8bStraCtS are available in plentiful quantities. It caniot be said that such an abstracter who SO limits his COV8rSg8 is not th8 own8r and operator 0s an abstract plant. At 811 ev8nts, if the authority given Or th8 , on. J. P. Gibbs, Psge 9, V-280 ‘I iteral provisions or Articile1302-a ar8 inadequate to SIpl8IWntadequate SUp8FviSiOU and OOUtrOl Of th8 tit18 ClSUW3IlO8 business, oonslstent with the pub110 Interest, 8 b81ieV8 that.theS8 problems should b8 pl'888ntedto the sgislatur8 for clarification and lmplem3ntatlon. Subject to this further clarlflcatlon and dls- usslon,we affirm the 8Lmllar holdings 0s Opinion No. -7300. This former opinion was written ber00rethe 50th eglslature convened and was presumablyhewn to the egis1ature. It was SCtU8lly known to fillinte~'~ted par- 188. Ao attempt was made before the Leglslatus%to amend r p1eC8 a different interpr8t8tion on &3tiOn 21. This ends gr88t weight to the COrXWatIi8SSOf the fOrnEirOpin- on and the conclusions herein made. SUMMARY The phrase “Owning and operating 8n abstract ';l~t"sas used In Section 21 0r Article 1302-8, Is deScriptiv8 of the type of business 1; wilci'a person, firm or corporation must b8 engaged a8 + OOnditiOn precedent t0 its appoint- ment as 8 representative 0s a title insuranae COmpSllyUpon a "division Of pWI&umS" basis 8Ild IS BP eXCeptiOn to th8 main pUl'pOS8Of g8CtiOn 21 to'mvent conuulsslons,rebates, dlsoounts and Other unfair and dlsorlmlnatory pZWtiO8S. An "abstract plant" 88 used in Section 21 oont%m- plates the p1a08 0s business a@ f8Oiiiti88 there- in utlll88d by the abStraCt8r, the particular typ8 8Ud quantity or l'8COl'dS or f8Ci1iti88 being mere- ly evidentiary considerations In det%rmlning th8 bonaflde existence of the plant. . It is the duty 0r the Board 0s Insu+ance Commlsslone~s'to determine that the representative owns and operates 8n abstract plant 8Ud to dls- approve or revoke its approval 0s the appointment and division of premiums 8zrangenmnt, in the event 0s 8 violation 0s the requirements 0s Section 21. yours very truly