79R5467 PB-F
By: Carona S.B. No. 687
A BILL TO BE ENTITLED
AN ACT
relating to the use of title insurance to insure certain interests
in personal property.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 2501.003, Insurance Code, as effective
April 1, 2005, is amended to read as follows:
Sec. 2501.003. GENERAL DEFINITIONS. (a) In this title:
(1) "Abstract plant" means an abstract plant as
defined by the department under Section 2501.004.
(2) "Attorney" means:
(A) a person who is licensed to practice law and
is a member of the State Bar of Texas; or
(B) a Texas professional corporation organized
to provide professional legal services.
(3) "Direct operation" means the operations of a title
insurance company under a license issued to the company under
Subchapter B, Chapter 2651. A reference in this title to a title
insurance agent shall be construed to include a direct operation
unless the context indicates otherwise.
(4) "Escrow officer" means an attorney, a bona fide
employee of an attorney licensed as an escrow officer, a bona fide
employee of a direct operation, or a bona fide employee of a title
insurance agent whose responsibilities include:
(A) countersigning title insurance forms;
(B) supervising the preparation and delivery of
title insurance forms;
(C) signing escrow checks; or
(D) closing the transaction, as described by
Section 2501.006.
(4-a) "Filing office" means an office designated as a
filing office under Section 9.501, Business & Commerce Code.
(5) "Foreign title insurance company" means a title
insurance company organized under the laws of a jurisdiction other
than this state.
(6) "Joint abstract plant operation" means a joint
abstract plant operation as defined by the department under Section
2501.004.
(7) "Person" includes an individual, corporation,
association, partnership, or trust.
(8) "Premium" means the premium rates promulgated by
the commissioner under Subchapters D and E, Chapter 2703, and
includes a charge for:
(A) title examination and closing the
transaction, regardless of whether the examination or closing is
performed by an attorney; and
(B) issuing the policy.
(9) "Residential real property" means real property
that is improved and is designed principally for occupancy by one to
four families. The term includes an individual unit of a
condominium or cooperative.
(9-a) "Secured party" has the meaning assigned by
Section 9.102(73), Business & Commerce Code.
(9-b) "Security interest" has the meaning assigned by
Section 1.201(35), Business & Commerce Code.
(10) "Thing of value" includes any payment, advance,
funds, loan, service, or other consideration.
(11) "Title examination" means the search and
examination of a title to determine the conditions of the title to
be insured and to evaluate the risk to be undertaken in the issuance
of a title insurance policy or other title insurance form. The term
includes a search of the records of a filing office.
(12) ["Title insurance" means:
[(A) insurance that insures, guarantees, or
indemnifies an owner of real property, or another interested in the
real property, against loss or damage resulting from:
[(i) a lien or encumbrance on or defect in
the title to the real property; or
[(ii) the invalidity or impairment of a
lien on the real property; or
[(B) any business that is substantially
equivalent to the insurance described by Paragraph (A) and is
conducted in a manner designed to evade the provisions of this
title.
[(13)] "Title insurance agent" means a person owning
or leasing and controlling an abstract plant or as a participant in
a bona fide joint abstract plant operation and authorized in
writing by a title insurance company to solicit insurance and
collect premiums and to issue or countersign policies on the
company's behalf.
(13) [(14)] "Title insurance company" means:
(A) a domestic company organized under this title
to engage in the business of title insurance, as described by
Section 2501.005;
(B) a foreign title insurance company that:
(i) meets the requirements of this title;
and
(ii) holds a certificate of authority to
engage in business in this state; or
(C) any other domestic or foreign company that:
(i) meets the requirements of this title;
and
(ii) holds a certificate of authority to
insure a title to real property in this state or insure an interest
described by Section 2501.0035(2) regarding personal property.
(b) In this title, a term not defined under Subsection (a)
that is used in Chapter 9, Business & Commerce Code, has the meaning
assigned by that code.
SECTION 2. Chapter 2501, Insurance Code, as effective April
1, 2005, is amended by adding Section 2501.0035 to read as follows:
Sec. 2501.0035. DEFINITION OF TITLE INSURANCE. In this
title, "title insurance" means:
(1) insurance that insures, guarantees, or
indemnifies an owner of real property, or another interested in the
real property, against loss or damage resulting from:
(A) a lien or encumbrance on or defect in the
title to the real property; or
(B) the invalidity or impairment of a lien on the
real property;
(2) insurance that insures, guarantees, or
indemnifies a secured party, or another person holding a security
interest in personal property as provided by the uniform commercial
code, against loss or damage resulting from:
(A) a lien, security interest, or defect in the
title to the personal property; or
(B) the invalidity or impairment of a lien or
security interest on the personal property; or
(3) any business that:
(A) is substantially equivalent to the insurance
described by Subdivision (1) or (2); and
(B) is conducted in a manner designed to evade
the provisions of this title.
SECTION 3. Section 2501.005(a), Insurance Code, as
effective April 1, 2005, is amended to read as follows:
(a) For purposes of this title, a person engages in the
business of title insurance if the person:
(1) as insurer, guarantor, or surety, makes or
proposes to make a contract or policy of title insurance or its
equivalent;
(2) transacts or proposes to transact any phase of
title insurance, including:
(A) soliciting;
(B) title examination other than an examination
conducted by an attorney;
(B-1) examining searches of the records of a
filing office, other than an examination conducted by an attorney;
(C) closing the transaction other than a closing
conducted by an attorney;
(D) executing a contract of title insurance; and
(E) insuring and transacting matters arising out
of the contract after the contract is executed, including
reinsurance; or
(3) makes a guaranty or warranty of a title search, a
search of the records of a filing office, or a title examination, or
of any component of a title search, a search of the records of a
filing office, or title examination, if the person is not the person
who performs the search or examination.
SECTION 4. Sections 2502.003(a), (b), and (d), Insurance
Code, as effective April 1, 2005, are amended to read as follows:
(a) Except as provided by Subsection (c), a title insurance
company may not wilfully issue a binder for title insurance or a
title insurance policy showing no outstanding enforceable recorded
liens on real property or personal property against which the
company knows an outstanding enforceable recorded lien exists.
(b) A title insurance company knows that an outstanding
enforceable recorded lien exists against [real] property if, based
on an examination of the title or a search of the records of a filing
office, as appropriate, under which the binder for title insurance
or title insurance policy is issued, the company determines that
the lien is valid and enforceable.
(d) Except as otherwise provided by this section, a title
insurance company may determine the insurability of title to [real]
property and any other matter that the company considers to be
insurable under a binder for title insurance or a title insurance
policy issued in connection with the property.
SECTION 5. Section 2551.001(e), Insurance Code, as
effective April 1, 2005, is amended to read as follows:
(e) This title does not regulate the practice of law by an
attorney. The actions of an attorney in examining a title to real
property, in examining a search of the records of a filing office in
regards to personal property, or in closing a real property
transaction, regardless of whether a title insurance policy is
issued, does not constitute the business of title insurance, unless
the attorney elects to be licensed as an escrow officer.
SECTION 6. Section 2551.051, Insurance Code, as effective
April 1, 2005, is amended by amending Subsection (a) and adding
Subsection (d) to read as follows:
(a) A private corporation may be created and licensed under
this title for the following purposes:
(1) to compile and own or lease, or to acquire and own
or lease, records or abstracts of title to real property or
interests in real property in this state or other jurisdictions, to
insure titles to that real property or interests in that real
property, and to indemnify the owners of that real property, or the
holders of interests in or liens on that real property, against loss
or damage resulting from an encumbrance on or defect in the title to
the real property or interests in the real property; and
(2) in transactions in which title insurance affecting
real property is to be or is being issued, to supervise or approve
the signing of legal instruments affecting real property titles,
disbursement of money, prorations, delivery of legal instruments,
closing of transactions, or issuance of commitments for title
insurance specifying the requirements for title insurance and the
defects in title necessary to be cured or corrected.
(d) A private corporation created and licensed under this
title may also insure titles to personal property or interests in
that property and indemnify a secured party, or another person
holding a security interest in the personal property as provided by
the uniform commercial code, against loss or damage resulting from:
(1) a lien, security interest, or defect in the title
to the personal property; or
(2) the invalidity or impairment of a lien or security
interest on the personal property.
SECTION 7. Section 2551.301(a), Insurance Code, as
effective April 1, 2005, is amended to read as follows:
(a) Except as provided by Subsection (b), a title insurance
company may not issue a title insurance policy on any personal
property or on real property located in this state involving a
potential policy liability of more than 50 percent of the company's
capital stock and surplus as stated in the most recent annual
statement of the company.
SECTION 8. Section 2551.302, Insurance Code, as effective
April 1, 2005, is amended to read as follows:
Sec. 2551.302. REQUIREMENTS FOR REINSURING POLICIES. A
title insurance company may reinsure any of its policies and
contracts issued on personal property or on real property located
in this state, if:
(1) the reinsuring title insurance company is
authorized to engage in business in this state under this title; and
(2) the department first approves the form of the
reinsurance contract.
SECTION 9. Section 2551.304, Insurance Code, as effective
April 1, 2005, is amended to read as follows:
Sec. 2551.304. ACCEPTANCE OF REINSURANCE. A title
insurance company may accept a reinsurance risk on personal
property or on real property located in this state only from an
authorized title insurance company.
SECTION 10. Section 2551.351(a), Insurance Code, as
effective April 1, 2005, is amended to read as follows:
(a) A foreign or domestic corporation forfeits any right to
engage in business in this state if the corporation:
(1) issues any form of title insurance policy, or any
other adopted or approved form, on personal property or on real
property in this state other than a form prescribed by the
department;
(2) charges any premium rate on an owner, mortgagee,
or other title insurance policy, or on any other adopted or approved
form, on personal property or on real property in this state other
than a premium rate prescribed by the commissioner; or
(3) otherwise engages in the business of title
insurance in relation to personal property or to real property in
this state on a form or for a premium rate not prescribed by the
department or commissioner.
SECTION 11. Section 2552.002(1), Insurance Code, as
effective April 1, 2005, is amended to read as follows:
(1) "Attorney's title insurance" means:
(A) insurance that:
(i) insures, guarantees, or indemnifies an
owner of real property in this state, or another interested in the
real property, against loss or damage resulting from:
(a) a lien or encumbrance on or defect
in the title to the real property; or
(b) the invalidity of a lien on the
real property; and
(ii) is issued only in connection with and
as part of a real property transaction and a title opinion of a
title attorney; [or]
(B) insurance that insures, guarantees, or
indemnifies a secured party, or another person holding a security
interest in personal property as provided by the uniform commercial
code, against loss or damage resulting from:
(i) a lien, security interest, or defect in
the title to the personal property; or
(ii) the invalidity or impairment of a lien
or security interest on the personal property; or
(C) any business that is substantially
equivalent to the insurance business described by Paragraph (A) or
Paragraph (B) and is conducted in a manner designed to evade the
provisions of this title.
SECTION 12. Section 2552.004(c), Insurance Code, as
effective April 1, 2005, is amended to read as follows:
(c) A person engages in the business of attorney's title
insurance if the person engages in or proposes to engage in any
business that is substantially equivalent to the business of
attorney's title insurance as part of a real or personal property
transaction and title opinion of a title attorney in a manner
designed to evade the applicable provisions of this title.
SECTION 13. Section 2552.154(a), Insurance Code, as
effective April 1, 2005, is amended to read as follows:
(a) A title attorney shall make, file, and pay for a surety
bond payable to the department in the amount of $7,500 and issued by
a corporate surety company authorized to write surety bonds in this
state. The bond shall obligate the principal and surety to pay any
pecuniary loss that is incurred by:
(1) a participant in a real property settlement or
closing in which, or a secured party for which, an attorney's title
insurance policy is issued by the title attorney and that is
sustained through an act of fraud, dishonesty, theft, embezzlement,
or wilful misapplication by a title attorney; and
(2) any party to an escrow agreement in which the title
attorney is escrowee and that is sustained through an act of fraud,
dishonesty, forgery, theft, embezzlement, or wilful misapplication
by the title attorney, either directly and alone or in conspiracy
with another person.
SECTION 14. Section 2552.157, Insurance Code, as effective
April 1, 2005, is amended to read as follows:
Sec. 2552.157. AUTHORITY TO ISSUE POLICY AFFECTING REAL
PROPERTY. A title attorney may issue a title insurance policy
affecting real property for an attorney's title insurance company
only if the title attorney:
(1) is appointed by the attorney's title insurance
company as its title attorney;
(2) bases each title opinion on separate and current
title evidence, provided by a licensed abstract plant, of the
records of the county in which the real property, the title to which
is to be insured, is located; and
(3) pays to the licensed abstract plant the portion of
the premium agreed to by the title attorney and the abstract plant
and approved by the department, if the title attorney contracts to
obtain the title evidence from the abstract plant as provided by
Section 2552.153.
SECTION 15. Section 2602.251, Insurance Code, as effective
April 1, 2005, 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; and
(4) the insured real property or a lien on the real
property or on the personal property is located in this state.
SECTION 16. Section 2602.255, Insurance Code, as effective
April 1, 2005, is amended to read as follows:
Sec. 2602.255. CLAIMS NOT COVERED. The following are not
covered claims:
(1) an amount due a reinsurer, title insurance
company, insurance pool, or underwriting association as a
subrogation recovery or otherwise;
(2) a supplementary payment obligation incurred
before a determination is made under this chapter that a title
insurance company or agent is impaired, including:
(A) adjustment fees or expenses;
(B) attorney's fees or expenses;
(C) court costs;
(D) interest;
(E) enhanced damages, sought as a recovery
against the insured, the impaired title insurance company or agent,
or the association, that arise under Chapter 541 of this code or
Subchapter E, Chapter 17, Business & Commerce Code; and
(F) bond premiums;
(3) a shortage of trust funds or in an escrow account
resulting from the insolvency of a financial institution;
(4) exemplary, extracontractual, or bad faith damages
awarded against an insured or title insurance company by a court
judgment;
(5) a claim under Section 2602.252 by a claimant who
has a lien against the real or personal property that was the
subject of the transaction from which the claim arises, unless the
lien is held to be invalid as a matter of law;
(6) a claim under Section 2602.251, 2602.252, or
2602.253 by a claimant who caused or substantially contributed to
the claimant's loss by the claimant's action or omission; and
(7) a claim filed with the association after the final
date set by the court for the filing of claims against a receiver of
an impaired title insurance company or agent.
SECTION 17. Section 2651.101(a), Insurance Code, as
effective April 1, 2005, is amended to read as follows:
(a) Each licensed title insurance agent and direct
operation shall make, file, and pay for a surety bond payable to the
department and issued by a corporate surety company authorized to
write surety bonds in this state. The bond shall obligate the
principal and surety to pay for any pecuniary loss sustained by:
(1) any participant in an insured real property
transaction or personal property transaction through an act of
fraud, dishonesty, theft, embezzlement, or wilful misapplication
by a title insurance agent or direct operation; or
(2) the department as a result of any administrative
expense incurred in a receivership of a title insurance agent or
direct operation.
SECTION 18. The heading to Chapter 2702, Insurance Code, as
effective April 1, 2005, is amended to read as follows:
CHAPTER 2702. CLOSING AND SETTLEMENT: TRANSACTIONS AFFECTING
REAL PROPERTY
SECTION 19. This Act applies only to a title insurance
policy or contract delivered, issued for delivery, or renewed on or
after January 1, 2006. A policy or contract delivered, issued for
delivery, or renewed before January 1, 2006, is 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 20. This Act takes effect September 1, 2005.