Saying that the New York Department of Financial Services' (DFS) title insurance inducement regulation made existing statute "absurd," New York State Supreme Court Judge Eileen Rakower annulled Insurance Regulation 208, handing the New York State Land Title Association and plaintiffs a huge legal victory.
Rakower determined that the interpretation of DFS' regulation and the plain language of the statute were "irreconcilable and irrational," and thus it contravened the will of the Legislature.
"Therefore, Section 228.2 is annulled," she wrote.
DFS Superintendent Maria T. Vullo said in a statement that the agency would appeal the decision.
"DFS remains steadfast in our belief that Regulation 208 is a necessary supervisory tool to ensure appropriate market conduct and to protect New York consumers. We remain certain of our legal opinion and are confident we will prevail on appeal," she stated.
Due to the impending continuation on appeal, NYSLTA declined to comment.
Rakower began by looking at whether the New York Legislature amended Insurance Law 6409(d) to prohibit marketing and entertainment expenses, which the two sides disputed.
"Preliminarily, the legislative materials indicate that the Insurance Law was amended to prohibit rebates and commissions, not ordinary marketing and entertainment expenses," she wrote.
Rakower cited a memo from state Sen. John R. Dunne, stating the subject and purpose of the bill was to permit reduction in the cost of title coverage by barring payment of commissions to attorneys or real estate brokers by title insurance and prohibiting the receipt of commission or rebate as an inducement for title business.
She also cited text of the statute in determining that the language saying no applicant shall receive "any such rebate or other consideration or valuable thing" was not an ordinary marketing or entertainment expense. "Indeed, 'rebate,' 'fee,' 'premium,' 'charge' and 'commission,' when construed together, indicate that the Legislature sought to remedy the mischief of kickbacks, not marketing and entertainment expenses," she wrote.
Once determining that Section 228.2 of the regulation was annulled, Rakower turned to other disputed sections as well. Section 228.3 provides that any title insurance corporation or agent shall not include prohibited expenditures in filing title expenses for underwrite direct operations.
Because Rakower annulled Section 228.2 and its determination of prohibited expenses, "Section 228.3 is irrational and also annulled," she wrote.
She next tackled Section 228.5, which prohibited the pick-up fees for in-house closers so the closers would not charge applicants for work related to the policy which exceeded the premium charges.
"The record here is internally inconsistent," she wrote. "If the premium accounts for pick-up fees and the expenses of a closer, then any distinction based on the closer's status as in-house or independent is arbitrary, because the closer should be paid out of the premium, regardless.
At that stage, Rakower said it would be "jurisprudentially unsound" to leave the remainder of Regulation 208 intact after annulling numerous sections of it. However, she took the time to examine Section 228.5(a), which limits the fees on a Patriot search or bankruptcy search to 200 percent of the out-of-pocket cost, to further demonstrate the "irrational" nature of the regulation – and singled out Vullo along the way.
Thus, Rakower found the figures were taken "without sound basis in reason or regard to the facts" and annulled Section 228.5(a) specifically, concluding that her order annulled Insurance Regulation 208 in its entirety.
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