In December 2017, the New York Department of Financial Services (“DFS”) promulgated Regulation 208 to rein in marketing activities of title insurance corporations, title agents, and closers. The goal of Regulation 208 was to curb “certain practices that impact consumers and result in higher premiums and closing costs,” by limiting the “millions of dollars” insurers spent each year on meals, entertainment, gifts, vacations, sporting events, dinners, and other perks to attorneys, issuing agents, and other partners. DFS believed these costs were being passed along to homeowners, resulting in higher premiums and a culture that encouraged homeowners to pay gratuities and pick-up fees to title closers. The Regulation imposed harsh fines on violators, ranging from $5000 per violation to ten times the amount of compensation paid to an agent at closing.
The title insurance industry took swift action when Regulation 208 went into effect on December 18, 2017, and sued in New York Supreme Court to invalidate the regulation. The petitioners argued Regulation 208 was an overreach of New York Insurance Law, and that the anti-rebating statute on which it is based only prohibits quid pro quo compensation in exchange for title insurance business, not simple entertainment and marketing incentives to issuing agents, attorneys, and other partners.
The court agreed, holding that the Insurance Law does not prohibit title insurers and agents from paying ordinary marketing and entertainment expenses. Interpreting the language of Regulation 208, the court held that the statute’s prohibition on certain payments by industry players “as an inducement for or as compensation for any title insurance business,” covered only “rebates, fees, premiums, charges, and commission,” paid as kickbacks, not “ordinary marketing expenses.” The court found it “absurd,” that the legislature would have intended to prevent title insurance companies from marketing themselves, as “common sense” dictates that marketing is used to generate business. It struck all of the prohibitions in Regulation 208 down, finding it on the whole “unreasonable and irrational.”
While the decision is a major win for title insurers, the court hinted the fight over Regulation 208 might not be over. It directed the legislature to pass new legislation if it hopes to regulate marketing and entertainment expenses in the title insurance industry. For its part, DFS filed an appeal just one day after the opinion came down, suggesting that its attempts to regulate title insurance marketing efforts are far from over.
