Real Property Law

In a challenge to title insurance regulations implemented by the Department of Financial Services (DFS), DFS appealed from Supreme Court's grant of the petition. The Appellate Division affirmed in part and modified in part, sustaining the regulations on inducements provided by title insurers but holding that a ban on collection of fees by in-house closers was arbitrary and that a cap on fees for ancillary services was also arbitrary.

Insurance Law 6409(d) provides that a title insurer may not “offer or make … any person, firm, or corporation acting as agent … of the owner, lessee, mortgagee … of the real property or any interest therein, either directly or indirectly, any commission, any part of its fees or charges, or any other consideration or valuable thing, as an inducement for … any title insurance business ….” After conducting an investigation, DFS concluded that title insurers were spending, on average, 5.3% of premiums on meals, entertainment, and other expenses that, in DFS' judgment, violated section 6409(d). As a result, DFS promulgated Regulation 208, which prohibits title insurers from offering a wide variety of business inducements, including tickets to sporting events, meals and beverages, outings, and parties. The prohibition was, however, subject to exceptions for events open to a broad audience rather than particular potential clients. The regulation also prohibited collection of fees by in-house title closers (but not independent closers), and capped fees for ancillary services at 200% of the title insurer's out-of-pocket costs. In this article 78 proceeding, the Land Title Association challenged regulation 208, and Supreme Court invalidated the regulation in its entirety, concluding that Insurance Law 6409(d) was designed to prohibit kickbacks, not ordinary marketing and entertainment expenses. DFS appealed.