July, 1959 INSURANCE COUNSEL JOURNAL Page 373

Title Insurance~::

QUINTIN JOHNSTONE** New Haven, Connecticut

ITLE insurance is a means of protect­ Although the extent of its use varies; be­ T ing against the risks inherent in the ing highest on the Pacific Coast and least uncertainty of land titles by delineating in New England, title insurance has be­ some defects of title and by insuring a­ come the predominant method of title gainst potential losses from others. Con­ protection in many metropolitan areas ceived in this country in the latter part of and has been written on some land in the nineteenth century,' title insurance is every state: now written by 147 companies, of which Although there has been a large increase 77 have more than one outlet in their in the amount of title insurance written home state, 31 operate in more than one in urban America since the mid-nineteen­ state, and 11 in 5 or more states! As an forties: the generally prevailing method indication of the present size of the busi­ of title protection in smaller towns and ness, premiums on title insurance written rural areas is the lawyer's opinion,' based in 1954 totaled about 100 million dollars' either on abstracts of title prepared by -representing, at an average premium professional abstracters or on title searches rate of 3y:! dollars a thousand, 28y:! bil­ made by examining lawyers. A third sys­ lion dollars of title insurance coverage: tem of title protection, Torrens registra­ tion, has only very limited use in this -Reprinted by permission from the Yale Law Journal Volume 66, Number 4, February 1957. "A survey giving rough estimates by state as to the --Associate Professor of Law, Yale Law School. relative use of various types of title evidence ap­ IThe first title insurance company was formed pears in Report of the Committee on Acceptable in Philadelphia and received its franchise in 1876. Titles to Real Property, Appendix A, PROCEEDINGS Rhodes, The Insurance of the Real Estate Title, OF THE ABA SECTION OF REAL PROPERTY, Probate 10 CONN. B. J. Il5, 206, 2Il (1936). and Trust Law 47 (1953) (hereinafter cited as Title insurance has been almost entirely restricted Acceptable Title Rep.). to the United States. In England "conveyancing Of the title insurance policies written in the insurance" can be obtained, Insurance in Aid of state of New York in 1953, 91.50/" were issued Conveyancing, 100 SOL. J. 139, 157 (1956), although against property in metropolitan New York City: the volume written is small. A policy of this kind New York, Bronx, Kings, Queens, Richmond, West­ insures against loss from a known defect, such as chester, Nassau and Suffolk counties. PRELIMINARY a restrictive convenant or a lost deed, or from the REPORT OF THE NEW YORK SUPERINTENDENT OF IN­ risk that an adverse possessor for the statutory SURANCE 40 (1955). period has not acquired good title. The policy is The business of title insurance may be carried issued for a fixed period, and only one premium is on in all states except Iowa, IOWA CODE ANN. § paid. It resembles American title insurance in that 515.48 (Supp. 1956), and policies on Iowa land are it is ordinarily written to facilitate a conveyance written outside the state. or the making of a mortgage. ·See ApPENDIX II, infra p. 520. 'These computations are based on listings in the This increase is due in large part to the rising 1956 DIRECTORY OF THE AMERICAN TITLE ASSOCIA­ volume of conveyances and mortgages resulting TION, state insurance commission reports and corre­ from the increase in private construction. See Ap­ spondence. They are only approximations. Home PENDIX III, infra p. 520. In part it is due to infla­ offices, branch offices and agencies are considered tion in real estate prices. as outlets, and subsidiaries are treated as separate 'See Acceptable Title Rep., AjJp. A, 47. companies. Multi-state operations include only the writing of title insurance policies and do not in­ and its subsidiaries was $19,262,614, and their total clude reinsurance. Territories and the District of assets on December 31, 1954, were $49,262,858. Columbia are considered as states. ANNUAL REPORT, TITLE INSURANCE AND TRUST COM­ 'The estimate of 100 million dollars as the gross PANY (1954). The 1954 premiums of the parent title insurance premiums for 1954 is based on the company, which operates only in California, were reported premiums, listed in APPENDIX I, infra p. $15,630,324, and it paid losses of $308.118. REPORT 518, plus an estimate of unreported premiums. OF THE CALIFORNIA INSURANCE COMM'R 167 (1954). 'This is a rough estimate because of the contin­ The second largest title insurance company in the gent character of both the 100 million dollar pre­ United States is the Chicago Title and Trust Com­ mium total and the 3112 dollar a thousand rate. pany. which writes policies only in Illinois. In About 20% of the total was written by one com­ 1954 its premium income was 1,Ill.413.924; its total pany, the Title Insurance and Trust Company, and assests at the end of 1954 were $65.390,006. AN­ its subsidiaries, operating exclusively on the Pacific NUAL STATEMENT, CHICAGO TITLE AND TRUST COM­ Coast. The 1954 premium income of the parent PANY (1954).

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country and is permitted in only eleven of sale customarily provide that the seller states.· shall pay some or all of the cost of a policy Despite the growing use of title in­ insuring title in the buyer. These con­ surance, it has in the past been difficult to tracts frequently give the seller the alter­ make a rational judgment of its relative natives of providing either a title in­ merits as a means of title protection, for surance policy or an abstract showing lack of adequate information. This article marketable title in the seller. In other will attemft to describe the content and areas the buyer pays the entire cost of title coverage 0 title insurance, the operations insurance coverage, if he wants in­ of the companies that issue it, and the surance." scope of governmental regulation of the Applicants for a title insurance policy business. The basic source material for are interested in obtaining the insurance this study consists largely of interviews and coverage, but they are sometimes more in­ correspondence with leading title insurers, terested in what the company examination lenders and Torrens officials in all parts of title discloses. This is perhaps partly at of the country, as well as data obtained the base of the prevailing philosophy of (through state insurance commissions.·) title insurance companies-stressing the The latter part of the article will present service of risk delineation rather than risk the author's opinions on the merits and coverage. In many contracts of sale the future of title insurance compared with buyer agrees to buy only if the seller's competing methods of title protection­ title is one that a named title insurance the lawyer's opinion system and Torrens company will insure subject to no more registration. than the standard exceptions. Or contract purchasers may have agreed to buy only if Title Insurance Protection the title is marketable, depending on the title. insurance examination report for Probably a majority of fee simple pur­ this determination; and if the title is not chasers and certamly a majority of mort­ marketable, the seller will want to know gagees of fee interests in real property ob­ what defects must be cleared to make it so. tain title insurance policies or lawyers' lf the applicant is planning to erect a title opinions, and it IS becoming increas­ church, a factory or a liquor store on the ingly common for long-term lessees to do premises, he will of course' be anxious to so. The parties to the contract are usually know if there are restrictive covenants a­ interested in obtaining title protection as gainst such usage or easements inconsistent quickly as possible, for performance is fre­ with the type of building he proposes to quently delayed until it is provided." erect. Or if the property is to be mort­ When title insurance is obtained, it is the gaged with a life insurance company, the usual practice for the mortgagee to re­ title insurance examination report may be quire that the mortgagor pay for the used to determine whether the title is suf­ policy." Similarly, in some areas contracts ficiently unencumbered to meet the legal ·See note 93 infra. standards set for life insurance invest­ For the description. history and extent of Torrens ments. It is not unusual for title policies registration, compare POWELL, REGISTRATION OF THE applied for never to be issued, for the TITLE TO LAND To THE STATE OF NEW YORK (1938), examination report of the title insurance with McDougal & Brabner·Smith, Land Title Trans­ fer: A Regression, 48 YALE L.J. 1125 (1939) (a company may disclose a title that the critical review of POWELL). See discussion in text buyer is not obligated to accept. at notes 90-97 infra. ·Any statements of fact in text or footnotes not attributed to cited authority are based on these Risk Coverage interviews and correspondence. l·Because they are more willing to assume the Title insurers argue that theirs is a dual risks of bad titles, purchasers of lesser interests in real property, donees and owners who have not system of title .protection-combining a recently acquired their interests seldom obtain thorough title examination with the in­ formalized title protection. Of course, the record­ surance of losses from some potential de­ ing acts, adverse possession, prescription and tort fects. Their c-itics assert that title insur­ and contract rights against transferors give some protection to a transferee even thoug-ht he has no ance companies are not in fact insurers lawyer's title opinion or title insurance policy. See, since they except any risks apparent after generally, 3 AMERICAN LAW OF PROPERTY §§ 11.66­ the title has been examined. Although 11.81 (Casner ed. 1952). "Acceptable Title Rep., App. A, 53. "[bid.

HeinOnline -- 26 Ins. Counsel J. 374 1959 July, 1959 INSURANCE COUNSEL JOURNAL Page 375 this assertion is overbroad, the risks as­ is thought that there are few defects older sumed by title insurers compared to most than sixty years, and that it is unduly other kinds of insurers are very slight, and expensive to search for them." title companies except most risks disclosed Also, some companies insure against de­ by the title examination. All policies con­ fects that would be disclosed by a survey, tain printed general exceptions, and in ad­ even though the examination is by a com­ dition, defects in the particualr title are pany inspector qualified to make only excluded from coverage in a separate sched­ rough measurements. ule. Title companies frequently refuse to Some hidden defects not disclosed by a insure a title unless exceptions for known competent examination of public records, defects are added to their regular form of physical inspection of the premises, or sur­ coverage. vey. Since the protection of the recording Many companies offer a variety of both acts prevents most of these defects from owners' and mortgagees' policies, differ­ being risks to the insured, there is no risk ing from one another in the extent of risk for the insurer. But the recording acts do coverage. In addition, the risks covered not eliminate all such defects, and title in­ and excepted may vary from one company surance policies usually pTotect against to another. Nevertheless, the pattern of some, including: a recorded instrument. title insurance risk coverage outlined be­ appearing to be valid, but void because it low is generally adhered to by most firms. was forged, never properly delivered, or executed by a person without capacity; Risks Usually Covered by Title Insurance any judgment that from the records ap­ Policies. pears valid but which is void for lack of jurisdiction; a deed incorrectly stating Errors in the title examination. These in­ that the grantor is unmarried, if the fact clude any negligence or fraud by an em­ of his marriage does not appear elsewhere ployee or agent of the company in making in the records; failure of any public rec­ the titLe search and analyzing· its results. ords to disclose an instrument or claim The most common error is negligently that need not be recorded under the re­ failing to note a title defect appearing in cording acts, including the claim of an the public records. Another common er­ heir or devisee unknown at the time of ex­ ror is the failure to recognize defects that amination; errors in the public records should be disclosed by a surveyor other made by public officials, to the extent they inspection of the premises whenever such are not protected against by the recording examinations are actually made by the acts, including failure to put on record and company or acceptable independent sur­ failure to make a correct copy; errors re­ veyors. sulting from the practice of some tax of­ A few known defects. These are oc­ fices of promptly showing taxes as paid casionally covered, particularly in mort­ upon receipt of a payment check, then al· gagees' policies, if they are trivial or prob­ tering this record if the check is returned ably unenforceable because of estoppel or a for lack of sufficient funds. statute of limitations. Examples of this Marketability. This risk is generally kind of occasional coverage are setback covered in mortgagees' policies and often requirements, restrictive covenants, ease­ in owners' policies. One of the risks in­ ments, possibilities of reverter, rights of volved in insuring marketability is correct­ re-entry and slight encroachments made ly anticipating the judicial meaning that by improvements on neighboring land.'· will be given to this vague concept, for Defects that would be disclosed by an courts have been far from consistent in examination which the company inten­ their interpretations of "marketable tionally does not make. Some companies title."" make only partial examinations and as­ sume the risks of any defects that a com­ "See REEVE, GUARANTEEING MARKETABILITY OF plete examination would disclose. For ex­ TITLES TO REAL ESTATE 82-8!! (1951). "See 3 AMF.RICAN LAW OF PROPERTY §§ 1l.48·11.49 ample, in the eastern part of the United (Casner ed. 1952). States insurance is often written on a In Texas the Board of Insurance Commissioners search that goes back only sixty years. It does not permit marketability to be insured but does allow the insurance of "good and indefeasible" '·Henley, What Investors in Mortgage Loans are title. TEX. BD. OF INS. COMM'RS, BASIC MANUAL Demanding in Title Insurance, Title News, May OF RULES, RATES AND FORMS FOR WRmNG OF TITLE 1956. p. 9. INSURANCE IN THE STATE OF TEXAS § III (1956)

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'Risks Usually Not Covered in Title In­ Title to personal property, even when surance Policies. affixed to the realty. .Defects disclosed by the title examina­ Some hidden defects not disclosed by a tion. Defects of this sort are generally not competent examination of public records, covered, and when found are listed as ex­ physical inspection of the premises or SU1'­ ceptions in the policy. vey. More risky defects of this sort often are expressly .excepted. They include Defects that physical inspection and mechanics' and materialmen's liens which survey of the premises would disclose.'· are effective as liens without being record­ Defects of this kind are usually not cov­ ed at the date of the policy;'· and dower, ered in owners' policies, but ordinarily are curtesy, community property and home­ in mortgagees' policies. They include such stead rights of the insured's spouse. Some possible interests as adverse possession and companies except tax titles because of the unrecorded leases and easements that limited rights acquired at tax sales and the would be disclosed by an inspection of the frequent errors in tax title proceedings. premises. They also include the defects Mechanics' and materialmen's liens are that surveys would disclose, including en­ often covered in mortgagees' policies if a croachments, .incorrect boundry lines and physical inspection of the premises shows setback violations. no sign of recent construction, or-when there has been recent construction-if there Defects created subsequent to the date of is satisfactory evidence of payment, if lien the policy. waivers or releases are secured, or if securi­ ty is posted for payment of any unpaid Defects of which the insured was aware construction costs. or which he assumed prior to the date of the policy. The general insurance doc­ The Scope of Coverage trines of misrepresentation and conceal­ ment by the insured also apply to title in­ Under a title insurance policy only one surance." premium is paid by the insured-at the Restrictions of any government police time the policy goes into effect. The in­ power regulation on the use and enjoy­ surance is not written for a fixed term, but ment of the premises. These include build­ coverage-up to the face amount of the ing, fire and zoning ordinances. The ap­ policy-continues as long as the insured parent reasons for the limitation are that can suffer any loss from the risks covered. these regulations are difficult to ascertain, Insurance under a mortgagee's policy ends and that they are frequently ambiguous or when the debt is paid or the mortgage re­ of dubious constitutionality. But the limi­ lea1sed. But mortgagees' poJicies usually tation has been rationalized on the grounds provide that protection continues if the that title policies insure titles, and police mortgagee becomes an owner of the prop­ power regulations involve paramount gov­ erty through foreclosure or purchase 111 ernment rights of a non-title character." settlement of the morgage debt. Insurance l·A typical clause. excepting risks of this sort under an owner's policy ends when the provides: "Rights or claims of parties in possession insured conveys all his interest in the prop­ not shown of record, and questions of survey ..." erty, except that an insured grantor re­ "Sec, e.g., Rosenblatt v. Louisville Title Co., 218 mains covered for his continued liability Ky. 714, 292 S.W. 333 (1927); First Nat'l Bank & Trust Co. v. New York Title Ins. Co., 171 Misc. 854, under title covenants, unless, as is occasion­ 12 N.Y.S.2d 703 (Sup. Ct. 1939). For a treatment ally possible, he has assigned the policy. of concealment and misrepresentation, see, generally, Title policies uniformly contain subroga­ VANCE, INSURANCI, §§ 61-70 (3d ed. 1951). tion clauses for the protection of the insur­ "Rhodes, Treatment of Restridtions in Title Underwriting, Title News, Sept. 1940, pp. 13, 14. er; and mortgagees' policies contain salvage clauses providing that if the insurer pays (owner's policy and leasehold policy). Until re­ cently marketability was not insured in Chicago, '"Lien preference without recording continues for even in mortgagees' policies. The case against

HeinOnline -- 26 Ins. Counsel J. 376 1959 July, 1959 INSURANCE COUNSEL JOURNAL Page 377 the full amount of the debt to the insured Title Protection Afforded by Competing mortgagee, the mortgage and indebted­ Systems ness shall be assigned to the insurer. Morgagees' policies usually cover as­ The protection provided by the lawyers' signees of the mortgage, but owners' poli­ opinion system is almost as great as that cies do not cover grantees of the insured, provided by title insurance, if competent and assignments to grantees are seldom abstracters and lawyers are used. The add­ permitted by title insurers.'" Thus, each ed protection of title insurance covers only new grantee must take out a title policy, remote risks, although the losses can be if he wishes title insurance coverage. He heavy if they do occur. Abstracters and can secure some of the advantages of his lawyers are liable in tort for their negli­ grantor's policy, however, if there are title gence," but it is difficult to secu~e a jud.g­ covenants in his deed. ment against a lawyer for negligence 111 examination. Abstracters often are cov­ ered by liability insurance, and some states Liability for Negligence require that they be bonded against the risk of loss to others from negligence." In addition to its liability under the Many abstr~cters voluntarily pay for ~osses policy, the company may be liable for neg­ due to their negligence rather than II1Cur ligence in performing title search and ex­ the expense and adverse publicity of litiga­ amination. If the opinion is in error due tion. But even though they keep lower re­ to negligence in the search or analysis of serves than other insurance companies, the facts disclosed by the search, the com­ title insurance companies are better able pany is liable, provided the customer de­ trimentally relied On the opinion.'" Ordi­ financially to pay losses than are abstract­ narily under such circumstances the custom­ ers and lawyers, and they are more likely er will claim' under the policy, but it to be in existence when the losses occur. could be more advantageous for, him to The protection provided by the Torrens bring a tort action for negligence. This system is broad but not absolute.'· Under would be the case if a negligent search had this system the original applicant brings been made but no policy issued, if it had an action similar to a quiet title suit, nam­ been issued on the wrong tract," or if the ing all known adverse claimants as de­ policy had been issued after the reliance fendants. After the resulting decree a cer­ and it contained an exception to a defect tificate is filed in the registrar's office that not appearing in the examination report.'" is determinative of all rights and interests A tort action would also be better if the in the land, and a duplicate copy is issued loss from the reliance were greater than to the owner. But for a period after the the face amount of the policy. decree, it may be attacked by certain per­ sons who have been deprived of rights.'" In '·Owners' policies usually contain this or a addition, the holder of a certificate is not similar clause: protected from a few possible types of en­ "This policy is not transferable to subsequent cumbrances, even though they are not owners. A reissue policy in favor of new pur­ chasers should be obtained," Uu t some owners' policies contain this clause: "An attorney was held liable in Bayer! v. Sm),th, "Assignment of this policy must be with the II7 N.J.L. 412, 189 AtI. 93 (1937), for a d~fecti~e assent of this company endorsed hereon. This title examination. Other such cases are cited 111 policy necessarily relates solely to the title as of the the Ba)'er! opinion and in Annot., 5 A.L.R. 1389 date the policy and, therefore, in assenting to such (1919). assignment, this Company assumes no liability for "'KAN. GEN. STAT. ANN. § 67-802 (Supp. 1955); defects, liens or incumbrances attaching between NEV. REV. STAT. § 76-501 (1950). the date of the policy and the date of assignment. I n order to protect an assignee against interme­ "See note 8 supm. diate 61efects, liens or incumbrances, this policy "ILL. ANN. STAT. c. 30, § 70 (Supp. 1956) (decree should be reissued to cover the date of assign­ may be attacked within two years by persons with Inent." an interest in the land who were unaware of the "Glyll v. Title Guarantee and Trust Co., 132 proceedings and were not served with process); App. Div. 859, 117 N.Y. Supp. 424 (1st Dep't 1909). MASS. ANN. LAWS c. 185, § 45 (1955) (within one ""See Ehmer v. Title Guarantee and Trust Co., year of a dercee fraudulently obtained); MINN. 156 N.Y. 10,50 N.E. 420 (1898). STAT. ANN. § 508.26 (Supp. 1956) (within 60 "'DoTl' v. Massachusetts Title Ins. Co., 238 Mass. days by interested persons who were unaware o[ 490, 131 N.E. 191 (1921). the proceedings and were not served with p~ocess) .

HeinOnline -- 26 Ins. Counsel J. 377 1959 Page 378 INSURANCE COUNSEL JOURNAL July, 1959 noted on the certificate.'" The Torrens A few companies qualified to write title statutes provide for indemnity or assur­ insurance are primarily casualty or fire in­ ance funds, established from registration surance underwriters. Some title insurance fees, to compensate those wrongfully de­ companies do a substantial banking or prived of interests in land through the trust business, and many of them offer an negligence or fraud of the registrars' staffs escrow service. Most title insurance com­ or others.'" In all important Torrens panies with title plants prepare and sell areas the funds are more than adequate,'· abstracts and frequently sell title data to credit agencies. At the risk of practicing A dditional Services of Title law without authorization, some com­ Insurance Companies panies even draft legal instruments per­ taining to the titles sought to be insured. Usually documents are drafted without In addition to title search anel insur­ charge as an accommodation to the custo­ ance, most title insurance companies per­ mers who have applied for insurance. At form other services usually but not always least one large title insurance company related to their title insurance business. makes a charge for advising lawyers on One advantage that title insurance pro­ pleadings prepared in connection with liti­ vides over other forms of title protection gation involving titles for which an appli­ is that the title insurer agrees to defend cation for title insurance is pending. Some at its expense all litigation against the title insurance companies formerly guaran­ insured based upon a title defect covered teed the payment of mortgages, but this in the policy. This obligation includes proved so disastrous during the depression court costs as well as attorneys' fees, and of the thirties that few title companies must be paid in addition ~o any losses ~n­ now engage in this business. curred by the insured. FaIlure of the 111­ surer to defend when obligated to do so Premium Rates has been held to give the insured the right to defend and then recover the expenses The major national companies, when 31 of the suit from the insurer. writing policies through agents, charge only for insurance coverage unless arrange­ ""The decree is conclusive after two years, by the literal language of the Illinois statute, ILL. ~N~. me.nts have been made to permit the agent STAT. c. 30, § 70 (Supp. 1956). . ~ut the ~llmOls to charge for search and examination. The Supreme Court has held th.e certificate. subject to basic rates are $3.50 per thousand for attack by persons in possessIOn at the time of r~g­ istration and who were sought to be made parties owners' policies and $2.50 per thousand not by being expressly named but under th.e head­ for mortgagees' policies, with some reduc­ ing "all whom it may concern." Chicago Title and tion as the amount of coverage increases. Trust Co. v. Darley, 363 Ill. 197. 1 ,N.E.2d ~46 Because of differences in coverage, compe­ (1936). And the court has held that an executlon purchaser of a Torrens title is estopped to deny a tition and cost of searching and examin­ common law dedication made by his grantor, even ing, these rates vary somewhat among though never registered. Hooper v. Haas, .332 Ill. companies." But careful and detailed ac­ 561, 164 N.E. 23 (1928). These cases are discussed tuanal risk studies used in computing many in POWELL, op. cit. supra note 8, at 140-43. The Massachusetts statute lists five encumbrance~ .that. kinds of insurance rates are not made for although unregistered, prevail over a certlflca.te. title insurance risks. Such studies would MASS. ANN. LAWS c. 185, § 46 (1955). The Mm­ be of limited value because of the lack 01 nesota statute lists six such exceptions. MINN. STAT. ANN. § 508.25 (Supp. 1956). data on uninsured losses, inconsistencies ""E.g., ILL. ANN. STAT. C. 30. §§ 136-40 (Supp. among insurers in methods of computing 1956); MASS. ANN. LAWS c. 185, §§ 99-109 (1955); losses, and unstandardized coverage prac­ MINN. STAT. ANN. §§ 508.74-508.79 (Supp. 1956). tices of insurers. "'The Cook County, Illinois fund IS $1,200,000 and claims paid have totaled $72,00~. In the two A number of factors affect the cost of a largest Minnesota counties, no claims have ever given policy. For example, mortgagees' in­ been paid. Other recent data on Torrens funds surance is sold at lower rates because it and claims appear in 4 AMERICAN LAW OF PROPERTY 648 n.6 (Casner ed. 1952). usually terminates. more quickly, the risk "Overholtzer v. Northern Counties Title Ins. Co., decreases as the debt is paid, and the in­ Il6 Cal. App. 2d 113, 253 P.2d 116 (1953); Fidelity surer has a chance to salvage losses Union Cas Co. v. Wilkinson, 94 S.W.2d 763 (Tex. Civ. App. 1936), afl'd, 131 Tex. 302. 114 S.W.2d ""For sample rate charges in different parts of the 530 (1938). country. see ApPENDIX IV. infra.

HeinOnline -- 26 Ins. Counsel J. 378 1959 July, 1959 INSURANCE COUNSEL JOURNAL Page 379 through· debt assignments; furthermore, public agencies, was 1.69 per cent.·' Loss most mortgagees are large lending insti­ ratios are generally higher when examina­ tutions that have a strong bargaining posi­ tions are made by agencies or approved tion.'" If an owner's policy is obtained at attorneys than when made· by full-time the same time as a mortgagee's policy the company personnel, indicating greater cost of the latter is often nominal. Rates are accuracy, knowledge and honesty in home usually lower for policies covering title office systems of examination. The risk of that the company has previously insured, loss is greatest during the first few years reflecting the lower cost of the limited after a policy is written since defects are search and examination and the negligible most likely to be discovered during.these extent of the new risk. Some title insurance years; and as time passes, there is the in­ insurance premiums include charges for creasing likelihood of defects being cured title searches and examinations, but with­ by statutes of limitations, adverse posses­ out distinguishing the charge for these serv­ sion and prescription. Loss ratios are high­ ices and that for the insurance of risks er during periods of business recession and assumed. Some companies also include in falling real estate prices, for the volume of their single premium a charge for survey new policies declines, more defects are and physical inspection of the premises. raised by buyers seeking to avoid execu­ tory contracts of sale, and salvage under mortgagees' policies is less. More losses Losses result from the neglience of company em­ ployees and agents than from any other Accurate quantitative data on title in­ cause; negligent failure to note unpaid surance losses are difficult to obtain. The taxes, restrictive covenants, easements and accounting methods used by title com­ judgments have proved particularly trou­ panies for computing losses differ to such blesome." Losses from insuring marketabil­ an extent that comparision is likely to be ity have been small or even nonexistent." misleading. Some companies include as Because of their small losses titlo? in­ losses only claim payments that clear surers give less attention to maintaining policyholders' titles from defects; others the ability to pay losses than is true of add the full cost of maintaining and oper­ insurers assuming greater risks. The re­ ating a claims department, including the serves of most title insurers are low," and cost of investigation and defense of claims some companies maintain no reserves at for which no payments are made; Some all. The practice of reinsurance is never­ companies subtract recoveries from their theless well developed in the industry, loss totals, others do not. And variations in some companies reinsuring all risks over methods of computing premiums affect the comparative value of loss ratio data. Many ·'ApPENDIX I, infra p. 518. Ratios ·of losses to companies are reluctant to disclose their premiums for groups of companies show group lo~s averages varying from 1.5% to 12%. GAGE, LAND records; if their loss ratio is low, they TITLE ASSURING AGENCIES IN THE UNITED STATES Ill· are subject to criticism that title risks are 14 (1937); Burlingame, Experiences in Losses and so trivial that insurance is unnecessary. In Claims, Eastern Area, Title News, Dec. 1953, p. 66; addition, accurate reports on types of loss Davenport, Title Insurance-Losses and Claims, Title News, Mar. 1952, p. 97. are likely to show a high percentage of loss ""GAGE, op. cit. supra note 34, at 109; Losses and due to company negligence or to "casualty" Claims, Title News, Dec. 1955, p. 75; Burlingame, supra note 34, at 66. risk assumption. ··REEVE, oj). cit. supra note 15, at 67 (i), 76 (b). ·'A recent study of twenty-four companies that Despite the confused state of title in­ write title insurance or are agents for title com­ surance loss statistics, a few generalizations panies showed that the percentage of operating ex­ pense allocated to reserves for insurance losses dur­ about title insurance losses can be made ing the years 1949 to 1952 rarely exceeds 2% and with considerable accuracy. The percentage frequently is below 1%, although three companies showed allocations averaging 5-8%. Sheridan, of losses to premiums is much lower than Operatin~ Expenses in Percentages, Title News, for most kinds of insurance-the national Jan. 1954, p. 14. A study of seventeen companies for the years 1954 and 1955 disclosed that of the loss ratio for 1954, based on reports of companies studied, only those domiciled in New York, where loss reserves are required by law, had such reserves. Losses and Claims, Title News, Dec. "See text at note 45 infra. 1955, pp. 75, 76.

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$25,000. This practice is encouraged by of title protection. From a title point of the refusal of national lenders to accept view, mortgage acceptability to a life in­ title policies of small companies that do surance company means that the land must not reinsure a safe percentage of each be readily marketable if foreclosure be­ large policy they write. Even the major comes necessary. It also means that the title companies often reinsure large risks.'" mortgage must satisfy the limitations states put upon the investment practices of life The Relationship Between Title Insurance insurance companies; many states, for ex­ And the Large Institutional Lenders ample, restrict life insurance mortgage in­ vestments to otherwise unencumbered real Of vital significance to title insurance as property." a business and as an institution is the Since title insurance tends to be the bet that the most important consumers of most standardized form of title protection, mortgagees' title insurance are the large life insurance companies making mortgage institutional lenders, which hold eighty loans in several states usually insist on it per cent of the national non-farm real es­ as a condition of approving a mortgage, ex­ tate mortgage debt.'·> All of these lenders cept in localities where title insurance is un­ except life insurance companies and some common and to require it would put them savings banks concentrate on loans secured at a. severe competitive disadvantage with by lands located close to their centers of lenders willing to take other forms of title business activity.'" Life insurance com­ protection. Other reasons for this prefer­ panies, however, are national lenders, and ence for title insurance are its ease of the larger companies hold mortgages on home office examination, the coverage it lands located in all parts of the United does give, the assumption of claim nego­ States. They do not originate all of their tiation and litigation by the title insurers, mortgage loans, but buy extensively from and the financial ability of the title in­ mortgage banks and others.'! surers to pay claims. Some companies do Because the life insurance companies not loan on Torrens certificates unless a wish to know quickly and accurately title insurance policy is obtained. Other whether a mortgage is acceptable to them companies accept Torrens certificates with­ no matter where the property is located, out restriction; still others accept them only they prefer to obtain standardized forms for loans up to a certain sum, varying from $25,000 to $150,000; and some do not take "Recently twelve major title insurance companies entered into a treaty under which large risks as­ an uninsured Torrens certificate for the sumed by one company are automatically reinsured period following initial registration when by the others. REVISED TREATY FOR AUTOMATIC the registration is subject to attack." The TITLE REINSURANCE BY AND AMONG ABSTRACT AND savings banks, mortgage bankers and the TITLE GUARANTEE COMPANY, DETROIT, MICHIGAN, AND OTHER COMPANIES (Feb. 27, 1956). Federal National Mortgage Association al­ '>Institutional lenders' 96 billion dollars in debt so prefer title insurance and will insist on holdings were divided as follows: building and it to about the same extent as do the large loan associations, 32 billion; life insurance com­ life insurance companies. panies, 27 billion; commercial banks, 20 billion; and mutual savings banks, 17 billion. DEP'T OF Lenders that do most of their mortgage COMMERCE, SURVEY OF CURRENT BUSINESS 14 (May, lending in areas close to their home offices 1956). See also ApPENDIX III, infra p. 520. ar.cept any form of title protection that is In 1954, when the farm mortgage debt was 7.7 billion dollars, life insurance companies held almost customary in the locality. This is the usual 2 billion dollars of it and commerical banks held position of building and loan associations, over 1 billion dollars. STATISTICAL AllSTRACT OF many commercial banks and smaller life THE UNITED STATES 454 (1955). "'HOAGLAND, REAL ESTATE FINANCING 235 (1954); insurance companies that do most of their MORTON, URllAN MORTGAGE LENDING 61-65 (1956). mortgage lending in one state. But these Building and loan associations in some states are lenders may reC( uire title insurance if they subject to legal restrictions drastically limiting the contemplate reselling the mortgage in the geographical area within which they may do busi­ ness. See, e.g., MINN. STAT. ANN. § 51.36 (Supp. national market. Neither the Federal 1956); Mo. ANN. STAT. § 369.400 (Supp. 1956). Housing Administration nor the Veterans "On the operation of mortgage banks, see HOAG­ LAND, REAL ESTATE FINANCING c. 15, 250·67 (1954). The organization of life insurance companies for "CAL . INS. CODE ANN. § 1176 (Deering Supp. originating mortgage loans over wide areas is dis­ 1955); CONN. GEN. STAT. § 6168 (1949); N.Y. INS. cussed in SAULNIER, URBAN MORTGAGE LENDING BY LAW §§ 81, 85, 90. LIFE INSURANCE COMPANIES C. 3 (1950). '''See note 27 supra.

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Administration insist on title insurance as policies has taken place,'· there are ex­ a condition of insuring mortgages. pressions by a few courts that title poli­ cies, like other insurance policies, should Most life insurance companies are re­ be construed against the insurer." Such luctant to accept lawyers' opinions because a doctrine may well be valid when the the examination criteria and reports are policies are contracts of adhesion and the much less standardized than those of title insurer can present the insured with a insurance, but some life insurance com­ take-it-or-Ieave-it proposition." But this is panies will accept them from lawyers plainly not the case when the insured whom they approve. In part as an attempt is a life insurance company that has had to counteract this competitive disadvan­ a hand in shaping the content of the poli­ tage, the bar in some states has sought, cies, and it is doubtful that this rule of with partial success, to create greater title construction should be applied to most analysis consistency among lawyers by a­ mortgagees' policies. dopting uniform title standards." As the leading customers of mortgagees' Patterns of Title Insurance Company title insurance, the life insUTance com­ Operation panies have been able to force the title insurance companies to offer policies giv­ Although some title companies insure ing broad, standardized coverage. Some of titles only in one country, there are many the usual axceptions are often eliminated national or statewide companies that in­ from the policies, so that the companies sure titles in many countries or even many insure known aneL unknown risks they states. The Lawyers Title Insurance Com­ would prefer not to cover!' In addition, pany, operating over the widest area, has the industry was forced to adopt the title insurance offices or agents in forty­ Americal Title Association mortgagee's three states, the District df Columbia, policy, known as the ATA policy." The Hawaii and Puerto Rico." Nearly all na- standard provisions of this form are writ­ ··Very few losses occur, and when they do, in­ ten by almost every title insurance com­ surers are generally liberal in adjusting them. Cases pany in the United States!' This and on the construction of ti tie insurance policies are similar broad policies are the ones pre­ collected in 9 ApPLEMAN, INSURANCE LAW AND PRACTICE c. 210 (1943); and in 2 FITCH, ABSTRACTS ferred by most institutional lenders, and AND TITLES TO REAL PROPERTY c. 33 (1954). The only when competition makes it necessary measure of damages under title policies has caused will they accept a narrower policy. the courts some difficulty. The damage cases are discLlssed in Hilton, The01'ies of Liability, Title Although little judicial construction of News, May 1956, p. 16; and Comment, 6 WESTERN RES. L. REV. 49 (1954). "Coast Mut. Building-Loan Ass'n v. Security Title "Payne, Increasing Land Marketability Through Ins. & Guaranty Co., 14 Cal. App. 2d 225, 57 P.2d Uniform Title Standards, 39 VA. L. REV. I (1953); 1392 (1936); Broadway Realty Co. v. Lawyers Title Acceptable Title Rep., App. B, 54. Ins. & Trust Co., 226 N.Y. 335, 123 N.E. 754 (1919). "'The opposition of many insurers to broadening 50A contract of adhesion is one in which one of risk assumption for institutional lenders is expressed the parties merely has the choice of accepting or in Henley, What Investors in Mortgage Loans Are rejecting the contract, with little or no choice as to Demanding in Title Insurance, Title News, May its terms, because of his relatively inferior bargain­ 1956, p. 9. ing position. See Kessler, Contracts of Adhesion -Some Thoughts About Freedom of Contract, 43 "The origins of the ATA policy and its predeces­ COLU~f. L. REV. 629 (1943). sor, the LIC, or Life Insurance Company form, are "Other major national companies include the discussed in REEVE, op. cit. supra note 15, at 127, Kansas City Title Insurance Company ('Missouri), and in The American Title Association Standard operating in 22 states, Alaska and the District of Loan Policy of Title Insurance, Title News, July Columbia; Louisville Title Insurance Company 1929, p. 5 (Kentucky), operating in 17 states and the District There are two forms of the American Title As­ of Columbia; Title Guarantee Company (Mary­ sociation loan policy now being written; the stand­ land), operating in 14 states and the District of ard loan policy (revised 1946) and the additional Columbia; and Title Insurance Company of Minne­ coverage loan policy (revised 1946). Only the sota, operating in 19 states. A company in this former is widely used. REEVE, op. cit. supra note footnote is classified as a national company only if 15, at 129. A copy of the policy is reprinted in it does more than 25% of its premium business ApPENDIX V, infra p. 521. outside of its home state. In title insurance pre­ "The American Title Association is still trying mium volume, Lawyers Title Insurance Corporation to develop an acceptable standard owner's policy. is -the third largest title insurance company in the Henley, Report of Committee on Standard Form United States, with 1954 premium income of $6,­ of Title Insurance, Title News, Dec. 1955, p. 72. 939,B52. The 1951 title insurance premium in-

HeinOnline -- 26 Ins. Counsel J. 381 1959 Page 382 INSURANCE COUNSEL JOURNAL July, 19::'9 tional· companies maintain dual title in- . tection to that provided by a lawyer's surance operations, organized as separate opinion."' operations: a local business in the home The examining attorney secures his usual office county, and a national business for fee for an abstract examination; the ab­ the rest of the area served. In its local stracter obtains not only a fee for pre­ business, the company offers full title ex­ paring the abstract, but he also receives amination and abstract service and main­ part of the insurance premium as a com­ tains its own title plant. Some of the mission, often as high as forty per cent of national companies do a larger business the total premium. A title insurance busi­ locally, both in dollar volume and in ness operated in this way does not com­ number of policies written, than all their pete with abstracters and lawyers; it sup­ national business combined. plements their services. Since it is difficult Outside of the home office locality the to convince a person with a lawyer's o­ national companies usually act through pinion showing marketable title that he agents and approved attorneys, although should also have title insurance, this type some companies also have branch offices. of insurance develops resistance because The agents are mostly independent ab­ of cost. Such a noncompetitive approach stract companies, often with title plants has probably prevented the development of their own, but a few agencies are wholly of intensive title insurance coverage in in­ or partially owned subsidiaries of the dividual counties, although some new busi­ national company." There are both exclu­ ness has been skimmed from areas where sive agencies and agents that represent title insurance was never before written, several insurers. For the insurers that per­ most of it resulting from lenders' insist­ mit attorneys in private practice to act as ence on coverage. agents, only those attorneys who have Some forms of national title operation, considerable skill and experience in ab­ however, adversely affect local abstracters stract examination work are approved. and lawyers in private practice. Abstre;tcters are foreclosed from a considerable amount Ordinarily, when a policy is issued of business when title insurers open through an agent, the agent has prepared branch offices and make their own title an abstract, the abstract has been examined searches or hire lawyers in private practice by an attorney in private practice ap­ to do so, all without the aid of independ­ proved by the insurer, and the attorney ent abstract companies. And lawyers in has given a written opinion as to the state private practice lose potential fees when of the title. The agent then issues the the insurers or their agents use full-time policy in the name of the insurer, al­ employees to handle title examination. though some approval by personnel from The national insurer does more for an the insurer's home or branch office may agent than merely insure policy risks. Its first be required. Title insurance written through a national insurer's agent usually advertising and promotion of title insur­ does no more than add title insurance pro- ance in the agent's area and its financial and service reputation develop both in­ "The Lawyers Title Insurance Corporation has surance and abstract business. Some in­ 36 branch offices. 193 agencies and over 12.000 surers provide a legal advisory service for approved attorneys. In comparison, the Chicago Title and Trust Company, which has sought more those agents that make title examinations. intensive development of title insurance outside its On their part, agents are expected to ac­ home office county than have most national or tively seek new title insurance business; statewide companies, has 5 regional offices, 7 wholly and agency contracts commonly provide or partly owned associated title companies, and 80 abstract company agents. These are all located in that agents shall indemnify the insurer Illinois outside of Cook County, except for one as­ for losses caused by negligence in their sociated company in Indiana. searches and examinations." come of other na'tional companies was: Kansas City Title Insurance Company, $1,647,337; Louisville Title Plants Title Insurance Company, $1,282,815; Title Guar­ antee Comrany; $985,428; and Title Insurance Because financial success in the title in­ Company 0 Minnesota, $967.572. REPORT OF THE surance business depends to a large extent MISSOURI DIVISION OF INSURANCE 77 (1955) ; REPORT OF THE TENNESSEE COMMISSIONER; "For excerpts from a sample contract between a OF INSURANCE AND BANKING 218 (1955). In 1955 company and its agents, see ApPENDIX VI, infra. these companies, with more agencies, increased "A typical agent's indemnification clause is re­ their total premium volume by almost one-third. printed in ApPENDIX VII, infra.

HeinOnline -- 26 Ins. Counsel J. 382 1959 July, 1959 INSURANCE COUNSEL JOURNAL Page 383 on ownership or control of private title 'every day a large volume of instruments plants, title insurers writing a large vol­ must be copied and transactions indexed ume of insurance in anyone county if the plant is to remain current. In Cook characteristically own a title plant in that County, Illinois, for example, about 300,­ country, or have an agent, usually an ab­ 000 real property instruments were record­ stracter, that owns one: These plants con­ ed during 1954.'" About 900,000 real prop­ sist of copies or summaries of public rec­ erty instruments were filed in Los Ange­ ords pertaining to land titles, indexed les County, California, during the same so as to facilitate rapid and accurate search year. In addition to these instruments filed of the title history of any parcel of land in under the recording acts, each large title the county. Included in this consolidation plant annually processes thousands of tax are recorded instruments; records of real and judicial documents." estate tax payments; probate court rec­ Whether or not a title or abstract com­ ords; and records of such judicial proceed­ pany finds its profitable to maintain a ings as quiet title suits, actions resulting title plant depends on the location, ar­ in liens on realty, foreclosures and divorce rangement and indexing of the public proceedings. With rare exceptions each pri­ records; the volume of title search busi­ vate title plant contains data on land in ness done by the company in the county; but one county. and the extent of the competition. In It is possible for abstracts to be pre­ counties of large population it is usually pared and title insurance searches to be pr~fita?le for at least one company to made directly from the public records, and mamtam a complete plant, and frequently this is done by many small abstract and several do so. But in New York City, with title companies, but searches made from twelve companies competing for title in­ the records of private title plants can be surance business, no company now finds it made much more rapidly. This is due profitable to keep a tract index or make largely to the superior indexing systems daily take-offs from current recorded in­ used by the private plants, and in large struments. The larger companies discon­ counties, to the more convenient arrange­ tinued this practice within the past decade, ment of data for examination purposes. and although some of them make current Title plant tract indexes or geographic fil­ miscellaneous take-offs and use their title ing systems are much superior to the grant­ plants for older recordings, searches for re­ or-grantee indexes customary in most cently recorded transactions are made ex­ public recording offices. In addition, for clusively from public records. Fortunately, unplatted urban land, title companies make unofficial plats and indexes to the a form of tract index is maintained by tract descriptions in these plats." Miscel­ the public recording authorities. The New laneous indexes in title plants, also known York experience runs counter to the as general indexes, are more efficiently national trend, which is toward more title arranged than the comparable public in­ plants and more complete title plants, dexes, if, indeed, there are any. The vast even in smaller counties. collection of tax data, copies of recorded instruments, and copies of documents filed Title Examination in judicial proceedings that are part of Title insurance is issued only after an many title plants makes it possible for com­ examination of the title and a report to pany employees to prepare an abstract or search and examine a title solely from 06In the nine-month period from December, 1953, company records without the necessity to August, 1954, there were 222.369 real estate recordings in Cook County. 2 THE COOK COUNTY of locating and checking the official copies RECORDER I (1954). During the same period, an at the various public offices. A large title additional 47,928 Torrens filings were made. Ibid. plant is operated essentially as a factory, A statistical study of deeds recorded in eight with many semiskilled employees perform­ selected counties and the District of Columbia an· nually from 1895 to 1946 appears in FISHER, UR­ ing highly specialized and mechanized BAN REAL ESTATE MARKETS, CHARACTERISTICS AND tasks. FINANCING 160 (1951). Title plants are costly to maintain, for "The Chicago Title and Trust Company has 650 employees maintaining its Cook County title plant "This is known as the arbitrary tract system or and making searches and examinations. For Los progressive arbitrary system. For a detailed de­ Angeles County, California, the Title Insurance scription of one such system, see Myren, Arbitraries, and Trust Company has 450 employees doing Title News, Dec. 1953, p. 3. similar work.

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the applicant. The examination is based Advertising on data secured from public records or a title plant, frequently supplemented by a The ability to conduct aggressive adver­ surveyor inspection report of the prem­ tising and promotion is a major advantage ises. The data from the public records that title insurance has over competing and title plant may be assembled in the systems of title protection. Some appeal form of a complete abstract, certified

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ing the ATA mortgagee's form. Expenses coming insolvent. But frequently regula­ and reserves for losses are provided by the tion seeks to protect policyholders from initial contribution of $200 made when unfair rates and unfair policy terms, or to members join the fund, and additional give competitive or monopoly advantages contributions, analagous to premiums, to insurers, abstracters or other favored made by the clients when the policies are groups affected by title insurance. written. All contributions of a member States commonly restrict the businesses are credited to his account, and at the end in which title insurers may engage:o Some of the year expenses are allocated among states have prohibited them from writing members in proportion to their contri­ 1ll any kind of insurance except title in­ butions made that year. Losses on insur- surance,"' from guaranteeing mortgage . ance risks are allocated among all the loan payments," or from engaging in the members as expenses, except that losses banking business09-all of which are or have caused by the negligence of a member in been important activities of title in­ issuing a policy are charged only to that surers. Many states require title insurers member's account. Provision is made for to make substantial deposits of cash or withdrawal of a member's unimpaired securitites with the state as a condition of credit balance that has been in the fund doing business.'· Reserve" and capital'" re­ more than seven years. quirements are also common, as are re­ strictions on the investments that title in­ Government Regulation of Title surers may make." A few states restrict the Insurance amount of risk that anyone company may Title insurance companies are all subject to some form of government regulation, "'E.g., CAL. INS. CODE ANN. §§ 12390-12392 (Deer­ closely resembling that of life, fire and ing Supp. 1955); Ky. REV. STAT. ANN. §§ 287.040, 304.918 (Baldwin 1955); TEX. INS. CODE ANN. art. casualty insurance, and ordinarily under 9.01 (Supp. 1956). the authority of the state insurance com­ o'CAL. INS. CODle ANN. § 12360 (Deering Supp. mission."' Some of the statutes regulating 1955) is applicable to domestic and foreign com­ panies, and foreign companies that write other title insurers were passed in the legisla­ kinds of insurance even outside California are in­ tive flurry that followed the South-East­ eligible to transact the business of title insurance ern Underwriters case03-holding that in­ in California. See also VA. CODE ANN. § 38.1-25 terstate insurance transactions are interstate (Supp. 1956). '"E.g. Ky. REV. STAT. ANN. § 304.923 (Baldwin commerce-and the enactment of Public 1955); N.Y. INS. LAW §§ 432, 436; TEX. INS. CODE Law 15"';-declaring a congressional policy ANN. art. 9.04 (Supp. 1956). in favor of state regulation of insurance. ""E.g., TEX. INS. CODE ANN. art. 9.01 (Surp· They are chiefly the result of efforts to 1956); VA. CODE ANN. § 38.1~31 (Supp. 1956) .. ,oE.g., CAL.. INS. CODE ANN. § 12350 (DeerIng forestall federal regulation of the insur­ Supp. 1955), $100,000 with its home state; ILL. ANN. ance· industry:' Most regulation is designed STAT. c. 73, § 479, (Supp. 1956), $500,000 for to reduce the likelihood of insurers be- Cook County, $50,000 for anyone county plus $5,000 for each additional county; Mo. ANN. STAT. O'ln 1954 the Fund had assets of $407,530. In § 381.030 (Supp. 1956), $50,000; TEX. INS. CODE that. year the premiums on policies it wrote to­ ANN. art. 9.07 (Supp. '1956), one-fourth of an­ talled $156,140 and its losses were $717. FLA. INS. thorized capital but not in excess of $100,000. DEP'T REI'. 38 (1955). "E.g., CAL. INS. CODE ANN. § 12370 (Deering O"But in Illinois it is the State Auditor of Public Supp. 1955), 25% of the aggregate of the insurer's Accounts, ILL. ANN. STAT. c. 73, §§ 479-85 (Supp. subscribed capital stock; Mo. ANN. STAT. § 381.040 1956); in Ohio, for title guarantee and trust com­ (Supp. 1956), 10% of premiums collected; TEX. panies, the State Auditor, OHIO REV. CODE § 1l07.23 INS. CODE ANN. art. 9.11 (Supp. 1956), 5% of gross (Anderson 1953); in Colorado, the State Bank Com­ premiums but not in excess of $100,000, and with missioner, COLO. REV. STAT. ANN. § 31-ll-2 (Supp. release and withdrawal rights. 1955); in Kansas, for trust companies writing title insurance, the State Bank Commissioner, KAN. GEN. '"CAL. INS. CODE ANN. § 12359 (Deering Supp. STAT. ANN. §§ 9-1701,9-1704 to 1707, 17-2002 ~'Supp. 1955), at least $250,000; MINN. STAT. ANN. § 68.01 1955) . . (Supp. 1956), at least $200,000; TEX. INS. CODE O'United States v. South-Eastem Underwriters ANN. art. 9.02 (Supp. 1956), at least $100,000. Ass'n, 322 U.S. 533 (1944). "Investment is usually permitted in government 0'59 STAT. 33 (1945), 15 U.S.C. §§ 101l-15 (1952). bonds, real estate mortgages and title plant; and o'Examples of statutes pertaining exclusively to limited investment is frequently premitted in cor­ title insurance and passed shortly after the enact­ porate securities. N.]. STAT. ANN. §§ 17:24-7,8 ment of Public Law 15 are: Cal. Stat. 1949, c. 891; (Supp. 1955); N.Y. INS. LAW § 79; id. § 435; VA. Md. Laws 1947, c. 270; and Wash. Laws 1947, c. COilE ANN. §§ 38.1-179 to 217, 38.1-724 (Supp.19:;6); art. 29. WASIl. REV. CODE § 48.29.130 (Supp. 1956).

HeinOnline -- 26 Ins. Counsel J. 385 1959 Page 386 INSURANCE COUNSEL JOURNAL July, 1959 assume without reinsurance." Many stat­ posit requirements, discouraging new com­ utes provide that rates be reasonable and panies from coming into an area;s, that not unfairly discriminatory between simi­ prevent companies writing other kinds of lar risks," and that rate schedules and poli­ insurance from engaging in the title insur­ cy forms be filed with the state insurance ance business;"' and that require a title commission, which may be given the right insurer to have a complete tract index or to disapprove rates as l'iled:" Statutes have title plant in the county where its princi­ been passed, since Public Law 15 became pal office in the state is located." Similar effective, prohibiting title insurers from preferences are shown by the Texas statute granting rebates, discounts or commissions, requiring that a title insurance agent own except to their agents." A few statutes ex­ a title plant if it is to qualify for a divi­ pressly authorize lawyers to act as agents sion of premiums,s, and by the Oregon for title insurers in the procuring of busi­ statute requiring that the insurer, its agent ness." If the financial condition of a title or someone certifying to the insurer the insurer becomes impaired, some statutes status of the title, own and maintain a title authorize the commission to require that plant in every county in which the in­ the insurer reinsure its policies'" or even surer does a title insurance business." discontinue its business;" the state may Title insurance companies, wherever have the right to rehabilitate or liquidate they do business, are generally required the company.st each year to file detailed financial state­ Some statutes are designed at least in ments."' Audits of domestic companies are part to give competitive or monopoly ad­ usually made every two or. three years," vantages to a favored group. Among them and occasionly representatives from other are laws that establish extremely high de- states where the companies do business join in the examinations. These audits are "MISS. CODE ANN. § 5671 (Supp. 1956) (risks the only supervision that most state agen­ may not be over 15% of capital and surplus) ; TEX. cies give to title insurance companies. INS. CODE ANN. art. 9.12 (Supp. 1956) not over 50% Most state regulatory bodies, which are of capital stock and surplus); VA. CODE ANN. § 38.1-727 (Supp. 1956) (not over 50% of the ag­ generally understaffed, concentrate their gregate amount of capital and surplus and reserves attentions on other kinds of insurers, but in other than loss and claim reserves). Texas and New York state agencies give "N.Y. INS. LAW §§ 438. 440; ORE. REV. STAT. § more than average attention to title in­ 748.086 (1955); PA. STAT. ANN. tit. 40. §§ 477b. 1241­ 1264 (Purdon 1955). surance. This is explained by the greater '"N. Y. INS. LAW §§ 184.440; PA. STAT. ANN. tit. degree of state regulatory activity required 40 § 1247, ~Purdon 1955). The Texas Board of under the Texas title insurance statutes, Insurance Commissioners fixes uniform title in­ and by the insolvency record of New York surance rates and policy terms. applicable to all companies doing business in Texas. TEX. INS. insurers during the thirties." In New York CODE ANN. an. 9.03 (Supp. 1956); TEX. BD. OF INS. COMM'RS BASIC MANUAL OF RULES, RATES AND FORMS FOR THE WRITING OF TITLE INSURANCE IN "E.lt., the $500,000 deposit requirement to do THE STATE OF TEXAS §§ II. III (1956). The power title Insurance business in Cook County. Illinois. of the Texas Board of Insurance Commissioners to ILL. ANN. STAT. c. 73, § 439 (Supp. 1956). fix uniform rates for all companies has been upheld "See notes 66-69 supra. . as constitutional, on the basis that insurance was "ORE. REV, STAT, § 748.084 (1955); WASH. REV. a business affected with a public interest. New York CODE § .48.29.020 (Supp. 1956). Title & Mortgage Co. v. Tarver, 51 F.2d 584 (N.D. "See note 77 supra. TEX. 1931); Daniel v. Tyerrell &: Garth Inv. Co., 127 s'ORE. REV. STAT. § 748.084 (]955). TEX. 213,93 S.W.2d 382 (1936). "'E.g., ]DAHO CODE ANN. § 41-2805 (Supp. ]955); 17 CAL. ]NS. CODE ANN. §§ 12404, 12405 (Deering ILL. ANN. STAT. C. 73. § 48. (Supp. 1956). Supp. ]955); Mo. ANN. STAT. § 381.100 (Supp. "IDAHO CODE ANN. §§ 41-2809. 41-702. 41-708 1956) ; TEX. INS. CODE ANN. art. 9.22 (Supp. 1956). (Supp. 1955); ILL. ANN. STAT. c. 73. § 484 (Supp. In Texas only a person owning and operating an 1956); Mo. ANN. STAT. § 381.120 (Supp. 1956). abstract plant may share in a title insurer's pre­ ""Thirty-one of the fony-four title and mortgage miums. Ibid. Board of Ins. Comm'Ts v. Title Ins. guaranty companies organized in New York from Ass'n, ]53 Tex. 574. 272 S.W.2d 95 (1954). 1920 to ]930 were eventually taken over by the "FLA. STAT. ANN. § 625.01 (Supp. 1955); MISS. state for rehabilitation and subsequent liquidation. CODE ANN. § 567] (Supp. 1956); N.Y. ]NS. LAW § GRAY, TITLE INSURANCE COMPANIES 23 (1954) (a 440. pamphlet reprinting a lecture given at the In-serv­ "E.g., N.Y. INS. LAW § 434. ice Training Program of the New York State "ILL. ANN. STAT. c. 73, § 482 (Supp. 1956); N.Y. Insurance Department); see also FISHER, URBAN INS. LAW §§ 510, 5Il, 513; TEX. ]NS. CODE ANN. art. REAL ESTATE MARKETS: CHARACTERISTICS AND FI­ 9.13 (Supp. 1956). NANCING 33-35 (1951). Supervision of title insurers "N.Y. ]NS. LAW § 434. by the Texas Board of Insurance Commissioners in-

HeinOnline -- 26 Ins. Counsel J. 386 1959 July, 1959 INSURANCE COUNSEL JOURNAL Page 387 the Title and Mortgage Section of the Although this system had considerable State Insurance Department's Property support fifty years ago, its promise has Bureau has an eight-man staff that audits never been realized. Torrens registration and examines title insurers and investi­ has had strong opponents whose economic gates their agents and those accused of en­ lives it threatened: title insurance com· gaging in the title insurance business with­ panies, abstracters and important elements out authorization.. The Section's audit of in the bar. The registrars' offices have not title insurers includes a spot-check of their been aggressive in their competition with title searches and examinations to deter­ the other systems and, unlike the title in­ mine the amount of risk really being as­ surers, have done little or no advertising sumed. It also handles applications for title and promotion. Their service has too often insurance rate changes. been slow, and there has been delay in Future Prospects Of The Title Protection securing the necessary personnel and e­ Systems quipment to remedy this problem:' Nor do they have the power of their competi­ Existing systems of title protection have tors to broaden coverage and cut rates made titles sufficiently certain to enable when necessary to attract and hold new vast land resource development in the business. United States without serious interference The Torrens acts that have been passed from title risks. But the prevailing systems contain shortcomings that discourage reg­ are cumbersome and expensive. They are istration. There is ordinarily no financial often as ingeniously and efficiently operat­ inducement to put property into Torrens, ed as the controlling legal structure will {or the judicial proceeding required by permit. That structure, however, is faulty. initial registration is both slow and expen­ 1t is based on a recording system that pro­ sive, .and the financial benefits of the vides inadequate protection and necessi­ ~ystem accrue only to subsequent trans­ tates intricate record ana non-record ferees. The existing statutes also have gaps searches before even partial title protec­ in the protection they provide: initial reg­ tion can be offered. istration may be attacked for a limited Torrens Registration period, and registration does not protect a­ gainst all encumbrances. Nor does the 'Torrens registration, a cheaper and Torrens system provide any in,spection, simpler system, has been rejected by all release or other procedure to protect a­ but a few counties in the United States." gainst possible unrecorded mechanics'

DO See notes 26-30 supra and accompanying text. liens. These risks, although slight, have After initial registration, Torrens is the cheap­ heen sufficient to deter many institutional est form of title protection. For a discussion of lenders from loaning on Torrens titles. costs during the 1930's, see McDougal & Brabner­ Smith, Land Title Transfer: A Regression, 48 YALE The future of the Torrens system in the L. J. 1125, 1138 (1939). The same is true today. United States is bleak, for interest in it even in Illinois. which in 1955 increased its registra­ has declined."' The recent repeal of the tion fees. ILL. ANN. STAT. c. 30. § 145 (Supp. 1956). California. registration act destroyed the In the few counties where appreciable new Torrens registration is still taking place. the cost advantage system in one of the five states where it has is the reason. Statistics on new registration in been most extensively used." In Illinois, Massachusetts, Minnesota and Illinois appear in 4 AMERICAN LAW OF PROPERTY § 17.40 (Casner ed. ·'This has been most noticeable in Cook County, 1952). Many of the new registrations are by urban Illinois. Recently, when after many years a sull­ developers who register titles to large tracts, sub­ stantial staff increase was made, the time for is­ divide the tracts into small lots, and sell them suing new certificates on property already registered individually. Another important type of new reg­ was reduced from six weeks to eight days. But istration is that of titles so defective that judicial space and equipment are still short. Much of the action is needed to dear them. added staff must work at night becaiJse there is no office space for them during the day. dudes an audit of each domestic and foreign insurer ·'There was renewed interest in the Torrens at least every two years, occasional unscheduled system during the nineteen-thirties after many spot-check audits of these insurers, approval of New York title insurance companies became in­ policy forms and fixing of premium rates. A solvent. The most compelling argument in favor of study of title insurance premium rate fixing is the Torrens system made during this period is Mc­ currently being made by the Texas Board in an Dougal & Brabner·Smith. supra note 90. effort to develop more precise rate fixing stand· "Cal. Stat. 1955, c. 332. Seven other states have ards than the desires of insurers tempered by passed and later repealed registration acts: Mis­ vague feelings of the commissioner as to what is sissippi, Nebraska, North Dakota, South Carolina. fair. South Dakota. Tennessee and Utah. The following

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another of these five states, deregistration rest, as well as for any losses resulting bills have been introduced in recent ses­ from successful attacks on registration de­ sions of the legislature, and once deregis­ crees during the period when such at­ tration is passed, a repeal may follow.·' tacks arc permitted. Existing indemnity A revival of interest in land registration funds could probably take care of these might take place if the existing acts were added risks without any rate increases. amended so as to make initial registration But even if these amendments were a­ more attractive to owners and lenders. dopted, it is doubtful that a Torrens sys­ The time required to obtain an initial reg­ tem could become the prevailing system istration should be reduced, as should its of title protection in the United States cost. This could be done by making the without mandatory registration. Registra­ initial registration an administrative pro­ tion is generally compulsory in those ceeding with right of appeal to the courts. counties where Torrens has been success­ An early lllinois act so providing was de­ ful, but none of the American registration clared unconstitutional," but develop­ acts have had such a provision.·' ments in administrative law since that time make doubtful the same position to­ .Tile Insurance v. Lawyer's Opinion day.oo An inducement to new registrations would also be made if no charges or costs In large cities title insurance has been wp.re assessed the initial registrant by the very successful in its competition with registrar or court. By means of slightly both the Torrens and the lawyer's opinion increased registration charges when the systems. In these cities most lawyers in pri­ property is later transferred, costs of the vate practice no longer want to search or system could be passed on to the subse­ examine titles; the practice is too unremu­ quent benefic:iarie;s of ~egistration. An­ nerative and few lawyers possess the other improvement would be reducing the specialized knowledge needed. The mass kinds of encumbrances excepted from the production techn'iques of the large in­ protection of the act, and providing in­ surers, high overhead in metropolitan law surance from the indemnity fund for the offices and prohibitions against advertis­ ·'Deregistration preceded repeal in California. ing and solicitation have made the lawyer's Cal. Stat. 1949, c. 293. opinion system competitively unprofitable ·'IIl. Laws 1895, at 107, §§ 15, 81, was declared in many large cities. But in small towns unconstitutional in People ex rei. Kern v. Chase, 165 and rural areas title insurance has been Ill. 527, 46 N.E. 454 (1896). Cf State v. Guilbert, 56 Ohio St. 575, 47 N.E. 551 (1897). far less successful. What success it has had "'The following are a few of the many cases is due mostly to the demands of the holding statutes constitutional against the assertion national lenders for title insurance as a that they granted judicial powers to adminstrative condition to their making mortgage loans. officials: Twin Falls Canal Co. v. Huff, 58 Idaho 587, 76 r.2d 923 (1938) (water permit awards); To some extent it is used to resolve dis­ Porterie v. Grace, 184 La. 443, 166 So. 133 (1936) agreements between lawyers over market­ (interpretation of mineral leases from the state); ability in sale or mortgage transactions. Clark v. Briscoe Irrigation Co., 200 S.W.2d 674 (Tex. Civ. App. 1947) (water right appropria­ Heavy title insurance saturation in small tion). See also Brown, Administrative Commissions towns apparently will require all-inclu­ and the Judicial Power, 19 MINN. L. REV. 261 ~ive service by an agent or branch office of (1935). the insurer, using a title plant. If the in­ registration statutes are still on the books: COLO. surer aggressively promotes title insurance REV. STAT. ANN. art. 10 (Supp. 1955); GA. CODE and also provides efficient search, examin­ ANN. tit. 60 (Supp. 1955); ILL. ANN. STAT. C. 30, ation and policy-issuing service, small §§ 45-148 (Supp. 1956); MASS. ANN. LAWS c. 185 (1955); MINN. STAT. ANN. c. 508 (Supp. 1956); N.Y. town saturation is possible. The lawyers REAL PROP. LAW §§ 370-435; N.C. GEN. STAT. c. 43 in private practice apparently must be ex­ (Supp. 1955); OHIO REV. CODE ANN. cc. 5309, 5310 cluded from land transfers, except possibly (Anderson 1953) ; ORE. REV. STAT. c. 94 (1955); VA. as drafters and over-all supervisors of CODE ANN. § 55-112 (Supp. 1956); WASIL REV. CODE §§ 65.12-800 (Supp. 1956). Hawaii also has closings, for this to be done. In many a registration act. HAWAII REV. LAWS c. 307 (1945). counties under 100,000 population lawyers A substantial volume of registrations exists in parts will be difficult to eliminate from searches of only four states: Illinois, Minnesota, Massachu­ sctts and Ohio. Adoption in Illinois is by ref­ ·'An Illinois act requiring that representatives of credulII votc of the people of each county. ILL. decedents' estates register lands held by them was ANN. STAT. C. 30, § 148 (Supp. 1956). Such a vote held unconstitutional. Anderson v. ShejJhard, 285 has carried only in Cook County. ILL. 544, 121 N.E.215 \'1918).

HeinOnline -- 26 Ins. Counsel J. 388 1959 July, 1959 INSURANCE COUNSEL JOURNAL Page 389 and examinations, particularly in the ord title certainty of insured titles. Elim­ counties where the public records are easy ination of the 'search and examination to use. would remove the basis for curative action, The competitive position of lawyers and as titles become more uncertain, loses would be improved if better and more would increase and insurance rates would complete title standards were adopted and go up. The apparent trend toward more adhered to." And the Michigan type forty­ widespread adoption of the casualty ap­ year curative act also should competitively proach in title underwriting should be benefit lawyer examiners by simplifying watched with care. If carried so far as to examinations and making titles more cer­ impair the certainty.of titles, corrective tain"" The Florida lawyers' fund form of gnvernment action may be desirable. title protection, if it can be effectively ad­ ministered, provides an added incentive to Title InsUTance Reform the private practitioner by making title ex­ For title insurance companies to be of amination work more remunerative. The maximum value to the community at growth of this kind of operation should large, they should provide broad coverage, make it far more difficult for the conven­ charge fair rates, be able to pay loses oc­ tional insurers to dislodge private practi­ curing long after the date of the policy, tioners from the title examination field. fully and accurately disclose the nature of their services, and provide service with "Casualty" Insurance sufficient promptness to meet the needs In metropolitan centers the large title of parties to sales and lending transactions. insurers with complete title plants are be­ To the extent that these goals cannot ing threatened by low overhead insurers otherwise be achieved, government inter­ operating without title plants. These latter ve.ntion is justified. operate on the casualty principle of risk Where substantial competition prevails, assumption rather than on loss prevention. rigorous government regulation of the title They can afford heavier losses because of insurance industry is unnecessary as long their lower costs for search and exami­ as risks of loss remain low. Because com­ nation, since they check back only to the petition has generally meant lower rates, last previous policy issued by a competitor hroader coverage and ~aster service for the tb.at made a thorough examination, and insured,'DD. regulation should be confined use the public records for the searches to providing adequate reserve or deposit and examinations that they do make. Iequirements and reinsurance require­ Many of these low cost insurers are ments. But in the few large cities where branches or agents of large national com­ a title insurer has a monopoly or near mo­ panies and therefore have prestige and nopoly over title protection, the state strong financing. ''''hether or not they will should regulate rates and policy terms.'D' make extensive headway in large cities can­ Companies that assume relatively heavy not yet be determined, but they have al­ risks due to careless or limited searches and ready caused concern to their large local examinations or to exceptionally broad competitors, who have introduced some coverage should be subjected to stricter rate and coverage modifications favor­ reserve, deposit and reinsurance require­ able to consumers. ments. Nationally uniform methods of com­ If broadly applied, the typical casualty puting losses should be required so that insurance approach to risk assumption comparative loss ratio statistics would be could have a disastrous effect on titles. more meaningful to state regulatory bodies If title insurance generally were written lOOCompetition among national companies has on a risk basis only, without search or ex­ also been directed towards securing field representa­ amination, there would be a gradual deteri­ tion. This has been expressed in such diverse oration in the certainty of titles. It is the ways as higher commissions and nonexclusive agree· ments with preferred agents, usually abstracters curative action taken by owners upon re­ with title plants; agency agreements with lawyers ceiving examination reports from insur­ and "curbstone" abstracters, those without title ers that maintains the high degree of rec- plants willing to undercut the charges of more desirable agents; and the establishing of branch DOS ee note 44 supra and accompanying text. offices owned and operated by the insllrer. "E.g., MICH. STAT. ANN. §§ 26.1271-79 (Supp. lO'Some of the problems in regulating title in· 1955); IOWA CODE ANN. § 614.17 (Supp. 1956); surance rates are discussed in Leary, Rate Regula­ MINN. STAT. ANN. § 541.023 (Supp. 1956). tion and Title Insurance, 1953 INS. LJ. 613.

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and to consumers. Some surveillance Conclusion should be maintained over advertising in order to prevent exaggeration of title risks There have been three major reasons and insurance coverage. for the growth of title insurance in the United States: the life insurance compa­ One aspect of a monopoly situation that nies' strong preference for it in their lend­ should be encouraged in other large cities ing operations; the efficiency with which is the existence of only one title plant, title insurers having complete title plants for complete plants are expensive to de­ can search and examine titles, particularly velop and maintain and duplication is eco­ in large cities; and the aggressive pro­ nomically wasteful. The single plant motion of title insurance by the insurers. could be operated jointly by several com­ Because these factors are likely to continue, peting insurers, or one insurer could be title insurance will probably become even given the sole operating rights. But per­ more successful in the future. The Torrens haps the best solution would be to di­ system offers no serious competition, and vorce the business of title plant mainte­ the lawyers have shown surprisingly little nance from that of examining and insur­ opposition. Perhaps the lawyers will resist ing, thereby eliminating the waste of title title insurance more strenuously if it plant duplication and retaining competi­ threatens to exclude them from searches ~.ion in examination and insurance. Such and examinations in small towns and ru­ a system would resemble the customary ral areas. More statewide and national division of function between lawyers and companies may shift their emphasis from abstracters under the lawyer's opinion developing large networks of small vol­ system of title protection, although ab­ ume agencies to heavy saturation of favor­ stracts in permanent form would not be able areas, following the Pacific Coast and necessary. On the other hand, title plant Illinois patterns. Finally, rigorous govern­ monopoly might retard the development ment regulation of the title insurance in­ of new plant maintenance techniques, for dustry is unlikely, unless Public Law 15 highly competitive markets have resulted leads to more intensive regulation of all ~n the invention of some important new kinds of insurance or unless insolvency title plant methods and equipment. again threatens title insurers. Private plants are also economically wasteful to the extent that they duplicate APPENDIX I public records. Greater attention should be given to eliminating the need for private Title insurance premiums and loses paid title plants by introducing more complete for 1954. and efficient indexes and arrangements of Premium Losses public records. To the extent that govern­ State Income Paid ment record offices can not or will not a­ Alabama $ 526,392 $ 19,038 dapt themselves to efficient title search­ Arizona 3,140,087 31,146 ing, consideration should be given to re­ Arkansas 116,028 2,873 ducing the costs of these offices if com­ California 30,954,882 451,492 plete private title plants are locally main­ Colorado· 102,131 none tained. For example, the maintenance of Connecticut 117,073 1,479 tract indexes by recorders could be dropped. Delaware 182,813 none Title plant copies of recorded real Florida 2,256,610 52,862 property instruments could be made the Georgia 665,550 6,707 official copies and the title plant indexes Idaho 133,957 4,952 the official indexes. Companies with title Illinois 13,079,050 not reported plants could then be paid by the counties Indiana ],148,253 17,208 for part of plant maintenance cost, and Iowa none none county recorders would no longer main­ Kansas· 257,282 4,814 tain indexes or keep copies of recorded in­ Kentucky 538,482 5,608 struments. The companies would of course Louisiana 436,554 49,178 be required to make recorded data avail­ Maine 6,700 none able to those interested, usually only Maryland 1,284,463 28,065 county officials and professional title ex­ Massachuestts 15,502 none aminers. Michigan 4,476,051 22,126

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Minnesotat Wyoming· 26,530 none Mississippi 189.825 7,652 Alaska· 15,412 none Missouri 1,020,261 . 7,561 District of Columbiat Montanat Hawaii 25,897 none Nebraska 21,382 Puerto Rico 16,369 none Nevada 148,594 239 Totals $94,719,597 $1,381,233 . New Hampshire 1,400 none Loss ratio 1.69% (Does not include New Jersey 3,226,261 65,738 Illinois.) New Mexico 215,207 2,393 • Omits domestic insurers. New York 3,247,947 150,939 t Reports not available. North Carolina 310,427 573 North Dakota 11,544 none The above data were obtained from the Ohio· 1,353,230 II,220 records of state agencies, in most instances Oklahoma 89,9 II 300 as published in state insurance commission Oregon 2,744,713 60.690 reports. The state agencies secure their Pennsylvania 4,906,941 99,031 title insurance statistical data from reports Rhode Island 6,240 none that the title insurance companies must South Carolina 153,333 30,827 file. Some companies report as premiums South Dakota 15,891 none the entire cost of a title policy to the cus­ Tennessee 1,001,322 13,361 tomer, including the charge for the search Texas 10,638,976 115,545 and examination. Other companies report Utah 105,689 4,390 as premiums only the charge for insurance, Vermont 842 none exclusive of search and examination. Most Virginia 903,510 29,010 companies in report~ng losses paid ap- Washington 3,852,720 68,234 parently include only claim payments and West Virginia 88,844 365 not costs of investigating and defending Wisconsin 942,519 15,617 against claims. APPENDIX II Some examples of title insurance premiums and losses for 1940, 1945 and 1950, as obtained from state insurance commission reports, are as follows: 1940 1945 1950 Premiums Losses Premiums Losses Premiums Losses California $5,927,097 $74,076 $13,405,156 $229,026 $23,547,875 $138,190 Florida 206,514 1,772 363,881 3,909 1,315,555 32,003 Michigan 695,322 4,458, 599,637 8,604 3,153,382 8,543 Pennsylvania 1,006,997 42,798 1,803,419 38,861 4,446,171 65,422 Tennessee 274,648 4,288 432,680 5,033 802,730 16,252 Texas 2,271,270 57,060 7,866,346 56,II2 Washington 908,023 II,671 2,046,715 II,378 3,780,934 38,813 Texas premiums and losses are unavailable for 1940. APPENDIX III Share of Nonfarm Mortgage Debt Institutionally Held (in billions of dollars) . Institutionally Held Total Nonfarm Amount Percent Year Mortgage Debt of Total 1920 15.3 7.9 52 1925 25.7 15.2 59 1930 37.7 22.7 60 1935 28.4 15.5 55 1940 30.0 18.0 60 194·5 30.8 19.7 64 1950 66.7 49.3 74 1953 93.4 72.0 77 1955 120.8 95.9 79 Statistical Abstract of the United States 454 (1955) and Morton, Urban Mortgage Lend- ing 36 (1956).

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APPENDIX IV an owner's policy is $5. Rates include examination, but $15 is charged for a title The following are examples of rate search if no abstract is provided. charges in various parts of the country, taken from interviews and company rate Company F, for a large Pacific Coast schedules: city: Company A, for a large Eastern city: For a $10,000 owner's policy, $60.25; for For a $10,000 owner's policy, $107; for a $100,000 owner's policy, $327.75. For a a $100,000 owner's policy, $357. For a $10,000 mortgagee's policy, $48.20; for a $10,000 mortgagee's policy, $60; for a .$100,000 mortgagee's policy, $262.20. Add­ .$100,000 mortgagee's policy, $310. Charge ed charges are made for inspections, ATA for a mortgagee's policy is one-third the policies (see text at notes 46-47 supra and regular ra te if it is issued simultaneously accompanying text), and extended cover­ with an owner's policy. Rates include age including mechanics' liens. Rates in­ search and examination. clude search and examination. Company B, for a large Eastern City: For a $10,000 owner's policy, $115; for APPENDIX V a $100,000 .owner's .policy, $515. Mort­ AMERICAN TITLE ASSOCIATION gagees' policies will be issued simultane­ STANDARD LOAN POLICY, ously with owner's policies for $10. Rates REVISED 1946 include search and examination. [po 1] ,Company C, for a large Mid-Western THE TITLE INSURANCE city: COMPANY a corporation of , For a $10,000 owner's policy, $84; for a herein called the Company, for a valuable $100,000 owner's policy, $444. For a consideration, paid for this Policy of $10,000 mortgagee's policy, $61; for a $100,000 mortgagee's policy, $331. Addi­ Title Insurance, tional premiums charged for extraordinary Does Hereby Insure risks. Reissue rates are based primarily on the extent of the search required. The the owner of the indebtedness secured by charge for a mortgagee's policy is $5 when the mortgage or deed of trust described in issued with an owner's policy. An added Schedule A, herein called said indebted­ charge is made for inspection and report ne\'iS, and each successor in interest in of possession. Rates include search and ex­ ownership thereof, and also any such own­ amination. er who acquires the land referred to in Company D, for a large 'Mid-Western this Policy in satisfaction of said indebted­ city: ness as provided in the conditions and stipulations hereof, herein called the In­ For a $10,000 owner's policy, $35,00; for sured, against loss or damage not exceed­ a $100,000 owner's policy, $307.50. For a ing Dollars, $10,000 mortgagee's policy, $25; for a which the Insured shall sustain by reason $100,000 mortgagee's policy, $206.25. Re­ of any defect in the execution of said issue rate is 60% of the original rate and mortgage or deed of trust, but only inso­ applies to some policies issued within 10 far as such defect affects the lien or charge years of a policy on the same tract. The of such mortgage or deed 'of trust upon charge for a mortgagee's policy is $7.50 the said land, or by reason of the invalid­ when issued with an owner's policy. Rates ity of the lien thereof upon said land, or do not include search and examination. by reason of title to the said land being Company E, for a Mid-Western city of vested at the date hereof otherwise than 100,000 population: as herein stated, or by reason of unmar­ For a $10,000 owner's policy, $70; for ketability of the title of the mortgagor or a $100,000 owner's policy, $370. For a trustor, or by reason of any defect in, or $10,000 mortgagee's policy, $49; for a lien or encumbrance on said title at the $100,000 mortgagee's policy, $249. Reissue date hereof, or by reason of any statutory rate for either an owner's or mortgagee's lien for labor or material which now has policy is $23.50 on a $10,000 policy, and gained or hereafter may gain priority over $143.50 on a $100,000 policy. The charge the lien upon said land of said mortgage for a mortgagee's policy when issued with or deed of trust, other than defects, liens,

HeinOnline -- 26 Ins. Counsel J. 392 1959 July, 1959 INSURANCE COUNSEL JOURNAL Page 393 encumbrances and other matters set forth 2. The Company at its own cost shall in Schedule B, or by reason of the prior­ without undue delay defend the Insured ity thereto of any lien or encumbrance in all litigation consisting of actions or at the date hereof except as shown by proceedings commenced again,st the In­ Schedule B, all subject, however, to the sured, or defenses, restraining orders, or in­ conditions and stipulations hereto annexed, junctions interposed against a foreclosure which conditions and stipulations to­ or sale of said land in satisfaction of said gether with said Schedules A and Bare indebtedness, which litigation is founded hereby made a part of this Policy. upon a defect, lien or encumbrance in­ Subject to the provisions of Schedule sured against by this Policy, and may pur­ B and the conditions and stipulations sue such litigation to final determination hereof, the Company further insures that, in the court of last resort. In case any such at the date hereof, any assignments shown action or proceedings shall be begun or by Schedule A, whether recorded or not, defense interposed, or in case knowledge are good and valid and vest title to said shall come to the Insured of any claim of mortgage or deed of trust in the Insured title or interest adverse to the title as in­ free and clear of all liens. sured, or which might cause loss or dam­ In Witness Whereof) THE ... TITLE age for which the Company shall or may INSURANCE COMPANY has caused its be liable by virtue of this Policy, the In­ corporate name and seal to be hereunto sured shall at once ilOtify the Company affixed by its duly authorized officers, thereof in writing. 1£ such notice shall not this day of be given to the Company within ten days THE. TITLE INSURANCE COM- of the receipt of process or pleadings or if PANY the Insured shall not, in writing, prompt­ [po 2] ly notify the Company of any defect, lien or encumbrance insured against which SCHEDULE A shall come to the knowledge of the Insured, I. The fee simple title to said land is at in respect to which loss or damage is the date hereof vested in apprehended, then all liability of the 2. The mortgage or deed of trust and as­ Company in regard to the subject matter signments, if any, covered by this Pol­ of such action, proceeding or matter shall icy are described as follows: cease and terminate; provided, however, 3. The land described in the instrument that failure to notify shall in no case prej­ above mentioned and with respect to udice the claim of any Insured unless the which this policy is issued is described Company shall be actually prejudiced by as follows: such failure and then only to the extent of such prejudice. In all cases where this SCHEDULE B Policy permits or requires the Company Showing defects, liens, encumbrances to prosecute or defend any action or pro­ and other matters against which the Com­ ceeding, the Insured shall secure to it the pany does not, by this Policy, insure: right to so prosecute or defend such action or proceeding, and all appeals therein, [po 3] and permit it to use, at its option, the CONDITIONS AND STIPULATIONS name of the Insured for such purpose. I. 1£ any Insured acquires said land, or The word "knowledge" in this paragraph any part thereof, by foreclosure, trustee's means actual knowledge and does not re­ sale, or other legal manner in satisfaction fer to constructive knowledge or notice of said indebtedness, or any part thereof, which may be imputed to the Insured by this Policy shall continue in force in fa­ reason of any public record or otherwise. vor of such Insured, subject to all of the 3. 1£ any Insured shall in good faith conditions and stipulations hereof. The contract to sell the evidence of indebted­ benefits hereof shall inure to any federal ness and mortgage or deed of trust de­ agency or instrumentality acquiring said scribed in Schedule A, or having acquired land under an insurance contract or guar­ said land as in paragraph I hereof pro­ anty insuring or guaranteeing said indebt­ vided, in good faith contracts to sell the edness, or any part thereof, whether same, and any such contract fails, or if named as an insured herein or not, sub­ the successful bidder at a foreclosure or ject otherwise to the provisions hereof. trustee's sale refuses to complete the pur-

HeinOnline -- 26 Ins. Counsel J. 393 1959 Page 394 INSURANCE COUNSEL JOURNAL July, 1959 chase, because of alleged defects in the transfer to the Company all right, securi­ title to said land, and, in any of such ties, and remedies against any person or events, the said title has been declared property necessary in order to perfect by a court of competent jurisdiction to be such right of subrogation. defective or encumbered or otherwise un­ 6. The Company has the right and op­ marketable by reason of any defect, lien, or tion, in case any loss is claimed under encumbrance insured against by this Policy, this Policy, to pay to the Insured the en­ the Company at its option shall either (a) tire indebtedness secured by said mortgage pay such Insured the amount of this Policy, or deed of trust to the Insured, together (b) purchase said it;t~ebtedness, ~c) es­ with all costs and attorneys' fees which tablish the marketabIlIty of the tItle by the Company is obligated hereunder to decree of court, or (d) otherwise save the pay, in which case the Company shall be­ Insured harmless. In the event of any liti­ come the owner of, and the Insured shall gation involving- refusal of title because of at once assign and transfer to the Com­ defects insured against hereunder, thl pany said mortgage or deed of trust and Company will, at its own cost, pr?mptly the indebtedness thereby secured and such and diligently prosecute s.uch '. actIOn .as payment shall terminate all liability under may be available to estabhsh title as m­ this Policy and the Insured shall surren· sured, and if such action is not successful, del' the same. will reimburse the Insured for all costs and 7. A statement in writing of any loss or :ittorneys' fees in said litigation involving damage for which it is claimed the Com­ refusal of title. pany is liable under this Policy shall be 4. The Company reserves the option to furnished to the Company within sixty pay, settle, or compromise for or in tlu days after such loss or damage shall have name of the Insured, any claim insured a­ been determined and no right of action gainst or to pay this Policy in full, and shall accrue to the Insured under this payment or tender of payment of the full Policy until thirty days after such state­ amount of this Policy shall terminate all ment shall have been furnished, and no liability of the Company hereunder. In recovery shall be had by the Insured un­ such cases the Company shall be liable to der this Policy unless action shall be com­ pay in addition all costs and attorneys' menced thereon within one year after ex­ fees incurred by it. piration of said thirty-day period. Failure 5. Whenever the Company shall have to furnish such statement of loss or dam­ settled a claim under this Policy, all right age, or to commence such action within of subrogation shall vest in the Company the time hereinbefore specified, shall be a unaffected by any act of the Insured, ex­ conclusive bar against maintenance by the cept that the Insured may release or sub­ Insured of any action under this Policy. stitute the personal liability of any debtor 8. The Company will pay, in addition to or extend or otherwise modify the terms any loss insured against by this Policy, all of payment provided such act does not re­ costs imposed upon the Insured in litiga­ sult in any loss of priority of the lien of tion carried on by the Company for the the mortgage or deed of trust herein, but Insured, and all costs and attorneys' fees such subrogation shall be in subordina­ in litigation carried on by the Insured tion to the lien of the Insured under its with the written authorization of the Com­ said mortgage or deed of trust and to the pany or as provided in paragraph 3 of the right of the Insured to receive and be fully conditions and stipulations hereof but not paid for the amount of principal and in­ otherwise. The Company will not be Ii­ terest and other sums, if any, secured by able for loss or damage by reason of de­ said mortgage or deed of trust. If loss of fects, claims or encumbrances created sub­ priority should result from any act of the sequent to the date hereof (excepting any Insured, such act shall not void this statutory lien for labor or material insured Policy, but the Company, in that event, against by this Policy) or for defects, claims shall be required to pay only that part or encumbrances created or suffered by the of any losses insured against hereunder Insured claiming such loss or damage, or which shall exceed the amount, if any, lost existing at the date of this Policy and to the Company by reason of the impair­ known to the Insured claiming such loss ment of the right of subrogation. The In­ or damage at the date such Insured claim­ sured, if requested by the Company, shall ant acquired an insurable interest but not

HeinOnline -- 26 Ins. Counsel J. 394 1959 July, 1959 INSURANCE COUNSEL JOURNAL Page 395 known to the Company or disclosed to suits, bankruptcies, or other actions at law it in writing by the Insured. The li­ or in equity may be filed or judicial pro­ ability of the. Company under this Policy ceedings had or judgments rendered, all shall in no case exceed in all the actual offices where mechanics' or material­ loss of the Insured and costs and attorneys' men's liens or other liens or claims may fees which the Company is obligated here­ be filed or otherwise evidenced, or where under to pay. All payments under this taxes or assessments may be levied or Policy shall reduce the amount of the charged, or where condemnation proceed. insurance pro tanto and no payment shall ings may be had, affecting the title to prop· be made without producing this Policy for erty. An abstract of title purporting to re­ endorsement of such payment unless the flect the results of a search to all such pub­ Policy be lost or destroyed, in which event lic records and certified to that effect b} proof of such loss or destruction shall be a duly recognized and responsible ab­ furnished to the satisfaction of the Com­ stracter or abstracters or abstract company pany. Payment in full by any person or or companies may be accepted by agent voluntary satisfaction or release by the :md furnished to the approved attorney for Insured of the mortgage or deed of trust his use in making his examination of title, described in Schedule A shall tenninate ::111 but, as to any of the said public records liability of the Company under this Policy, not covered by such abstract as certified, except as provided in Condition 1. agent shall make proper search and fur­ 9. Nothing contained in this Policy nish report thereon to such approved at­ shall be construed as an insurance against torney. It is understood and agreed that action by any governmental agency for agent iF now lawfully engaged in the abo the purpose of regulating occcupancy or stract of title business in the area covered use of said land or any building or struc­ by this contract and that, in such capacity, ture thereon. agent may make all or part or parts of 10. The term "Land" when used here­ the abstracts of title above mentioned and/ in shall be construed to include the land or furnish record information with respect herein described specifically or by refer­ to Rny property in said area. Where the enc-e and improvements affixed thereto title to the particular property in question which by law constitute real property. shall have been theretofore insured by prin­ II. All notices required to be given the cipal, subsequent examinations may begin Company and any statement in writing re­ with the date of the prior policy, but all quired to be furnished the Company shall matters of lien, charge, restrictions, en· be addressed to it at its Home Office at cumbrance, exception or objection dis­ closed by the prior policy and/or the ap­ APPENDIX VI proved attorney's title report ,and opinion made for such prior policy remaining un· The standard contract of one large na­ released or nndisposed of shall be reflect­ tional company with its agents contains ed in any commitment or policy then to these typical provisions: be issued. Section 9. Each commitment to insure Section 10. No commitment to insure and each policy of title insurance shall or policy of title insurance shall be issued be based upon a title report and opin. and delivered until it shall have been fully ion made by an attorney approved by prepared in conformity with the applica­ principal, in writing, for such purpose, tion, the approved attorney's title report after such attorney shall have examined and opinion and the agent's knowledge, the complete record title to the property and then validated by the signature of an described in such commitment or policy authorized signatory named and desig­ as disclosed by all public records of the nated thereon, who shall be only such per­ cOllnty and city or town or district where· son or persons as shall be appointed in in such property is located. "Public Rec­ writing signed by principal. The appoint­ ords," as here used, shall be deemed to ment of any authorized signatory may be include all recording offices where instru· revoked by principal at any time and shall ments of conveyance or mortgage or other be revoked by principal upon written de­ instruments may be filed or recorded, all mand of agent. courts, including probate courts and other Section 11. Agent shall keep a perma­ courts where wills, estates, guardianships, nent file on each parcel of property upon

HeinOnline -- 26 Ins. Counsel J. 395 1959 Page 396 INSURANCE COUNSEL JOURNAL Jlily, 1959 which agent receives an application for principal against any and all loss, cost or title insurance, wherein agent shall pre­ damage which principal may sustain or serve the applications, approved attorneys' become liable for on account of the fail­ title reports and opinions, copies of com­ ure of agent to comply with the terms of mitments and policies, and all other re­ this contract, or on account of agent's fail­ lated matters and data, including survey­ ure to comply with any rules, regulations or's plat and certificate of survey in all or instructions delivered or given to agent cases where general survey exception is by principal; or on account of any error not shown in the commitment or policy or omission in any abstract of title or issued. . other record information furnished by Section 14. No commitment to insure, agent in agent's capacity as an abstractor or policy of title insurance, in excess of of titles; or on account of the failure of the sum of $ shall be issued until any commitment or binder or policy is­ the approved attorney's title report and sued by agent hereunder or through a­ opinion, together with an analysis of such gent's office to contain an appropriate re­ title, giving its origin and course of devo­ quirement or exception as to any lien, lution and its important characteristics, claim, encumbrance, defect or objection shall have been submitted to principal at disclosed by the application, the approved its Home Office for review, accompanied attorney's title report and opinion, or by the approved attorney's and agent's re­ known to agent, unless expressly authorized ports of their check of such title and their in writing by principal to disregard recommendations with respect thereto, and the same; or on account of the failure of principal shall have expressly authorized any commitment or binder or policy is­ agent, in writing, to issue such commit­ sued by agent hereunder or through agent's ment or policy, or both. office to correctly describe the property and reflect the then condition of the title thereto in the light of the application, APPENDIX VII the approved attorney's title report and opinion and other relating paper and A typical agent's indemnification clause documents, the agent's knowledge; and the provides: rules, regulations and instructions delivered Section 16. Agent agrees to indemnify or given to agent by principal.

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