I recently wrote a blog about the vague search standards set forth in Ohio's title insurance laws (see A Reasonable Examination Of Title). After speaking with a title professional in Arkansas about their more strict requirements, I became curious.  I wanted to know if Ohio was an anomaly.  Could it be that most states have good, solid requirements for the title evidence used to determine the insurability of title?  Not surprisingly, Arkansas turned out to be the anomaly.

I found that most states do not address the title search requirements to issue title insurance at all.  However, some states do have insurance regulations that do address the issue.  I did not do a full survey of the departments of insurance regulations to see what those were. Instead, I focused on the 20 or so states that do set forth requirements in their state statutes.

Ohio was the state with the worst statute. Ohio law provides:

No policy or contract of title insurance shall be written unless it is based upon a reasonable examination of the title unless a determination of insurability of title has been made in accordance with sound underwriting practices for title insurance companies.

Apparently, the statute substantially defers to the underwriters' "practices" to determine insurability.  It seems as though the statute would allow for a determination of insurability without a reasonable examination of title, if it can be made in accordance with sound underwriting practices.  I cannot fathom how that could be possible.

By far the most common language in the statutes of the states requires both a "reasonable examination of title," and "a determination of insurability in accordance with sound underwriting practices."  The statute in Utah seems to be fairly representative of the verbiage used in these states:

No title insurance policy may be written until the title insurer or its producer has conducted a reasonable search and examination of the title and has made a determination of insurability of title under sound underwriting principles.

But, what is a "reasonable examination of title?"  One could argue that an examination of title is reasonable if it would allow for the underwriter to make a determination of insurability based on sound underwriting practices. However, that deference to the underwriters assumes that sound underwriting practices still exist... I'm not so sure they do.

Some states have additional requirements. Idaho, New Mexico and Texas also require that the examination be made from a title plant.  The New Mexico statute, for example, requires:

No title insurance policy may be written unless the title insurer or its title insurance agent has caused to be conducted a reasonable search and examination of the title using an abstract plant ... and has caused to be made a determination of insurability of title in accordance with sound
underwriting practices.

Idaho and Texas further require that the title plant be owned or leased by the insurer or its agent.

Tennessee and Pennsylvania make no mention of "sound underwriting practices," but they both require a "reasonable examination" of title.  Pennsylvania has a unique requirement that the examination be conducted by the employees, agents or approved attorneys of the title insurance company.

Wyoming requires "adequate evidence of the current condition of title certified in writing ... by a person duly authorized ... to act as a title abstractor ... or based upon the opinion of an attorney."

Missouri and Arkansas have gone further by specifying the time frame to be covered by the search.  However, Missouri has a statute that is about as clear as mud. It reminds me of Pink Floyd's The Wall.... do not attempt to understand it unless you have your bong handy!

No title insurance policy shall be written unless and until the title insurer, title agent, or agency has:

(1) Caused a search of title to be made from the evidence prepared from a title plant of the county where the
property is located as herein defined, or if no such title plant of the county exists, or the owner of such plant refuses to
furnish the title insurer, title agent, or agency desiring to insure, such title evidence at a reasonable charge and within a
reasonable period of time, then such policy of title insurance shall be based upon the best title evidence available. An
attorney licensed to practice law in this state may upon personal inspection use the best evidence available in any
county and is not subject to the provisions of the title plant requirement of sections 381.011 to 381.241. The records on
which the title plant is based on shall show all prior matters affecting the title to the property or interest therein for a
continuous period of time of at least:
    (a) The past ten years, by two years after September 28, 1987;
    (b) The past fifteen years, by three years after September 28, 1987;
    (c) The past twenty years, by four years after September 28, 1987; and
    (d) The past twenty-seven years, by five years after September 28, 1987; and

(2) Caused to be made a determination of insurability of title in accordance with sound underwriting practices.

Huh? I much prefer the approach taken in Arkansas.

Minimum search requirements. [Effective January 1, 2008.]

(a) No title insurance report or policy shall be issued unless the title insurer or title insurance agent has caused to be made a search of the title from the evidence prepared from a title plant or files of the county where the property is located or from the records of the clerk or the ex officio recorder of land records of the county that maintains records relating to real estate and any interest in the county.

(b) The search shall include a review of all matters affecting the title to the property or interest to be insured for a continuous period of not less than the immediately preceeding thirty (30) years.

(c) No title insurance policy shall be issued until the title insurer or title insurance agent has caused to be made a determination of insurability of title in accordance with the title insurer's underwriting practices.

Arkansas has demonstrated that the states could draft legislation that would be meaningful in protecting homeowners from inferior searches and underwriter sanctioned shortcuts.  There is no vague standard like "reasonable" or "adequate" added to the examination requirement.  Instead, they simply state what the search should contain, and specify a continuous time that the search should cover.  And, while they still require a determination of insurability, the search requirements are not linked to the "sound underwriting practices" of the underwriter.

While most state's seem to leave the search requirements up to the underwriters and their "sound underwriting practices," this is a poor practice today.  When the underwriters' practices were more in line with marketable title standards, it was not really an issue. But, with the large gap we have today between insurability and marketable title, these vague laws should be updated to hold the title industry to higher, more meaningful standards that really protect the insureds.  We need that kind of protection to restore the integrity of the title industry.  It's really only a matter of time before someone realizes that the search standards have deteriorated and the fees paid by consumers have not been reduced by a comparable amount.  How would the industry explain that to the media?

Robert A. Franco
SOURCE OF TITLE