As an attorney in the title insurance industry, I have been asked on several occasions if our title company would provide Buyers a free home warranty in exchange for us handling their settlement. It was apparent that the Buyers were shopping around for a title company. It may surprise you that even on the day of settlement, Buyer’s Agents have asked me if we would provide a free home warranty as a gift to their client. In both cases, our answer was “No.”
Why? In the past, Maryland has issued rulings and bulletins prohibiting rebates, inducements or payments offered in connection with the sale of title insurance, which we anticipated would also apply to home warranties in the future. That time has come.
On December 18, 2017, the Maryland Insurance Administration issued a Bulletin that confirmed our suspicion: Title companies that offer free home warranties, home inspections, and the like, to entice consumers to use their company and/or purchase title insurance are breaking the law.
What exactly is prohibited?
Let’s say that you work for a title company, as an attorney or paralegal, and have a title producer’s license issued by the State Insurance Administration. Section 27-212(b) of the Insurance Article prohibits an insurer, employee or representative of an insurer or insurance producer, from offering, paying for, or giving directly or indirectly to a consumer:
- a rebate, discount, abatement, credit, or reduction of the premium stated in the policy;
- a special favor or advantage in the dividends or other benefits to accrue on the policy; or
- any valuable consideration or other inducement not specified in the policy
for the purpose of enticing them to buy insurance. Keep in mind that 27-212(b) is broadly written to prohibit inducement in its many forms, and is certainly not limited to free home warranties or home inspections. If any of the above happens prior to settlement or after settlement, it falls within the coverage of the statute. Moreover, the Insurance Administration clarified that as long as the prohibited discount, credit, rebate etc. took place, it does not matter whether the consumer ultimately purchased title insurance.
In other words, if you offer a free home warranty just to get business, and do not make it conditioned on the consumer purchasing title insurance, you are still violating the law. These examples are further explained:
What is direct inducement?
Read the remainder of this informative article on the FCAR Blog.
Thanks to Brianne Paugh for this week's timely Article!
*Brianne Paugh is an Attorney with Village Settlements, Inc. and The Law Offices of Parker, Simon, Hahn & DeLisi, LLC, in Frederick, Maryland.