Chi. Title Ins. Co. v. Wash. State Office of the Ins. Comm'r

• Decision Date: 01 August 2013
• Docket Number: No. 87215–5.,87215–5.
• Citation: 178 Wash.2d 120,309 P.3d 372
• Parties: CHICAGO TITLE INSURANCE COMPANY, an Authorized Insurer, Respondent, v. WASHINGTON STATE OFFICE OF the INSURANCE COMMISSIONER, Petitioner.
• Court: Washington Supreme Court

178 Wash.2d 120

309 P.3d 372

CHICAGO TITLE INSURANCE COMPANY, an Authorized Insurer, Respondent,

v.WASHINGTON STATE OFFICE OF the INSURANCE COMMISSIONER, Petitioner.

No. 87215–5.

Supreme Court of Washington.

Argued Oct. 25, 2012.

Decided Aug. 1, 2013.

Marta Uballe Deleon, Elizabeth Christina Beusch, Office of the Attorney General, Olympia, WA, for Petitioner.

David Conrad Neu, K & L Gates LLP, Jessica Anne Skelton, Matthew J. Segal, Sarah Christine Johnson Pacifica Law Group LLP, Seattle, WA, for Respondent.

Stephen John Sirianni, Sirianni Youtz Spoonemore Hamburger, Seattle, WA, amicus counsel for Stewart Title Guaranty Company.

WIGGINS, J.

[178 Wash.2d 125] ¶ 1 Washington State strictly regulates how insurance may be provided and marketed in order to protect the consumer. Applicable statutes and regulations prohibit an insurer or its agent from giving out inducements for the purpose of obtaining title insurance business. Chicago Title Insurance Company (CTIC) appointed Land Title Insurance Company as its agent for the purpose of soliciting and effectuating CTIC's insurance policies. Land Title violated the anti-inducement laws. We hold that CTIC is responsible for Land Title's regulatory violations, pursuant to statutory and common-law theories of agency. When the statute forbids the insurer or its agent from certain conduct, it means that the insurer may not do indirectly—through its agent—what it may not do directly. We reverse the Court of Appeals.

FACTS

I. Background—Title Insurance

¶ 2 Typically, insurance protects against a contingency that might occur in the future, such as a fire or flood. Title insurance is different—it protects against past claims against the insured real estate, such as forged signatures on transfer documents, unpaid real estate taxes, and liens that cloud title on the property. Title insurance is also unique in two ways significant to this case: first, in how it is provided and, second, in how it is marketed and regulated.

¶ 3 Before a title company issues a title insurance policy, it must research the state of title to the property in question, which is done using an archive called a tract index or “title plant.” ¹ Admin. R. (AR) at 469, 514. The Washington Insurance Code requires a title insurance company to own, lease, or maintain a complete set of tract indexes in every county where it transacts business. RCW 48.29.020(2), .040(1). A title company can satisfy this requirement by retaining a “duly authorized agent” with a complete set of tract indexes in a county where it transacts business. RCW 48.29.040(1). An agent is “any person appointed by an insurer to solicit applications for insurance on its behalf.” Former RCW 48.17.010 (1985). ² The insurance code also governs the process for appointing an agent. RCW 48.17.160.

¶ 4 Some title insurers utilize a type of agent called an underwritten title company (UTC). A title insurer that wishes to market its policies in a small county might not own a title plant there; a prospective UTC might own a title plant in that county but be legally unable to sell insurance.³ Therefore, the title insurer and the UTC agree to sell their services as a bundle. The consumer buys the title insurer's policy, supported by the UTC's abstracting work. First Am. Title Ins. Co. v. Dep't of Revenue, 144 Wash.2d 300, 304, 27 P.3d 604 (2001). A UTC may offer other services as well. For tax purposes, “a UTC is not a mere insurance agent or broker, but rather generates business for its own account....” ⁴Id. at 305, 27 P.3d 604.

[178 Wash.2d 127]¶ 5 Title insurance is also special in that it is purchased as part of the closing of a real estate transaction. Sometimes title insurance is mandatory in order to secure the funds to close on the transaction. In many cases, consumers have little real opportunity to shop around or to make an informed decision about what title insurance policy to buy; to the consumer, title insurance is “just one more expensive step in the dizzying, convoluted and often confusing flurry of paperwork and signings that culminate in the closing of the home purchase.” AR at 469–70. Many consumers ultimately buy title insurance from whomever a real estate agent, bank, or other major party to the transaction recommends.

¶ 6 This model is called “reverse competition” because title companies do not cater to their consumers' needs, but to the needs of the middlemen who can recommend a consumer to a title insurer. AR at 470. Indeed, title companies spend nearly all of their marketing budgets “wining and dining” middlemen in order to gain referrals. Id. Because this model creates significant potential for abuse, both the legislature and Office of the Insurance Commissioner (OIC) impose strict restrictions on gifts and other inducements to middlemen. At the time of the administrative proceedings below, former RCW 48.30.150 (1990) provided that

[n]o insurer, general agent, agent, broker, solicitor, or other person shall, as an inducement to insurance, or in connection with any insurance transaction, provide in any policy for, or offer, or sell, buy, or offer or promise to buy or give, or promise, or allow to, or on behalf of, the insured or prospective insured in any manner whatsoever:

....

(3) Any prizes, goods, wares, or merchandise of an aggregate value in excess of twenty-five dollars.

Similarly, OIC enjoys broad authority to define unfair or deceptive trade practices, RCW 48.30.010(2), and the commissioner has clarified through rule making that

[178 Wash.2d 128]1) RCW 48.30.140 and 48.30.150, pertaining to “rebating” and “illegal inducements,” are applicable to title insurers and their agents.

....

(2) It is an unfair method of competition and an unfair or deceptive act or practice for a title insurer or its agent, directly or indirectly, to offer, promise, allow, give, set off, or pay anything of value exceeding twenty-five dollars, calculated in the aggregate over a twelve-month period on a per person basis in the manner specified in RCW 48.30.140(4), to any person as an inducement, payment, or reward for placing or causing title insurance business to be given to the title insurer.

Former WAC 284–30–800 (1990) (emphasis added).⁵ The present case involves alleged violations of former WAC 284–30–800 on the part of CTIC's duly appointed agent, as described below.

II. Land Title's Relationship with CTIC

¶ 7 Land Title is one of several duly appointed agents of CTIC. Land Title is not authorized to sell insurance in Washington; rather, it is a UTC of CTIC. According to OIC's records, Land Title is authorized to issue title insurance for only one insurer: CTIC. AR at 347. Aside from selling CTIC's title insurance policies, Land Title markets escrow services, which constitute 28 percent of its total revenue. Land Title requires all of its escrow customers to purchase title insurance as well. AR at 510 (“TITLE INSURANCE ... Must be provided in conjunction with every escrow transaction provided by this office.”).

¶ 8 Land Title and CTIC entered into an “Issuing Agency Agreement” (Agreement) providing for Land Title to issue CTIC's title assurances in four Washington counties: Kitsap, Clallam, Jefferson, and Mason. In these four counties, CTIC conducts no direct operations.

[178 Wash.2d 129]¶ 9 The Agreement authorizes Land Title to “sign, countersign and issue Principal's title assurances on forms supplied and approved by Principal and only on real property located in the County or Counties listed above, and in such other Counties as may be designated in writing by Principal....” AR at 519, at ¶ 3. However, Land Title is not authorized to do “any other act for principal not expressly authorized herein.” Id. Land Title must use forms supplied by CTIC and charge only premiums approved by CTIC, but may not use CTIC's name in any advertising or printing other than to indicate its status as CTIC's policy issuing agent.

¶ 10 CTIC retains the power to decide questions of risk for Land Title and is “fully authorized and empowered in its absolute discretion, to defend, settle, compromise or dispose of any claim for which any party to this Agreement may be liable.” AR at 521, at ¶ 10.B.

III. Inducement Violations and OIC Enforcement

¶ 11 In 2005, OIC launched an investigation into the marketing practices of several major title insurers operating in Washington. Over the 10–month investigation, OIC found that violations of former RCW 48.30.140 (1994) and former 48.30.150 were “widespread and pervasive” and that the entire industry was “rife with practices gone haywire.... [T]he consumer, who ultimately pays for the coverage, is the only source of money for these illegal expenses.” AR at 473–E. OIC further found that “some of the major offenders view the law as little more than a nuisance standing between them and their ability to have business steered to them from their middlemen, go-betweens and associates in the real estate business.” AR at 473–L.

¶ 12 CTIC was no exception. Over a period of 18 months, CTIC co-advertised with middlemen (a cost of $100 to $4,300) over 150 times. CTIC bought food for hundreds of middlemen meetings and broker opens, sponsored golf tournaments (over $3,000), hosted receptions and hospitalitysuites ($13,000), and, on one occasion, purchased 26 seats ($2,400) at a Seahawks game. These unlawful expenditures were not atypical, but rather CTIC's violations were “somewhere in the middle of the pack when [CTIC]'s violation record is compared to other companies.” AR at 473–H. OIC did not act on the violations it found at that time, but published its findings in a written report, AR at 473–A through 473–N. In November 2006, OIC issued a technical assistance advisory to all Washington title insurers and title insurance agents, intended to “clarify requirements [of the anti-inducement laws] for title insurers and their agents.” AR at 473AF.

¶ 13 In 2007, OIC began investigating Land Title. For purposes of the motion now on...