[As Amended by House Committee of the Whole]
         

         
As Amended by House Commettee
         

          Session of 1998
                   
HOUSE BILL No. 2692
         
By Committee on Insurance
         
1-22
          12             AN ACT relating to title insurance; requiring certain disclosures and pro-
13             hibiting certain practices; amending K.S.A. 1997 Supp. 40-2404 and
14             repealing the existing section.
15            
16       Be it enacted by the Legislature of the State of Kansas:
17           New Section 1. As used in this act, unless the context otherwise re-
18       quires:
19           (a) ``Associate'' means any firm, association, organization, partner-
20       ship, business trust, corporation or other legal entity organized for profit
21       in which a producer of title business is a director, officer or partner
22       thereof, or owner of a financial interest; the spouse or any relative within
23       the second degree by blood or marriage of a producer of title business
24       who is a natural person; any director, officer or employee of a producer
25       of title business or associate; any legal entity that controls, is controlled
26       by, or is under common control with a producer of title business or as-
27       sociate; and any natural person or legal entity with whom a producer of
28       title business or associate has any agreement, arrangement or understand-
29       ing or pursues any course of conduct, the purpose or effect of which is
30       to evade the provisions of this section.
31           (b) ``Financial interest'' means any direct or indirect interest, legal or
32       beneficial, where the holder thereof is or will be entitled to 1% or more
33       of the net profits or net worth of the entity in which such interest is held.
34       Notwithstanding the foregoing, an interest of less than 1% or any other
35       type of interest shall constitute a ``financial interest'' if the primary pur-
36       pose of the acquisition or retention of that interest is the financial benefit
37       to be obtained as a consequence of that interest from the referral of title
38       business.
39           (c) ``Person'' means any natural person, partnership, association, co-
40       operative, corporation, trust or other legal entity.
41           (d) ``Producer of title business'' or ``producer'' means any person, in-
42       cluding any officer, director or owner of 5% or more of the equity or
43       capital or both of any person, engaged in this state in the trade, business,

HB 2692--Am. by HCW

2

  1       occupation or profession of:
  2           (1) Buying or selling interests in real property;
  3           (2) Making loans secured by interests in real property; or
  4           (3) Acting as broker, agent, representative or attorney for a person
  5       who buys or sells any interest in real property or who lends or borrows
  6       money with such interest as security.
  7           (e) ``Refer'' means to direct or cause to be directed or to exercise any
  8       power or influence over the direction of title insurance business, whether
  9       or not the consent or approval of any other person is sought or obtained
10       with respect to the referral.
11           New Sec. 2. (a) No title insurer or title agent may accept any title
12       insurance order or issue a title insurance policy to any person if it knows
13       or has reason to believe that such person was referred to it by any pro-
14       ducer of title business or by any associate of such producer, where the
15       producer, the associate, or both, have a financial interest in the title in-
16       surer or title agent to which business is referred unless the producer has
17       disclosed in writing to the person so referred the fact that such producer
18       or associate has a financial interest in the title insurer or title agent, the
19       nature of the financial interest and a written estimate of the charge
20       or range of charges generally made by the title insurer or agent
21       for the title services. Such disclosure shall include language stating
22       that the consumer is not obligated to use the title insurer or agent
23       in which the referring producer or associate has a financial interest
24       and shall include the names and telephone numbers of not less
25       than three other title insurers or agents which operate in the
26       county in which the property is located. If fewer than three insur-
27       ers or agents operate in that county, the disclosure shall include
28       all title insurers or agents operating in that county. Such written
29       disclosure shall be signed by the person so referred and must have
30       occurred prior to any commitment having been made to such title
31       insurer or agent.
32           New Sec. 3. (a) (b) No producer of title business or associate of such
33       producer shall require, directly or indirectly, as a condition to selling or
34       furnishing any other person any loan or extension thereof, credit, sale,
35       property, contract, lease or service, that such other person shall purchase
36       title insurance of any kind through any title agent or title insurer if such
37       producer has a financial interest in such title agent or title insurer.
38        (c) No title insurer or title agent may accept any title insurance
39       order or issue a title insurance policy to any person it knows or
40       has reason to believe that the name of the title company was pre-
41       printed in the sales contract, prior to the buyer or seller selecting
42       that title company.
43           (b) Any producer of title business or associate of such producer who

HB 2692--Am. by HCW

3

  1       violates the provisions of this section, or any title insurer or title agent
  2       who accepts an order for title insurance knowing that it is in violation of
  3       this section, in addition to any other action which may be taken by any
  4       regulatory authority having jurisdiction, shall be liable to the purchaser
  5       of such title insurance in an amount equal to the premium for the title
  6       insurance.
  7           (c) (d) Nothing in this act shall prohibit any producer of title business
  8       or associate of such producer from referring title business to any title
  9       insurer or title agent of such producer's or associate's choice, and, if such
10       producer or associate of such producer has any financial interest in the
11       title insurer, from receiving income, profits or dividends produced or
12       realized from such financial interest, so long as:
13           (1) Such financial interest is disclosed to the purchaser of the title
14       insurance in accordance with section 2;
15           (2) the payment of income, profits or dividends is not in exchange
16       for the referral of business; and
17           (3) the receipt of income, profits or dividends constitutes only a re-
18       turn on the investment of the producer or associate.
19        (e) Any producer of title business or associate of such producer
20       who violates the provisions of this section, or any title insurer or
21       title agent who accepts an order for title insurance knowing that
22       it is in violation of this section, in addition to any other action which
23       may be taken by the commissioner of insurance, shall be subject
24       to a fine by the commissioner in an amount equal to five times the
25       premium for the title insurance and, if licensed pursuant to K.S.A.
26       58-3034, et seq., and amendments thereto, shall be deemed to have
27       committed a prohibited act pursuant to K.S.A. 58-3602, and
28       amendments thereto, and shall be liable to the purchaser of such
29       title insurance in an amount equal to the premium for the title
30       insurance.
31           New Sec. 3. Any title insurer or title agent that is a competitor
32       of any title insurer or title agent that, subsequent to the effective
33       date of this act, has violated or is violating the provisions of this
34       act, shall have a cause of action against such title insurer or title
35       agent and, upon establishing the existence of a violation of any
36       such provision, shall be entitled, in addition to any other damages
37       or remedies provided by law, to such equitable or injunctive relief
38       as the court deems proper. In any such action under this subsec-
39       tion, the court may award to the successful party the court costs
40       of the action together with reasonable attorney's fees.
41           New Sec. 4. The commissioner shall also require each title
42       agent to provide core title services as required by the real estate
43       settlement procedures act.

HB 2692--Am. by HCW

4

  1           New Sec. 4. 5. The commissioner of insurance may adopt rules and
  2       regulations necessary to carry out the provisions of this act.
  3           Sec. 5. 6. K.S.A. 1997 Supp. 40-2404 is hereby amended to read as
  4       follows: 40-2404. The following are hereby defined as unfair methods of
  5       competition and unfair or deceptive acts or practices in the business of
  6       insurance:
  7           (1) Misrepresentations and false advertising of insurance policies.
  8       Making, issuing, circulating or causing to be made, issued or circulated,
  9       any estimate, illustration, circular, statement, sales presentation, omission
10       or comparison which:
11           (a) Misrepresents the benefits, advantages, conditions or terms of any
12       insurance policy;
13           (b) misrepresents the dividends or share of the surplus to be received
14       on any insurance policy;
15           (c) makes any false or misleading statements as to the dividends or
16       share of surplus previously paid on any insurance policy;
17           (d) is misleading or is a misrepresentation as to the financial condition
18       of any person, or as to the legal reserve system upon which any life insurer
19       operates;
20           (e) uses any name or title of any insurance policy or class of insurance
21       policies misrepresenting the true nature thereof;
22           (f) is a misrepresentation for the purpose of inducing or tending to
23       induce the lapse, forfeiture, exchange, conversion or surrender of any
24       insurance policy;
25           (g) is a misrepresentation for the purpose of effecting a pledge or
26       assignment of or effecting a loan against any insurance policy; or
27           (h) misrepresents any insurance policy as being shares of stock.
28           (2) False information and advertising generally. Making, publishing,
29       disseminating, circulating or placing before the public, or causing, directly
30       or indirectly, to be made, published, disseminated, circulated or placed
31       before the public, in a newspaper, magazine or other publication, or in
32       the form of a notice, circular, pamphlet, letter or poster, or over any radio
33       or television station, or in any other way, an advertisement, announce-
34       ment or statement containing any assertion, misrepresentation or state-
35       ment with respect to the business of insurance or with respect to any
36       person in the conduct of such person's insurance business, which is un-
37       true, deceptive or misleading.
38           (3) Defamation. Making, publishing, disseminating or circulating, di-
39       rectly or indirectly, or aiding, abetting or encouraging the making, pub-
40       lishing, disseminating or circulating of any oral or written statement or
41       any pamphlet, circular, article or literature which is false, or maliciously
42       critical of or derogatory to the financial condition of any person, and which
43       is calculated to injure such person.

HB 2692--Am. by HCW

5

  1           (4) Boycott, coercion and intimidation. Entering into any agreement
  2       to commit, or by any concerted action committing, any act of boycott,
  3       coercion or intimidation resulting in or tending to result in unreasonable
  4       restraint of the business of insurance, or by any act of boycott, coercion
  5       or intimidation monopolizing or attempting to monopolize any part of the
  6       business of insurance.
  7           (5) False statements and entries. (a) Knowingly filing with any super-
  8       visory or other public official, or knowingly making, publishing, dissemi-
  9       nating, circulating or delivering to any person, or placing before the pub-
10       lic, or knowingly causing directly or indirectly, to be made, published,
11       disseminated, circulated, delivered to any person, or placed before the
12       public, any false material statement of fact as to the financial condition
13       of a person.
14           (b) Knowingly making any false entry of a material fact in any book,
15       report or statement of any person or knowingly omitting to make a true
16       entry of any material fact pertaining to the business of such person in any
17       book, report or statement of such person.
18           (6) Stock operations and advisory board contracts. Issuing or deliv-
19       ering or permitting agents, officers or employees to issue or deliver,
20       agency company stock or other capital stock, or benefit certificates or
21       shares in any common-law corporation, or securities or any special or
22       advisory board contracts or other contracts of any kind promising returns
23       and profits as an inducement to insurance. Nothing herein shall prohibit
24       the acts permitted by K.S.A. 40-232, and amendments thereto.
25           (7) Unfair discrimination. (a) Making or permitting any unfair dis-
26       crimination between individuals of the same class and equal expectation
27       of life in the rates charged for any contract of life insurance or life annuity
28       or in the dividends or other benefits payable thereon, or in any other of
29       the terms and conditions of such contract.
30           (b) Making or permitting any unfair discrimination between individ-
31       uals of the same class and of essentially the same hazard in the amount
32       of premium, policy fees or rates charged for any policy or contract of
33       accident or health insurance or in the benefits payable thereunder, or in
34       any of the terms or conditions of such contract, or in any other manner
35       whatever.
36           (c) Refusing to insure, or refusing to continue to insure, or limiting
37       the amount, extent or kind of coverage available to an individual, or charg-
38       ing an individual a different rate for the same coverage solely because of
39       blindness or partial blindness. With respect to all other conditions, in-
40       cluding the underlying cause of the blindness or partial blindness, persons
41       who are blind or partially blind shall be subject to the same standards of
42       sound actuarial principles or actual or reasonably anticipated experience
43       as are sighted persons. Refusal to insure includes denial by an insurer of

HB 2692--Am. by HCW

6

  1       disability insurance coverage on the grounds that the policy defines ``dis-
  2       ability'' as being presumed in the event that the insured loses such per-
  3       son's eyesight. However, an insurer may exclude from coverage disabili-
  4       ties consisting solely of blindness or partial blindness when such condition
  5       existed at the time the policy was issued.
  6           (d) Refusing to insure, or refusing to continue to insure, or limiting
  7       the amount, extent or kind of coverage available for accident and health
  8       and life insurance to an applicant who is the proposed insured or charge
  9       a different rate for the same coverage or excluding or limiting coverage
10       for losses or denying a claim incurred by an insured as a result of abuse
11       based on the fact that the applicant who is the proposed insured is, has
12       been, or may be the subject of domestic abuse, except as provided in
13       subpart (v). ``Abuse'' as used in this subsection (7)(d) means one or more
14       acts defined in subsection (a) or (b) of K.S.A. 60-3102 and amendments
15       thereto between family members, current or former household members,
16       or current or former intimate partners.
17           (i) An insurer may not ask an applicant for life or accident and health
18       insurance who is the proposed insured if the individual is, has been or
19       may be the subject of domestic abuse or seeks, has sought or had reason
20       to seek medical or psychological treatment or counseling specifically for
21       abuse, protection from abuse or shelter from abuse.
22           (ii) Nothing in this section shall be construed to prohibit a person
23       from declining to issue an insurance policy insuring the life of an individ-
24       ual who is, has been or has the potential to be the subject of abuse if the
25       perpetrator of the abuse is the applicant or would be the owner of the
26       insurance policy.
27           (iii) No insurer that issues a life or accident and health policy to an
28       individual who is, has been or may be the subject of domestic abuse shall
29       be subject to civil or criminal liability for the death or any injuries suffered
30       by that individual as a result of domestic abuse.
31           (iv) No person shall refuse to insure, refuse to continue to insure,
32       limit the amount, extent or kind of coverage available to an individual or
33       charge a different rate for the same coverage solely because of physical
34       or mental condition, except where the refusal, limitation or rate differ-
35       ential is based on sound actuarial principles.
36           (v) Nothing in this section shall be construed to prohibit a person
37       from underwriting or rating a risk on the basis of a preexisting physical
38       or mental condition, even if such condition has been caused by abuse,
39       provided that:
40           (A) The person routinely underwrites or rates such condition in the
41       same manner with respect to an insured or an applicant who is not a
42       victim of abuse;
43           (B) the fact that an individual is, has been or may be the subject of

HB 2692--Am. by HCW

7

  1       abuse may not be considered a physical or mental condition; and
  2           (C) such underwriting or rating is not used to evade the intent of this
  3       section or any other provision of the Kansas insurance code.
  4           (vi) Any person who underwrites or rates a risk on the basis of pre-
  5       existing physical or mental condition as set forth in subsection (7)(d)(v),
  6       shall treat such underwriting or rating as an adverse underwriting decision
  7       pursuant to K.S.A. 40-2,112, and amendments thereto.
  8           (vii) The provisions of subsection (d) shall apply to all policies of life
  9       and accident and health insurance issued in this state after the effective
10       date of this act and all existing contracts which are renewed on or after
11       the effective date of this act.
12           (8) Rebates. (a) Except as otherwise expressly provided by law, know-
13       ingly permitting, offering to make or making any contract of life insur-
14       ance, life annuity or accident and health insurance, or agreement as to
15       such contract other than as plainly expressed in the insurance contract
16       issued thereon; paying, allowing, giving or offering to pay, allow or give,
17       directly or indirectly, as inducement to such insurance, or annuity, any
18       rebate of premiums payable on the contract, any special favor or advan-
19       tage in the dividends or other benefits thereon, or any valuable consid-
20       eration or inducement whatever not specified in the contract; or giving,
21       selling, purchasing or offering to give, sell or purchase as inducement to
22       such insurance contract or annuity or in connection therewith, any stocks,
23       bonds or other securities of any insurance company or other corporation,
24       association or partnership, or any dividends or profits accrued thereon,
25       or anything of value whatsoever not specified in the contract.
26           (b) Nothing in subsection (7) or (8)(a) shall be construed as including
27       within the definition of discrimination or rebates any of the following
28       practices:
29           (i) In the case of any contract of life insurance or life annuity, paying
30       bonuses to policyholders or otherwise abating their premiums in whole
31       or in part out of surplus accumulated from nonparticipating insurance.
32       Any such bonuses or abatement of premiums shall be fair and equitable
33       to policyholders and for the best interests of the company and its poli-
34       cyholders;
35           (ii) in the case of life insurance policies issued on the industrial debit
36       plan, making allowance to policyholders who have continuously for a spec-
37       ified period made premium payments directly to an office of the insurer
38       in an amount which fairly represents the saving in collection expenses; or
39           (iii) readjustment of the rate of premium for a group insurance policy
40       based on the loss or expense experience thereunder, at the end of the
41       first or any subsequent policy year of insurance thereunder, which may
42       be made retroactive only for such policy year.
43           (9) Unfair claim settlement practices. It is an unfair claim settlement

HB 2692--Am. by HCW

8

  1       practice if any of the following or any rules and regulations pertaining
  2       thereto are: (A) Committed flagrantly and in conscious disregard of such
  3       provisions, or (B) committed with such frequency as to indicate a general
  4       business practice.
  5           (a) Misrepresenting pertinent facts or insurance policy provisions re-
  6       lating to coverages at issue;
  7           (b) failing to acknowledge and act reasonably promptly upon com-
  8       munications with respect to claims arising under insurance policies;
  9           (c) failing to adopt and implement reasonable standards for the
10       prompt investigation of claims arising under insurance policies;
11           (d) refusing to pay claims without conducting a reasonable investi-
12       gation based upon all available information;
13           (e) failing to affirm or deny coverage of claims within a reasonable
14       time after proof of loss statements have been completed;
15           (f) not attempting in good faith to effectuate prompt, fair and equi-
16       table settlements of claims in which liability has become reasonably clear;
17           (g) compelling insureds to institute litigation to recover amounts due
18       under an insurance policy by offering substantially less than the amounts
19       ultimately recovered in actions brought by such insureds;
20           (h) attempting to settle a claim for less than the amount to which a
21       reasonable person would have believed that such person was entitled by
22       reference to written or printed advertising material accompanying or
23       made part of an application;
24           (i) attempting to settle claims on the basis of an application which
25       was altered without notice to, or knowledge or consent of the insured;
26           (j) making claims payments to insureds or beneficiaries not accom-
27       panied by a statement setting forth the coverage under which payments
28       are being made;
29           (k) making known to insureds or claimants a policy of appealing from
30       arbitration awards in favor of insureds or claimants for the purpose of
31       compelling them to accept settlements or compromises less than the
32       amount awarded in arbitration;
33           (l) delaying the investigation or payment of claims by requiring an
34       insured, claimant or the physician of either to submit a preliminary claim
35       report and then requiring the subsequent submission of formal proof of
36       loss forms, both of which submissions contain substantially the same in-
37       formation;
38           (m) failing to promptly settle claims, where liability has become rea-
39       sonably clear, under one portion of the insurance policy coverage in order
40       to influence settlements under other portions of the insurance policy cov-
41       erage; or
42           (n) failing to promptly provide a reasonable explanation of the basis
43       in the insurance policy in relation to the facts or applicable law for denial

HB 2692--Am. by HCW

9

  1       of a claim or for the offer of a compromise settlement.
  2           (10) Failure to maintain complaint handling procedures. Failure of
  3       any person, who is an insurer on an insurance policy, to maintain a com-
  4       plete record of all the complaints which it has received since the date of
  5       its last examination under K.S.A. 40-222, and amendments thereto; but
  6       no such records shall be required for complaints received prior to the
  7       effective date of this act. The record shall indicate the total number of
  8       complaints, their classification by line of insurance, the nature of each
  9       complaint, the disposition of the complaints, the date each complaint was
10       originally received by the insurer and the date of final disposition of each
11       complaint. For purposes of this subsection, ``complaint'' means any writ-
12       ten communication primarily expressing a grievance related to the acts
13       and practices set out in this section.
14           (11) Misrepresentation in insurance applications. Making false or
15       fraudulent statements or representations on or relative to an application
16       for an insurance policy, for the purpose of obtaining a fee, commission,
17       money or other benefit from any insurer, agent, broker or individual.
18           (12) Statutory violations. Any violation of any of the provisions of
19       K.S.A. 40-276a, 40-1515, and amendments thereto, or K.S.A. 1997 Supp.
20       40-2,155 and amendments thereto.
21           (13) Disclosure of information relating to adverse underwriting de-
22       cisions and refund of premiums. Failing to comply with the provisions of
23       K.S.A. 40-2,112, and amendments thereto, within the time prescribed in
24       such section.
25           (14) Rebates and other inducements in title insurance. (a) No title
26       insurance company or title insurance agent, or any officer, employee,
27       attorney, agent or solicitor thereof, may pay, allow or give, or offer to pay,
28       allow or give, directly or indirectly, as an inducement to obtaining any
29       title insurance business, any rebate, reduction or abatement of any rate
30       or charge made incident to the issuance of such insurance, any special
31       favor or advantage not generally available to others of the same classifi-
32       cation, or any money, thing of value or other consideration or material
33       inducement. The words ``charge made incident to the issuance of such
34       insurance'' includes, without limitations, escrow, settlement and closing
35       charges.
36           (b) No insured named in a title insurance policy or contract nor any
37       other person directly or indirectly connected with the transaction involv-
38       ing the issuance of the policy or contract, including, but not limited to,
39       mortgage lender, real estate broker, builder, attorney or any officer, em-
40       ployee, agent representative or solicitor thereof, or any other person may
41       knowingly receive or accept, directly or indirectly, any rebate, reduction
42       or abatement of any charge, or any special favor or advantage or any
43       monetary consideration or inducement referred to in (14)(a).

HB 2692--Am. by HCW

10

  1           (c) Nothing in this section shall be construed as prohibiting:
  2           (i) The payment of reasonable fees for services actually rendered to
  3       a title insurance agent in connection with a title insurance transaction;
  4           (ii) the payment of an earned commission to a duly appointed title
  5       insurance agent for services actually performed in the issuance of the
  6       policy of title insurance; or
  7           (iii) the payment of reasonable entertainment and advertising ex-
  8       penses.
  9           (d) Nothing in this section prohibits the division of rates and charges
10       between or among a title insurance company and its agent, or one or
11       more title insurance companies and one or more title insurance agents,
12       if such division of rates and charges does not constitute an unlawful rebate
13       under the provisions of this section and is not in payment of a forwarding
14       fee or a finder's fee.
15           (e) No title insurer or title agent may accept any order for, issue a
16       title insurance policy to, or provide services to, an applicant if it knows
17       or has reason to believe that the applicant was referred to it by any pro-
18       ducer of title business or by any associate of such producer, where the
19       producer, the associate, or both, have a financial interest in the title in-
20       surer or title agent to which business is referred unless the producer has
21       disclosed to the buyer, seller and lender the financial interest of the pro-
22       ducer of title business or associate referring the title insurance business.
23           (f) No title insurer or title agent may accept an order for title insur-
24       ance business, issue a title insurance policy, or receive or retain any pre-
25       mium, or charge in connection with any transaction if: (i) The title insurer
26       or title agent knows or has reason to believe that the transaction will
27       constitute controlled business for that title insurer or title agent, and (ii)
28       20% or more of the gross operating revenue of that title insurer or title
29       agent during the six full calendar months immediately preceding the
30       month in which the transaction takes place is derived from controlled
31       business. The prohibitions contained in this subparagraph shall not apply
32       to transactions involving real estate located in a county that has a popu-
33       lation, as shown by the last preceding decennial census, of 10,000 or less.
34        (e) No title insurer or title agent may accept an order for title
35       insurance business, issue a title insurance policy, or receive or re-
36       tain any premium, or charge in connection with any transaction if:
37       (i) The title insurer or title agent knows or has reason to believe
38       that the transaction will constitute controlled business for that title
39       insurer or title agent, and (ii) 20% or more of the gross operating
40       revenue of that title insurer or title agent during the six full cal-
41       endar months immediately preceding the month in which the
42       transaction takes place is derived from controlled business. The
43       prohibitions contained in this subparagraph shall not apply to

HB 2692--Am. by HCW

11

  1       transactions involving real estate located in a county that has a
  2       population, as shown by the 1990 decennial census, of 10,000 or
  3       less or 50,000 [200,000] or greater[, however, such exception shall
  4       only apply if both the principal place of business of the real estate
  5       company and the affiliated title company are located in a qualify-
  6       ing county].
  7           (g) (e) (f) The commissioner shall adopt any regulations necessary to
  8       carry out the provisions of this act.
  9           Sec. 6. 7. K.S.A. 1997 Supp. 40-2404 is hereby repealed.
10           Sec. 7. 8. This act shall take effect and be in force from and after its
11       publication in the statute book.
12