Earlier, we posted a link to the transcript for the Edwards v. First American Title case heard in oral arguments today before the United States Supreme Court. The transcript is a fascinating read, if anything, to illuminate the nearly irrefutable truth that no one appreciates the work of a title insurance agent.
No one.
At one point during today’s oral argument, Justice Alito, while questioning First American’s counsel, said the following:
JUSTICE ALITO: So you could — the plaintiff could allege some kind defective service at the time when the title insurance was purchased? There really is no service provided at that time, is there? (Emphasis added).
MR. PANNER: Actually, most -
JUSTICE ALITO: You get a title insurance policy and that’s it; and you don’t know whether — you don’t know what will happen if there is some problem alleged with the title at some point down the road. (Emphasis added).
In actual practice and more than likely not known to Justice Alito is the fact that the curative title process is what separates title insurance from all other forms of insurance. The curative title process is that inconvenient and, apparently, insignificant little nothing that he casually dismisses above.
To help our readers and those who may still care, curative title work is a big deal. Rather than attempting to minimize risk in a fashion similar to casualty insurers, title insurers seek to outright eliminate risks by performing a myriad of important, time-consuming processes prior to the actual real estate closing. The premium, and to a lesser extent the other non-premium charges related to a settlement, are the fruits of this labor. Unfortunately, as the Court’s research points out, there are those who — even today — clearly lack any meaningful understanding of the job performed by a title insurer and its agents.
Sadly, one side of this debate from within the title insurance industry (ALTA v NAILTA) is going to end up with Justice Alito in their corner and will likely celebrate that fact as though it vindicates their position on the title insurance industry. However, hearing comments like Justice Alito’s only underscores a deeper failure that exists in our industry, win or lose: we still do a lousy job explaining what title insurance professionals do for the premium.
If Justice Alito is in the camp that would support First American’s and ALTA’s position on Article III standing (i.e. one must show an overcharge or other financial injury to have standing to sue under RESPA), it would apparently be premised upon a belief that the title insurance agent or insurer really does nothing to support the premium charge — a dangerous precedent to say the least.
And win or lose, no one who claims to care about the title insurance industry can celebrate that fact.
But it continued today.
Consider this exchange shortly after the Justice Alito reference above:
MR. PANNER: Well, that’s really — the -the risk of that is really on the title insurer, which is why the title insurer has no incentive whatsoever to encourage poor service by a title insurance agent. (Emphasis added).
If a title insurer can encourage title agents to adopt lesser title search and underwriting principles in order to improve the timing and profitability of closing real estate transactions, both direct and indirect, a title insurer would most definitely have an incentive to encourage title insurance agents to engage in “poor” services. First American’s argument rings especially hollow when one considers the prevalence of “current owner” search standards from national title underwriters like the Petitioner and the dramatic increase in claims/loss ratios felt during the same timeframes. We wish those facts were not true, but they are.
However, there was one Justice who either knew about these factors or who read the NAILTA amicus brief which made an important and inescapable point:
JUSTICE KENNEDY: Well, that — that leads me to this point. I thought — I never thought of title insurance companies as being fungible, and some were very, very good about narrowing the exceptions, about working with the seller of the property, if you represented the buyer, to get rid of the exceptions. And so I’m not sure that it’s just a question of a policy versus no policy. There’s a — there’s a quality to the — to the research they do. And the next — and related to that is this: you — you put the case as if the price is going to be the same for the insurance. A, I think there is nothing in the — in the State law that permits the insurance company to get — to set a lower rate; and second, don’t the title companies charge other fees, title search fees and so forth, other fees in addition to the price of the insurance? And those other fees, arguably — I know she didn’t allege any damage — but those other fees arguably are too high because of this fixed market.
Bingo, your Honor. There is quality to the service of an untainted referral. There is no incentive to take rates lower when the biggest companies control the rating process and the competition. And whether Edwards pled it or not, the non-title insurance premium charges are higher because of the fixed market.
Bingo on all counts, Justice Kennedy. That is the damage that Congress sought to prevent.
We were happy to read that ALTA was particularly pleased, as we were, with Justice Kennedy’s Eureka-moment during oral argument today. ALTA CEO Michelle Korsmo, who attended today’s oral argument, was quoted as follows:
”The highlight of the argument was Anne [Anastasi] nearly breaking out in applause after Justices Kennedy and Scalia, in response to a statement by Justice Alito that title companies were fungible, explained the value of the curative process.”
While not an official record, yet, the transcript of today’s oral argument is the proper reference on a few inaccuracies. First, Justice Alito did not say title companies were “fungible,” it was Justice Kennedy who said it and he was making the opposite point. Justice Alito basically said title agents do not perform any service in conjunction with the issuance of a title insurance policy, a point Justice Kennedy was trying to refute. Second, we could not find any reference made by Justice Scalia in the transcript where he explained the value of the title curative process.
We enjoy Justice Scalia’s sardonic wit on the bench (which he exhibited several times in the transcript) but we were unable to ascribe support for the curative process where there was none given. Perhaps, we missed something?
In any event, ALTA’s point is fundamentally correct, but not for the reasons they would have you believe. It is good that Justice Kennedy helped the Court understand the value of a title insurance agent and the curative process, even though his point was actually made as a refutation to Justice Alito who is likely to side with ALTA and First American when the case is decided in the Spring of 2012. We think they get the point, but one can never be too sure. After all, ALTA was ready to applaud Justice Kennedy for pointing out the common inequity supported by ALTA.
The Supreme Court’s understanding of the value of title insurance providers is incredibly telling and indicting. Regardless of outcomes, there is much ground left to cover to help the public understand what we do. The question is whether there is anyone left who really cares to tell that story, whether it benefits their economic interests or not.