The Virginia Bureau Of Insurance Has Spoken

The real estate industry is competitive! Whether you are a real estate agent, a loan officer or a title company, you are in competition each and every day. This extremely competitive environment invites certain actions or offerings to be made in order to capture more business. Unfortunately, these actions and offerings are not always proper.

Over the last 18-24 months, we observed a significant increase in our clients asking us to match
offers from other title companies. By far the most common offer is title companies offering to pay for a home warranty for the buyer if the title company making such offer handled the closing. Other such incentives include paying for home inspections or realtor administrative fees.

In an advisory letter dated January 4, 2017 sent to all licensed title agents, agencies and companies in the Commonwealth of Virginia, the Virginia Bureau of Insurance addressed the prohibition against rebating. Noting that rebating occurs when an insurer or agent offers an inducement to purchase an insurance policy that is not specified in the policy or its ratings plan, the Bureau addressed whether offering a free home warranty, home inspection or other thing of value is impermissible rebating.

The Virginia Bureau of Insurance cited section 38.2-509 A. 2., entitled Rebates. This statute states in relevant part, “no person shall [p]ay, allow or give, or offer to pay, allow or give, directly or indirectly, as inducement to any insurance or annuity contract, any rebate of premium payable on the contract, any special favor or advantage in the dividends or other benefits on the contract, any valuable consideration or inducement not specified in the contract, except in accordance with an applicable rating plan authorized for use in this Commonwealth.” In reliance on this provision, the Bureau concluded that the offering of a free home warranty, home inspection, or other things of value to a consumer by a title settlement agent is an inducement for the purchase of title insurance and is prohibited.

One may question the analytical leap made by the Bureau about whether the inducement is for the purchase of title insurance as opposed to doing a settlement, although these things typically occur together. However, the fact remains, what has become a fairly common practice is prohibited in the eyes of the Bureau. While the January 4th letter did not specifically mention title companies offering to pay realtor administrative fees, it seems clear this is indistinguishable from paying for home warranties and consequently, is most certainly prohibited under the same reasoning.