SECTIONS 12370-12377 - California Statutes

INSURANCE CODE

SECTION 12370-12377

12370. Every title insurer shall annually set apart a sum equal to
10 percent of its premiums collected during the year. Such sums shall
be allowed to accumulate until a fund is created equal in amount to
25 percent of the aggregate of the subscribed capital stock of the
insurer, or one million dollars ($1,000,000), whichever is the lower
amount. After the establishment by a title insurer of an unearned
premium reserve, pursuant to Article 3.5 (commencing with Section
12380) of this chapter, such amount shall be reduced by the aggregate
amount which shall be set aside and maintained by such insurer in
such unearned premium reserve. Such fund shall be known as the "title
insurance surplus fund."

12371. The title insurance surplus fund shall be maintained as a
further security to holders and beneficiaries of the title policies
issued by the insurer. If all or any part of the fund shall at any
time be in excess of the amount required by Section 12370, such
excess may be transferred by the insurer to its general assets. If at
any time the fund is impaired by reason of a loss, the amount by
which it is impaired shall be restored in the manner provided for its
accumulation. The reporting of a loss is an impairment of such fund
for the purposes of this section.

12372. Any such domestic insurer, after having its required capital
paid in and depositing its required guarantee fund with the State
Treasurer, may invest its funds in the preparation and purchase of
materials and plant necessary to enable it to engage in the title
insurance business. In all statements and proceedings required by law
for the ascertainment and determination of the condition of such
insurer, such materials and plant shall be treated in one of the
following ways:
(a) They may be treated as an asset, valued at actual cost to the
insurer not in excess of 50 per cent of the aggregate par value of
the shares of the insurer's capital stock then issued outstanding,
and apportioned to its title insurance department, including treasury
shares;
(b) They may be treated as an asset, at such lesser value than
that permitted by paragraph (a) of this section as the insurer
estimates;
(c) They may be omitted entirely from the statement or proceeding.

12372.5. Notwithstanding the provisions of Section 12372, where a
title plant is not being currently maintained, the asset value of
such plant shall not exceed its asset value as of the last annual
statement date preceding the first month such plant is not currently
maintained, less 1/10th thereof for each succeeding year or part
thereof that such plant is not being currently maintained. For the
purposes of this section, a title plant shall be deemed currently
maintained so long as it is used in the normal conduct of the
business of title insurance, and (1) the owner thereof continues
regularly to obtain and index title record data to such plant or to a
continuation thereof in a format other than that previously used,
including, but not limited to, computerization of such data, or (2)
the owner thereof is a participant, in an arrangement for joint use
of a title plant system regularly maintained in any format, provided
such owner is contractually entitled to receive a copy of the title
record data contained in such jointly used title plant system during
the period of such owner's participation therein, either periodically
or upon termination of such participation, at a cost not to exceed
the actual cost of duplication of such title record data.

12373. A title insurer shall not make any dividends except from
profits remaining on hand after retaining unimpaired assets
aggregating in value an amount equal to the sum of the following:
(a) The aggregate par value of the shares of its capital stock
issued and outstanding, including treasury shares;
(b) The amount required to be set apart as the title insurance
surplus fund;
(c) The amount required to be maintained in the unearned premium
reserve;
(d) The amount required to be maintained in the reserve for unpaid
losses and loss adjustment expense;
(e) A sum sufficient to pay all liabilities for expenses and taxes
and all other indebtedness.

12374. Except as otherwise authorized by subdivision (g) of Section
1105, a title insurer shall not directly or indirectly make a loan
from its assets to any of its officers, directors or employees, or to
any member of the family of any officer or director. Any officer,
director, agent, or employee of any such insurer who knowingly
consents to any violation of this section is guilty of a misdemeanor.

12375. Whenever a title insurer, upon withdrawing from insurance
business in this State, desires to reinsure its policies with a title
insurer whose "title insurance surplus fund" is not fully made up,
the commissioner may require the reinsurer to increase its "title
insurance surplus fund." The amount of increase shall not be greater
than the amount in the withdrawing insurer's "title insurance surplus
fund" nor greater than will fully make up the reinsurer's title
insurance surplus fund. Such increase may be made a condition of the
commissioner's approval of the reinsurance plan.

12376. (a) If an underwritten title company is placed into
bankruptcy, receivership, or conservation by the commissioner, each
title insurer operating under an underwriting agreement with the
underwritten title company during the six months prior to the
earliest of the conservation, bankruptcy, or receivership shall be
liable for its proportionate share of the commissioner's costs and
any escrow and subescrow account shortages as determined by the
calculations set forth in subdivisions (b) and (c).
(b) If, during the six months prior to the earliest of the
establishment of a conservation, bankruptcy, or receivership under
subdivision (a), the underwritten title company was authorized by
underwriting agreements to issue title policies for more than one
title insurer, the liability of each title insurer is determined by
multiplying the amount of the total escrow and subescrow shortages,
as well as the costs, and expenses, as set forth in subdivision (c),
by that title insurer's percentage of the underwritten title company'
s net premiums for policies issued by each title insurer during the
12-month period preceding the earliest of the establishment of the
conservation, bankruptcy, or receivership, with each title insurer's
liability pursuant to this subdivision to be referred to as its
proportionate share.
(c) When determining the total proportionate liability of each
title insurer, the commissioner shall include the following:
(1) The commissioner's costs and expenses of seizing and taking
control of the underwritten title company's offices, operations, and
assets.
(2) The commissioner's costs and expenses of handling, adjusting,
and closing all subescrow and escrow accounts, including the costs
and expenses of determining whether shortages exist in any subescrow
and escrow accounts.
(3) Other costs and expenses incurred by the commissioner in
connection with borrowing from the Insurance Fund pursuant to
subdivision (g) and foregone earnings or interest of the Insurance
Fund resulting from the borrowing.
As used in this subdivision, "commissioner's costs and expenses"
includes the costs and expenses of all agents and contractors
retained by the commissioner in performing functions set forth in
this subdivision, and "subescrow" and "escrow" means title subescrows
and escrows. These calculations shall result in 100 percent of the
shortage, costs, and expenses being proportionately allocated to each
title insurer authorized to issue title policies in the last six
months preceding the underwritten title company being placed into
bankruptcy, receivership, or conservation.
(d) (1) The commissioner shall make an initial estimate of the
total shortage in the escrow and subescrow accounts and the
commissioner's costs and expenses as provided in subdivision (c) and
shall provide this estimate in writing to each title insurer
determined to have liability under this section as soon as
practicable. The initial estimate shall be substantiated by a summary
of the accounting information pertinent to the commissioner's
estimate of the escrow and subescrow shortfalls and the commissioner'
s costs and expenses.
(2) The commissioner shall make further estimates, as necessary,
of the total shortage in the escrow and subescrow accounts and the
commissioner's costs and expenses as provided in subdivision (c) and
shall provide the estimates in writing to each title insurer
determined to have liability under this section. These estimates
shall be substantiated by a detailed summary of pertinent accounting
information.
(3) After receiving an estimate pursuant to paragraphs (1) and
(2), each title insurer having liability under this section shall,
within 30 days after written notification, deposit its proportionate
share of the shortage, costs, and expenses into an escrow account
established by the commissioner for the purpose of reimbursement to
subescrow or escrow accountholders, reimbursement to the commissioner
in the event that the commissioner advances or has advanced payments
to subescrow or escrow accountholders, or payment or reimbursement
of the commissioner's costs and expenses pursuant to subdivision (c).
If a title insurer fails to make a payment required by this
subdivision within the 30-day period, the title insurer shall pay a
penalty calculated at the rate of 10 percent per annum on the unpaid
amount until the payment is received by the commissioner.
(e) Nothing in this section relieves a person of liability under
any other provision of law that he or she may have for a shortage as
set forth in subdivision (a). A title insurer, on becoming liable for
a shortage as set forth in this section, is entitled to enforce
every available remedy, or bring any cause of action that would have
been available to a person compensated by the title insurer.
(f) A title insurer shall be entitled to make a claim for
reimbursement for subescrow or escrow shortages paid to subescrow or
escrow accountholders and for payments of its proportionate share
pursuant to subdivision (c). Those claims shall be given the same
preference as those claims referenced in paragraph (2) of subdivision
(a) of Section 1033.
(g) A title insurer shall be entitled to make a claim for
reimbursement for payment of its proportionate share of the
commissioner's costs and expenses paid pursuant to subdivision (c).
Those claims shall be given the same preference as those claims
referenced in paragraph (2) of subdivision (a) of Section 1033. The
commissioner shall return to each title insurer its proportional
share of any funds remaining in the escrow account after all
liabilities in subdivision (a) have been satisfied.
(h) In order to minimize potential losses and negative impacts on
consumers having money in escrow accounts held by an underwritten
title company taken into conservation, bankruptcy, or receivership by
the commissioner, the commissioner shall hire all necessary escrow
consultants or other experts necessary to achieve this goal.
(i) The commissioner may borrow from the Insurance Fund to cover
shortages in subescrow or escrow accounts and to pay costs and
expenses set forth in subdivision (c).

12377. (a) All escrow funds received by an underwritten title
company that are subject to Section 12413.5 shall not be considered
part of the estate of the underwritten title company for purposes of
liquidation, receivership, bankruptcy, or conservation pursuant to
Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of
Division 1.
(b) Where an underwritten title company is placed into
conservation, receivership, or bankruptcy and the escrow accounts
held by the company are found to have shortages, the department,
conservator, liquidator, receiver, or bankruptcy trustee shall do
everything reasonably possible to trace these moneys to other
depository accounts or assets.
(c) Any real or personal property traceable to shortages in the
escrow accounts shall not be considered part of the estate available
to other claimants under Section 1033. Those assets shall be
liquidated and paid in the following order: (1) if the commissioner
has paid or advanced funds to subescrow or escrow accountholders from
sources other than the escrow established pursuant to subdivision
(c) of Section 12376, they shall be paid to the commissioner to the
extent that the commissioner has not been repaid by title insurers
having liability under Section 12376, (2) they shall be deposited
into an escrow established pursuant to subdivision (c) of Section
12376, and (3) they shall be directly reimbursed to the title insurer
or insurers that have reimbursed escrow depositors under Section
12376. In no event shall a title insurer be reimbursed an amount in
excess of its liability as determined in Section 12376.