Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) General Provisions:
(1) Any lender engaged in the business of
financing the purchase of real property or of lending money on the security of real
property and any trustee, director, officer, agent or other employee, or affiliate,
of any such lender shall have the right to disapprove, for reasonable cause, the
insurer selected to underwrite the insurance required by the contract of sale or
deed of trust or other loan agreement and shall have the right to furnish or renew
such insurance if the borrower or purchaser shall have failed to furnish the
insurance or renewal thereof within such reasonable time or form as may be specified
in the sale or loan agreement.
(2)
Notwithstanding any other provisions of these regulations, the California FAIR Plan
Association shall not be rejected as an insurer.
(3) The corporate structure of an insurer shall
not be a basis for disapproval of such insurer.
(4) These regulations shall not affect the
respective rights of a borrower and its lender to require an insurance policy and
coverage in accordance with such agreement between it and the borrower.
(5) These regulations do not apply to insurance
covering personal property as the subject of security for the loan nor do they apply
to insurance covering real property securing loans in excess of
$75,000.
(b) "Reasonable
Cause" for Disapproval. Any one or more of the following reasons may constitute
reasonable cause to disapprove of the insurer selected to underwrite the insurance.
(1) Financial Status of Insurer.
(A) Failure of the insurer to be rated in the most
recently published ratings made by a nationally recognized rating service.
(B) Failure of the insurer to be rated in one of
the two highest policyholder ratings in the most recently published ratings made by
a nationally recognized rating service.
(C) Failure of the insurer to be rated in one of
the twelve highest financial ratings in the most recently published ratings made by
a nationally recognized rating service.
(D) The insured amount would exceed three percent
of the policyholder surplus of the insurer.
(E) Failure of the insurer to have a policyholder
surplus of $5 million or more where the has already underwritten an aggregate amount
of $300,000 on properties in close proximity in a tract or in adjoining tracts for
the borrowers of an association.
Paragraphs (A) through (E) above shall not constitute reasonable
cause to disapprove if there shall be obtained and attached to the evidence of
insurance afforded to the lender appropriate evidence of reinsurance. Such
reinsurance may be required by the lender to be in a company meeting all of the
criteria of these regulations.
(2) License of Insurer.
Failure of the insurer or reinsurer to be licensed by the State
of California to transact the line of insurance afforded.
(3) Claims Settlement Practices and Servicing
Practices.
(A) Knowingly committing or performing
with such frequency as to indicate a general business practice unfair claims
settlement practices as defined in Section
790.03 of the
Insurance Code as amended in 1972.
(B) A
lender relying upon the provisions of this paragraph (3) with respect to the
disapproval of a particular insurer must follow the provisions of the following
subsection (d) of these regulations, which will then control the determination of
this issue.
(4) Failure of the
policy to stipulate on the face of the policy or the declarations page that the term
of the policy shall be continuous until cancelled or nonrenewed or for no less than
three years, although premium payments may be on an annual basis for a three year
policy.
(5) Unwillingness of the insurer
to make provision for notice of cancellation or nonrenewal to the lender in
accordance with the terms of the loan agreement.
(c) As respects title insurance, reasonable cause
is defined as the failure of the title insurer to:
(1) Be licensed by the State of California to
transact the line of insurance afforded.
(2) Provide the insurance in conformity with all
requirements of the California Insurance Code and the Regulations issued
thereunder.
(3) Establish, as disclosed
by its most current annual statement on file with the Insurance Commissioner of the
State of California, that the amount of any loan which is to be the subject of a
title insurance policy does not exceed 30% of its "surplus as regards policyholders"
(see Annual Statement, Form 9, page 3, line 22). Any reinsurance or coinsurance that
may be offered by the title insurer in excess of such amount shall be in such
company or companies and afford such coverage as the lender shall approve.
(4) Afford the coverage required by the lender.
Notwithstanding any of the above, it is a reasonable cause for a
lender to reject a policy of a title insurer if the borrower or if the seller of
real property, the purchase of which is to be financed in whole or in part by the
lender, is a subsidiary or affiliate (as defined in Section
1215 of the
Insurance Code) of such title insurer or if such borrower or such seller is a
subsidiary or affiliate of an underwritten title company (as defined in Section
12404 of the
Insurance Code) that regularly makes the title searches or title examinations upon
the basis of which the title insurance policy would be
issued.
(d) Other
"Reasonable Cause" for Disapproval. If a lender desires to reject a particular
insurer on the grounds set forth in (b) (3) above or on reasonable grounds other
than set forth above, the lender may submit the rejection, in writing, to the
Commissioner with a copy to the insurer, agent and borrower, stating the grounds for
the rejection. The insurer, agent or the borrower may contest the grounds, in
writing, either on the basis of fact or on the basis of reasonableness, within
fifteen days of the mailing of notice of rejection, which said mailing shall be by
certified mail. If the Commissioner has not received contest of the grounds, in
writing, for rejection within such fifteen days, then the rejection of the insurer
shall stand as though the Commissioner had decided in favor of the lender. If the
insurer, agent or borrower contests the rejection, the Commissioner shall notify the
lender, the insurer, the agent and the borrower of his finding that the rejection is
either upheld or denied within fifteen days of the receipt by the Commissioner of
such contest of rejection.
1. Amendment of
subsection (b) (4) filed 3-22-73 as procedural and organizational; effective upon
filing (Register 73, No. 12).
