The Trusted Adviser September 2010 | Volume 3 • Number 8

Legislative Updates


Title Insurance

House Bill 5409. Effective Date: January 1, 2011. Amends 215 ILCS 155/3, 16, 16.1 (added).

This Act modifies the Illinois Title Insurance Act to provide more specific guidance on title insurance agents acting as escrow agents. First, it amends the definitions of "title insurance agent" and "insured closing letter or closing protection letter." An agent now includes a person or firm, acting on behalf of a title insurer, who is authorized to Act as an escrow agent under newly added subsections at 215 ILCS 155/16(f), (g), and (h), or who issue title commitments and endorsements of the insurer. The definition of "insured closing letter or closing protection letter" now refers to "real property" instead of "real estate" transactions, only pertains to title insurance companies and not "similar entities," and refers to letters that include protection under the aforementioned subsections (f), (g), and (h).

The Act also adds subsections (f), (g), and (h) to 215 ILCS 155/16. Subsection (f) states that a title insurance company cannot Act as an escrow agent in a nonresidential real property transaction if the amount of deposit is less than $2,000,000. The title insurance company also cannot Act as escrow agent in a residential transaction unless the insurer or agent has committed to provide title insurance and the insurer's agent is authorized to Act as an escrow agent. To authorize an insurer's agent to Act as an escrow agent, the authority must be delegated by an agency contract with the insurer or in a closing protection letter issued by the insurer to one of the parties in the transaction. The agent cannot issue the closing protection letter.

The requirements under subsection (f) are inapplicable if an agent operates with authority under subsection (g). Subsection (g) provides that if an agent operates through an agency contract with an insurer, the terms of that contract must provide no less protection to the parties in the transaction than would have been provided by the insurer in a closing protection letter.

Under subsection (h), a title insurance company is liable for the acts of its agents acting as escrow agents to the extent provided for in either the agency contract or closing protection letter. Any liability of the agent to the insurer is not limited by the protection afforded by the insurer to the parties in the transaction. Title insurers may charge parties reasonable fees for closing protection, but agents may not charge such fees. If the insurer provides such protection the agent may collect the insurer's fees and immediately remit them to the insurer. Any reimbursement of such fees from the insurer to an agent is a prohibited inducement under the Act.

Finally, this Act adds 215 ILCS 155/16.1. Subsection (a) of that section provides the same restrictions as provided by 16(f) for when an insurer or agent can Act as an escrow agent. It also provides that closing protection letters are not required when an agent acts as an escrow agent through an agency contract with a title insurer. However, the title insurance company must issue such letters at the request of a party to a transaction when it is either a residential transaction or a nonresidential transaction with less than a $2,000,000 deposit.

Subsection (b) describes two categories of behavior from which a closing protection letter will indemnify a protected party for actual losses. The first category is the agent's failure to follow written closing instructions. This includes failure to properly investigate the status of the title or failure to obtain a document required by a party if it pertains to the status of the title or the lien of a mortgage. The second category is the agent's fraud or negligence related to handling the funds or documents if the misconduct relates to the status of the title or the lien of a mortgage.

Subsection (c) provides categories of limitations on the liability of an insurer to indemnify parties. These include: (1) failure by the agent to comply with closing instructions that are inconsistent with the insurer's title insurance commitment; (2) loss of funds due to a bank failure; (3) mechanics' liens, unless covered by the commitment; (4) failure of the agent to comply with written closing instructions requiring the agent to determine the validity of documents required to be present at closing by the parties; (5) fraud committed by an agent of the indemnified party; (6) settlement of a claim by the indemnified party without written consent of the title insurer; and (7) matters created or agreed to by the indemnified party without the written consent of the insurer.

The closing protection letter may also provide for arbitration and other conditions and limitations that do not infringe upon the language of the statute. This may include the dollar amount of protection as long as that amount is at least as much as the escrow deposit.






THE TRUSTED ADVISER is published by Attorneys’ Title Guaranty Fund, Inc., P.O. Box 9136, Champaign, IL 61826-9136. Inquiries may be made directly to Mary Beth McCarthy, Corporate Communications Manager. ATG®, ATG® plus logo, are marks of Attorneys’ Title Guaranty Fund, Inc. and are registered in the U.S. Patent and Trademark Office. The contents of the The Trusted Adviser © Attorneys' Title Guaranty Fund, Inc.

[Last update: 8-25-10]