ALTA® Concurs With California Judge's Ruling to Uphold Cease and Desist Order Against Radian Guaranty
February 13, 2003
Ruling Calls Radian Lien Protection Policy, 'Title Insurance Masquerading as Mortgage Guaranty Insurance'
WASHINGTON, D.C.--(BUSINESS WIRE)--Feb. 13, 2003-- The American
Land Title Association (ALTA), the national trade association
for the title insurance industry, today commended California
Administrative Law Judge, Leonard L. Scott, in his ruling
made public last week upholding the Cease and Desist Order
issued last June by the Department of Insurance barring
Radian Guaranty Inc. and Amerin Guaranty Corp. from selling
unlicensed title insurance in the state.
Radian appealed the order claiming its product, Radian Lien Protection (RLP), is a form of mortgage guaranty insurance. Judge Scott strongly disagreed, calling the RLP policy "title insurance masquerading as mortgage guaranty insurance."
"We have stated emphatically that the RLP is a form of title insurance, and any company issuing title insurance must be properly licensed and regulated to do so," said James Maher, executive vice president, ALTA.
"This important ruling against Radian serves as a legal blueprint for other states to use in dealing with insurance companies attempting to skirt the law by selling unlicensed, unregulated title insurance products that are misleading and might ultimately threaten consumer protection."
The California Insurance Code clearly defines the three separate classes of insurance that protect buyers and lenders in real estate transactions: title insurance, mortgage insurance and mortgage guaranty insurance. Each class is defined and regulated by the statutory scheme to protect against a separate and distinct type of risk. Those admitted to sell one of the three classes of insurance are prohibited from selling either of the other two classes or any other type of insurance. As a result, when Radian and Amerin issued the RLP policy, they violated the monoline requirements of the California Insurance Code.
In his final ruling, Judge Scott referred to the distinct difference between title insurance and mortgage guaranty insurance, as described in the monoline provisions of the California statutory scheme: title insurance protects the buyer or lender against loss due to undiscovered liens and encumbrances that exist before the close of escrow, whereas mortgage guaranty insurance protects the lender against future defaults on the loan by the buyer.
Radian and Amerin are only authorized to transact mortgage guaranty insurance in California; however, the RLP policy provides coverage for losses from undisclosed liens, which constitute "a pre-existing risk which is normally the province of title insurance policies," according to the ruling.
"We believe Judge Scott's logic in determining that the RLP policy violates a number of provisions in the California Insurance Code was very thorough and precise," said Maher. "We are optimistic that Commissioner Garamendi will concur with Judge Scott's decision and uphold the Department's Cease and Desist order against Radian." To view the complete text of Judge Scott's ruling, visit ALTA's Web site at http://www.alta.org.