Opinion #18. Charges for Services in Providing Title Insurance and Title Search

Issued by the Professional Ethics Commission

Date Issued: January 15, 1981

Question

The Commission has been asked whether Rule 3 is violated where an attorney charges a client for a title search and also charges him a premium in his capacity as agent for a title insurance company for a title insurance policy where a portion of the premium is rebated by the insurance company to the attorney‑agent. A substantial portion of the premium represents the cost of the title work.

Opinion

Rule 3.4(c) and Rule 3.4(d) are largely declaratory of DR 5‑105(B) of the previous Code of Professional Responsibility. That section permitted multiple employment if employment had been consented to after full disclosure. Thus present Rule 3.4 does not absolutely prohibit the dual role of attorney‑agent.

Rule 3.4(a), however, regarding disclosure of any adverse interest, has no counterpart under the ABA Code. The Reporter’s Notes to Rule 3.4(a) describe its purpose as follows:

. . . in drafting 3.4(a) the Commission sought to mandate complete disclosure. The duty extends to all facts that could possibly be relevant; and the test of relevance is shifted from the lawyer’s judgment of his ability to act with unimpaired professional judgment to the client’s judgment of the wisdom of retention. The rule is designed to insure that a client, in retaining an attorney, is completely informed about the existence of any facts which might influence the judgment of the attorney.

Because of the strong policies expressed by the adoption of Rule 3.4(a), the Commission is of the opinion that it is vital to make a complete and full disclosure of the details of the financial relationship between the attorney‑agent and the title insurance company. This will extend to the formula by which the lawyer‑agent will receive payment from the title insurance company.

An additional question arises as to whether an attorney may retain his commission for sale of title insurance without giving a credit for such commissions to his client. The Commission believes that such a credit must be given when the work undertaken by the attorney for the client consists basically of the same services rendered to the title insurance company. Under the provisions of Rule 3.3(a), if the attorney were permitted to retain the insurance policy sales commission under such circumstances, this would constitute an excessive fee. The New York State Bar Association in its Opinions 320 and 351 reached a similar conclusion.[1]

The requirement that the insurance sales commission be remitted, as set forth above, presumes that the legal fee and the placement of the insurance policy are substantially part of the same transaction. The Commission can foresee other circumstances in which such would not be the rule. If, for instance, an attorney examines title for a purchaser of real estate and bills for these services, and the purchaser later determines to develop and improve the real estate and requests a policy of title insurance not originally contemplated, the insurance commission need not necessarily be rebated. In order to determine whether the fee is “excessive,” all of the surrounding circumstances which affect the reasonableness of the fee must be taken into account.[2]

One final note of caution must be addressed to the attorney‑agent. In serving as attorney‑agent, the requirement of Rule 3.4(f) must be kept in mind that employment may not be accepted in the absence of a written consent of the client where the lawyer’s judgment “reasonably may be” affected. In advising a client with respect to the need for title insurance, the lawyer’s judgment obviously may be substantially affected if the lawyer has an economic interest in selling insurance. This must be borne in mind prior to the acceptance of employment.

Conclusion

(1) Rule 3.4 does not absolutely prohibit the lawyer from serving in the dual capacity of title insurance agent and attorney providing legal services.

(2) Rule 3.4 does require complete disclosure as well as written consent of both parties in order for the lawyer to act in that capacity. This full disclosure must be obtained prior to undertaking employment.

(3) Employment may not be accepted if the lawyer’s judgment on behalf of his client “reasonably may be” affected.

(4) Where the legal work done by the attorney for his client is substantially the same, and contemporaneous with the services performed by the attorney as agent for the title insurance company, the lawyer must give his client a full credit against the balance for legal services for the commission received from the title insurance company.


Footnotes

[1] The New York Bar Association based its conclusions both upon the view that there can be no distinction between fees charged to the client for title work and the fee charged to the insurer as a sales commission, as well as upon the law of agency, which requires an agent to account to his principal for a profit, absent an agreement to the contrary. The Commission bases its conclusion only on the first of these grounds. The Commission does not normally give opinions on matters of law and prefers to base its conclusion on an interpretation of the word “Fees” as used in Rule 3.3.(Back)

[2] This does not require the remittance of a fee for preparation of title insurance documents or other work for which the client has not already been billed.


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