Pennsylvania Act 1929-362 — TITLE INSURANCE COMPANIES MUST MAINTAIN A RESERVE

Act text

TITLE INSURANCE COMPANIES MUST MAINTAIN A RESERVE
                 Act of Apr. 26, 1929, P.L. 834, No. 362              Cl. 40
                                  AN ACT

     Requiring all title insurance companies to create and maintain a
        reserve; fixing the amount thereof, and regulating the same.

        Section 1.  Insurance Reserve.--
        (a)  Reserve Fund Required.--Be it enacted, &c., That all
     companies heretofore or which may hereafter be incorporated for
     the insurance of owners of real estate, mortgages, and others
     interested in real estate, from loss by reason of defective
     titles, liens, and encumbrances, as well as all title insurance
     and trust companies receiving deposits, heretofore incorporated
     and authorized by charter or by law to carry on said business,
     shall, from and after the approval of this act, establish and
     maintain a reserve fund for the protection of policy holders, in
     the manner herein provided.
        (b)  Establishment and Maintenance of Fund.--Said reserve
     shall be established by setting aside a sum equal to ten per
     cent of the premium (that is the sum charged for insurance over
     and above examination and settlement fees) paid on each policy
     of insurance which such company may hereafter issue, until the
     total amount set aside shall equal two hundred and fifty
     thousand dollars: Provided, That the said total reserve fund
     may, with the consent of the secretary, be set aside at any one
     time, or from time to time, out of surplus and undivided
     profits. Said ten per cent of each premium shall be known as the
     reserve, and the aggregate of said reserves of all policies
     issued and outstanding shall be known as the reserve fund. The
     reserve fund shall be maintained as herein provided so long as
     liability on any policies shall be outstanding.
        (c)  Custody, Supervision by Secretary.--The custody of said
     reserve fund shall be retained by the company, and the fund
     shall be kept separate and apart from other assets of the
     company in the manner hereinafter provided. The secretary is
     hereby required, from time to time, to make investigation to
     ascertain that a reserve fund equal to the amount required by
     clause (b) of this section is so maintained. Should any company
     neglect or refuse to establish or maintain such reserve fund, as
     herein provided, the secretary shall, by an order under his hand
     and seal of office, direct said company either to comply with
     the provisions of this section or to discontinue doing a title
     insurance business.
        (d)  Investment of Reserve Fund.--Said title insurance
     reserve fund shall be invested by such companies in first
     mortgage or other securities designated by law as legal
     investments for trust funds, and such investment of any
     accumulated reserve shall be made whenever such accumulation
     shall amount to one thousand dollars.
        Said mortgages or other such securities so held shall be
     carried at cost price, but in no case at more than market price,
     and, in case there shall be a depreciation in the market price
     of any such securities, such company shall make good any such
     depreciation by the addition of other legal investments, so that
     the said fund may always be maintained at the full amount
     required by clause (b) of this section. Such companies shall
     have the right to withdraw from said fund any mortgages or other
     securities so held therein, by crediting the fund the amount at
     which such mortgages or securities are valued therein, provided
     there are immediately substituted therefor other first mortgages
     or other securities designated by law as legal investments for
     trust funds.
        The securities constituting a reserve fund shall be ear-
     marked and kept separate and apart from the other assets of the
     company. The income of the reserve fund shall become part of the
     general assets of the company.
        (e)  Cancellation of Policy.--Whenever any policy of title
     insurance hereafter issued is surrendered by the holder,
     cancelled, or liability thereon completely discharged, the
     reserve therefor may be withdrawn or credited against reserves
     that may be due.
        (f)  Reserve Fund to Be a Trust Fund.--It is the intent and
     purpose of this section that the reserve fund hereby directed to
     be set aside shall constitute a separate and distinct trust fund
     for the protection of policy holders, and shall not be subject
     to distribution among depositors or other creditors, until all
     policy holders have been paid in full, or the liability on the
     policies contingent or actual has been completely discharged.
        (g)  Reinsurance by Secretary.--In the event of the
     secretary's taking possession of and winding up any company, the
     secretary is authorized, if it shall seem advisable and
     practicable to him, to use the reserve fund to purchase
     reinsurance for the liabilities represented by the policies
     outstanding against such fund. Acceptance of the policy of the
     reinsuring company shall operate as a complete discharge of
     liability under the policy of the insolvent company. Should any
     policy holder refuse to accept the policy of the reinsuring
     company, he shall only be entitled to receive the pro rata
     portion of his reserve that shall remain upon distribution, as
     set forth in clause (h) of this section.
        (h)  Distribution of Reserve Fund.--The reserve fund in the
     custody of the secretary shall be liable only to the following
     claims:
        One.  To pay all outstanding claims of indemnity that have
     arisen by virtue of any policies of insurance.
        Two.  For the purchase of reinsurance to indemnify and
     protect the remaining outstanding policies.
        Three.  To distribute among policy holders, upon cancellation
     of their policies, the proportionate share of the reserve fund
     to which they are entitled, which shall in no case exceed the
     proportion which the premium paid for any such policy may bear
     to the whole amount of title insurance then outstanding.
        Section 2.  The word "secretary," whenever and wherever used
     in this act, means the Secretary of Banking of the Commonwealth
     of Pennsylvania.