New York Department of Financial Services’ Title Insurance Regulation Vacated, Again? On to the Court of Appeals

On August 5, 2019 a New York state court, on remand from the Appellate Division, again determined that Section 228.2(c) of the New York Department of Financial Services’ (DFS) Title Insurance Regulation was unconstitutionally vague and thus could possibility be applied arbitrarily and capriciously.

Section 228.2(c) requires that title insurance underwriters and agencies making political or charitable donations and spending on advertising do so in a manner that is “reasonable and customary,” and not do so in a manner that is “lavish or excessive.” The court determined that these terms are inherently vague, in violation of the Due Process Clause, because there is no definition of what is reasonable and what is lavish or excessive. Accordingly, the court found that Section 228.2(c) “is not sufficiently informative on its face to ensure that businesses can conform their conduct to the dictates of the law.” The court further observed that: “Because where the line on spending is drawn is so unclear, it also has the potential to chill companies from engaging in such type of conduct whatsoever.” The court rejected the DFS’s argument that title insurers could ask it for clarification on a case by case basis because the lack of a definition to identify what is reasonable and what is not would still allow the DFS to enforce the regulation in an arbitrary manner.

The court also determined that this section impermissibly chilled title insurers’ First Amendment rights of free speech, finding that: “The statute imprecisely prohibits constitutionally protected speech without narrowly tailoring the regulation to fit the state’s needs,” which further invited arbitrary enforcement. For these reasons, this section was annulled. It is likely that the DFS will again appeal this ruling. We will provide an update if that happens.

The case is New York State Land Title Association , et al. v. The New York State Department of Financial Services, Index No. 151562/2018