When a real estate lawyer is a title insurance agent for two underwriters whose premiums differ, must the lawyer use the cheaper underwriter or disclose the price difference to the client?

Plain-English summary

The inquiring attorney is a licensed agent for two title insurance underwriters. Underwriter A's premiums run twenty percent higher than Underwriter B's, but both issue standard ALTA-approved policies, and in most cases identical coverage can be obtained from either. The lawyer asked whether he has an ethical obligation to write the policy with the cheaper Underwriter B or to disclose the difference in premiums.

The committee concluded the lawyer does not necessarily have an obligation to write the policy with Underwriter B, but he does have an ethical obligation to disclose the premium difference, along with any other relevant differences between an Underwriter A policy and an Underwriter B policy. It observed that South Carolina real estate closing attorneys frequently serve as title insurance agents for multiple underwriters and receive a share of the premiums collected.

Applying Rule 1.4, the committee said the rule clearly requires the lawyer to communicate with clients on this issue and to explain the premium difference and any other relevant information "to the extent reasonably necessary to permit the client to make informed decisions" about title insurance (Rule 1.4(b)). If the lawyer believes it is in the client's best interests to use Underwriter A despite the higher premium, he should say so and explain the basis, for example special coverage differences or a reasonable belief that Underwriter A is more financially stable or provides better claims service. In short, the lawyer is not obligated to use Underwriter B based solely on cost, but is obligated to convey all relevant information, including the premium difference, so the client can make an informed decision.

In practice

The opinion holds that, under the South Carolina rule as it stood at the time, a closing lawyer who acts as a title insurance agent for two underwriters need not choose the lower-premium underwriter, but must under Rule 1.4(b) disclose the premium difference and any other relevant differences so the client can make an informed decision about title insurance. The committee noted that if the lawyer believes the higher-premium underwriter serves the client's interests (for coverage, financial stability, or claims service), the lawyer should explain that basis to the client.

Common questions

Q: Must the lawyer choose the cheaper title insurance underwriter?

A: No. The committee concluded the lawyer is not obligated to write the policy with the lower-premium underwriter based solely on cost.

Q: Does the lawyer have to tell the client about the price difference?

A: Yes. The committee concluded Rule 1.4 requires the lawyer to disclose the premium difference and any other relevant differences so the client can make an informed decision.

Q: What if the lawyer thinks the more expensive underwriter is better for the client?

A: The committee said the lawyer should inform the client and explain the basis, such as coverage differences or a reasonable belief that the underwriter is more financially stable or offers better claims service.

Background and rules framework

The opinion interprets South Carolina Rule 1.4 (communication), specifically Rule 1.4(b)'s duty to explain a matter to the extent reasonably necessary to permit the client to make informed decisions. This corresponds to Model Rule 1.4. The committee applied the rule to the common arrangement in which a closing attorney also serves as a title insurance agent for multiple underwriters and shares in the premiums.

Citations and references

Rules of Professional Conduct:

• MR 1.4 / SC Rule 1.4, 1.4(b) (communication; explaining a matter to permit informed client decisions)

See also

• SC Bar Ethics Op. 09-01: Closing-Only Lawyer's Duties
• SC Bar Ethics Op. 05-10: Advertising a Title Business
• SC Bar Ethics Op. 06-11: Seller-Only Mail-Away Closing

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-09-03/
• Original PDF: https://www.scbar.org/media/zdvhu5y2/09-03.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 09-03

SC Rule of Professional Conduct: 1.4

Facts

Attorney is a licensed agent for two different title insurance underwriters. One underwriter ("Underwriter A") has increased premiums by twenty percent (20%) over premiums charged by the other underwriter ("Underwriter B"). Both underwriters issue standard ALTA approved policies. Identical policy coverage may be obtained, in most cases, from either underwriter.

Question

Does attorney have an ethical obligation to write the title insurance policy with Underwriter B or to disclose the difference in premiums?

Summary

Attorney does not necessarily have an obligation to write the title insurance policy with Underwriter B; however, attorney has an ethical obligation to disclose the premium differences, as well as any other relevant differences between a policy issued by Underwriter A and a policy issued by Underwriter B.

Opinion

Real estate closing attorneys in South Carolina frequently serve as title insurance agents for multiple title insurance underwriters. The attorney-agent receives a share of the title insurance premiums collected. Rule 1.4 clearly requires attorney to communicate with his clients on this issue, and explain to them the premium difference as well as any other relevant information "to the extent reasonably necessary to permit the client to make informed decisions" as to title insurance. Rule 1.4(b). If attorney believes that it is in the client's best interests to issue the policy through Underwriter A notwithstanding the higher premium, then attorney should so inform the client and explain the basis of his opinion. For instance, if special coverage differences exist between Underwriter A and Underwriter B, or if attorney reasonably believes that Underwriter A is more financially stable or provides better claims service, attorney should so inform the client. In short, attorney is not obligated to issue the title insurance policy through Underwriter B based solely on cost; however, attorney is obligated to convey to the client all relevant information, including of course, the premium differences, necessary to allow the client to make an informed decision.