12380-12388

INSURANCE CODE
SECTION 12380-12388




12380.  Unless the provision or context otherwise requires, the
following definitions govern the construction of this article:
   (a) "Total charges for policies of title insurance" means (i) the
total of fees and charges as shown on policies, as required by
Section 12412, less any amount paid for coinsurance of such policy to
any coinsuring title insurer and (ii) the total sum charged by any
coinsuring title insurer for acting as a coinsurer in respect to any
policy of title insurance.
   (b) "Ceding company" means a title insurer which shall have
purchased a policy or contract of reinsurance from a reinsuring
company.
   (c) "Reinsuring company" means a title insurer which shall have
sold a policy or contract of reinsurance to a ceding company.
   (d) "Unearned premium reserve" means that reserve that is
generally known as the statutory premium reserve.



12381.  Every domestic title insurer shall, in addition to other
reserves, establish and maintain a reserve to be known as the
"unearned premium reserve" for title insurance, which shall, at all
times for all purposes, be deemed and shall constitute the unearned
portion of premiums due or received on all of its business wherever
transacted and shall be charged as a reserve liability of such title
insurer in determining its financial condition. The unearned premium
reserve shall be retained and held by such title insurer for the
protection of the policyholders' interest in policies which have not
expired. Except as provided in Section 12385, assets equal to the
amount of such reserve shall not be subject to distribution among
depositors or other creditors or stockholders of such title insurer
until all claims of holders of policies and contracts of title
insurance of such title insurer have been paid in full and all
liability on the policies or other contracts of title insurance,
whether contingent or actual, has been discharged or lawfully
reinsured. Income from the investment of all or any part of such
reserve shall be the unrestricted property of the title insurer.
   Every admitted foreign insurer shall maintain a like reserve under
like conditions in respect to its California business.



12382.  The unearned premium reserve of every title insurer shall
consist of:
   (a) Such amount as would have been required to be set aside in
said reserve on all policies or contracts of title insurance issued
during the calendar years 1962, 1963 and 1964, if this article had
been effective at and after the date that such policies or contracts
were written, less the amount of withdrawals that would have been
permitted if this article had been so effective; and
   (b) The amount of all additions required to be made to such
reserve by this article less the withdrawals therefrom permitted by
this article.


12382.2.  (a) Out of total charges for policies of title insurance,
a title insurer shall add to and set aside in its unearned premium
reserve commencing as of January 1, 1965, an amount equal to 2
percent of those total charges for policies of title insurance, which
amount shall be deemed and shall constitute the unearned premiums
due or received from all such policies or contracts. Except as
otherwise provided in Section 12382.6, if any policy of title
insurance shall be reinsured, the reinsuring company shall be
required to set aside in its unearned premium reserve only that
portion, if any, of that 2 percent as shall have not theretofore been
set aside by the ceding company. This subdivision shall apply to
policies issued and reinsured prior to January 1, 1988.
   (b) Out of total charges for policies of title insurance, a title
insurer shall add to and set aside in its unearned premium reserve,
an amount equal to 2 1/2 percent of those total charges for policies
of title insurance, which amount shall be deemed and shall constitute
the unearned premiums due or received from all such policies or
contracts. Except as otherwise provided in Section 12382.6, if any
policy of title insurance shall be reinsured, the reinsurer shall be
required to set aside in its unearned premium reserve only that
portion, if any, of the 2 1/2 percent as shall have not theretofore
been set aside by the ceding company. This subdivision shall apply to
policies issued and reinsured on and after January 1, 1988, and
prior to January 1, 1994.
   (c) Out of total charges for policies of title insurance and,
commencing no later than the year beginning January 1, 1994, a title
insurer shall add to and set aside in its unearned premium reserve an
amount equal to 4 1/2 percent of the sum of the following items, for
all jurisdictions where the title insurer operates, set forth in the
title insurer's annual statement filed in this state:
   (1) "Direct premiums written" as set forth in Schedule T.
   (2) "Other income" as set forth in Schedule T.
   (3) "Premiums written during year--reinsurance assumed" less
"Premiums for reinsurance ceded during year."
   (d) The insurer shall calculate an adjusted unearned premium
reserve as of December 31, 1993. The adjusted unearned premium
reserve shall be calculated as if subdivision (c) of this section and
subdivision (c) of Section 12382.5 had been in effect for all years
beginning on or after January 1, 1974. For purposes of this
calculation, the balance of the unearned premium reserve as of
December 31, 1973, shall be deemed to be zero. If the adjusted
unearned premium reserve so calculated exceeds the aggregate amount
set aside for unearned premiums in the insurer's December 31, 1993,
Annual Statement (Form 9), the insurer shall, out of total charges
for policies of title insurance, increase its unearned premium
reserve by an amount that is not less than one-sixth of that excess
in each of the succeeding six years, commencing no later than the
year beginning January 1, 1994, until the entire excess has been
added.


12382.3.  The aggregate amount set aside in the unearned premium
reserve shall be separately recorded and reserved in respect to such
policies and contracts issued in each calendar year. All amounts set
aside as additions to the unearned premium reserve, to the extent
that the same have not previously been deducted from net profits or
earned surplus, shall be deducted in determining net profits of any
title insurer.



12382.4.  For the purpose of determining the amounts of the unearned
premium reserve that may be withdrawn pursuant to Section 12382.5
and the interest of the policyholders therein under Section 12385,
all policies and contracts of title insurance or reinsurance shall be
considered as dated on July 1 of the year of issue.




12382.5.  (a) The aggregate of the amounts set aside in unearned
premium reserve in any calendar year pursuant to subdivision (a) of
Section 12382.2 shall be released from that reserve and restored to
net profits pursuant to the following formula: one-tenth of that
aggregate sum on July 1 of each of the five years next succeeding the
year of addition to the reserve and one-thirtieth of that aggregate
sum on July 1 of each succeeding year thereafter until the entire sum
shall have been so released and restored to net profits. The
aggregate of the amounts set aside in unearned premium reserve
pursuant to subdivision (a) of Section 12382 shall be released from
the reserve and restored to net profits and surplus pursuant to the
foregoing formula, provided that the amounts so set aside shall be
treated as if subdivision (a) of Section 12382 and this section had
been effective during the calendar years 1962, 1963, and 1964.
   (b) The aggregate of the amounts set aside in unearned premium
reserve in any calendar year pursuant to subdivision (b) of Section
12382.2 shall be released from the reserve and restored to net
profits pursuant to the following formula: one-tenth of the aggregate
sum on July 1 of each of the 10 years next succeeding the year of
addition to the reserve until the entire sum shall have been so
released and restored to net profits.
   (c) The aggregate of the amounts set aside in unearned premium
reserve in any calendar year pursuant to subdivision (c) of Section
12382.2 shall be released from the reserve and restored to net
profits over a period of 20 years pursuant to the following formula:
10 percent of the aggregate sum on July 1 of each of the five years
next succeeding the year of addition; 9 percent of the aggregate sum
on July 1 of each of the next succeeding five years; and one-half of
1 percent of the aggregate sum on July 1 of each of the last 10
years.
   (d) The aggregate of the amounts set aside in unearned premium
reserve in any calendar year as adjustments to the insurer's unearned
premium reserve pursuant to subdivision (d) of Section 12382.2 shall
be released from the reserve and restored to net profits, or equity
if the additions required by subdivision (d) of Section 12382.2
reduced equity directly, over a period not exceeding 10 years
pursuant to the following table:

  Year of addition            Release
  1994, or earlier            Equally over 10
                              years
  1995                        Equally over 9 years
  1996                        Equally over 8 years
  1997                        Equally over 7 years
  1998                        Equally over 6 years
  1999                        Equally over 5 years



12382.6.  If substantially the entire outstanding liability under
all policies and contracts of title insurance or reinsurance of any
ceding company shall be reinsured, pursuant to and as authorized by
Section 12385, the total charge received by any reinsuring company
authorized to transact the business of title insurance in this state
shall constitute, in its entirety, unearned portions of original
premiums, and shall be added to its unearned premium reserve and
shall be deemed, for recovery purposes, to have been provided for
liabilities assumed during the year of such reinsurance. The amount
of such addition to the unearned premium reserve of such reinsuring
company shall be not less than two-thirds ( 2/3rds) of the amount of
the unearned premium reserve required to be maintained by the ceding
company at the time of such reinsurance.



12383.  All amounts set aside in the unearned premium reserve of a
title insurer shall be held either as cash on hand or shall be
deposited or invested in those investments suitable for the
investment of trust funds, as provided in Section 16040 of the
Probate Code.



12384.  If the aggregate amount set aside by a title insurer in its
unearned premium reserve should at any time be less than the amount
required to be maintained in such reserve, and the deficiency shall
not be promptly cured, such title insurer shall forthwith give
written notice thereof to the commissioner. Any such title insurer
shall not thereafter issue any further policies or contracts of title
insurance or reinsurance until the deficiency shall have been
eliminated and until it shall have received written approval from the
commissioner authorizing it to again issue such policies and
contracts of title insurance and reinsurance. For the purpose of
determining the aggregate amount set aside by a title insurer in its
unearned premium reserve, any portion of such reserve which shall
have been invested shall be valued at the purchase price or the fair
market value of such investment on the date that such investment was
made.


12385.  If a title insurer shall at any time become insolvent, be in
the process of liquidation or dissolution or be in the possession of
the commissioner, all amounts set aside in the unearned premium
reserve shall be used and applied as follows:
   (a) Such amount up to the whole of the reserve as is necessary may
be used with the written approval of the commissioner to pay for
reinsurance of the liability of such title insurer under all
outstanding policies and contracts of title insurance or reinsurance
as to which claims for losses by holders thereof are not then
pending. The amount of the unearned premium reserve not so used shall
be transferred to the general assets of the title insurer to be held
and distributed subject to the limitations imposed by this section.
   (b) The assets of a title insurer other than the unearned premium
reserve shall be available to pay claims for losses sustained by
holders of policies then pending or arising up to the time
reinsurance is effected. In the event that claims for losses are in
excess of such other assets of a title insurer, the excess of such
claims, when established, shall be paid pro rata out of surplus
assets attributable to the unearned premium reserve to the extent of
such surplus, if any.


12386.  In the event that reinsurance is not obtained, as authorized
by Section 12385, the unearned premium reserve and assets
constituting the guarantee fund of the title insurer, or so much as
remains thereof after outstanding claims have been paid, shall
constitute a trust fund to be held by the commissioner for twenty
(20) years, out of which claims of policyholders shall be paid as
they arise. The balance, if any, of such fund shall, at the
expiration of twenty (20) years, constitute general assets of the
title insurer.


12387.  Where a title insurer organized or incorporated under the
laws of any state other than California does business in California,
if the laws of the state of its domicile obligate such company to
create and maintain an unearned premium reserve for purposes
substantially similar to those of this article, any amounts required
by the law of such state to be added to such reserve by reason of
business done in California shall be deducted from any amounts
required by this article to be set aside by such title insurer in an
unearned premium reserve for its California business.
   The provisions of this section shall be applicable only to title
insurers organized or incorporated in those states whose laws provide
that a title insurer organized and incorporated under the laws of
California and which does business in such other state will be
permitted a deduction substantially similar to that provided by this
section with respect to any unearned premium reserve requirements for
business done in that state.



12388.  Every title insurer shall, in addition to other reserves
establish and maintain a reserve to be known as the "reserve for
unpaid losses and loss adjustment expense", which shall be used for
the payment of losses incurred as a result of liability arising under
policies of title insurance and the payment of adjustment expenses
necessary for the settlement of or defense against claims of any such
liability. Said reserve shall be in an amount equal to the sum of
(1) the estimated amounts necessary to pay unpaid losses, plus (2)
the estimated amounts of loss adjustment expense necessary to settle
or defend against every claim presented pursuant to notice from or on
behalf of every insured that may result in a loss to or cause
expense to be incurred by a title insurer for the proper disposition
of the claim. Every title insurer shall calculate such reserve by
making a careful estimate in each year of the amounts anticipated to
be reasonably necessary for both such purposes. The sum of the items
so estimated shall be the total amount of the reserve for unpaid
losses and loss adjustment expenses of such title insurer. The
amounts so estimated may be revised from time to time as
circumstances warrant and reduced by the amount of payments made, but
shall be redetermined at least once each year. The amounts set aside
in such reserve in any year shall be deducted in determining the net
profits for such period of any title insurer.