Virginia insurance commissioner issues warning regarding AOLs

Scott White, Virginia’s commissioner of insurance, has issued a warning to both title insurance companies and consumers in his state about attorney opinion letters (AOLs).

In a letter sent Tuesday addressed to all title insurance companies, agents and entities in the state of Virginia, and obtained by HousingWire, White explains the applicable law, differences between title insurance and AOLs, and where certain AOL offerings may violate the state’s Code by crossing the line into the unlicensed business of insurance.

“Consumers should be aware AOLs are being offered as substitutes for title insurance but they do not, and legally cannot, offer the same protection as title insurance,” the letter states. “The gap in coverage may leave consumers without protection that they believe they purchased.”

White states that as long as the AOL does not offer consumers coverage that meets the definition of insurance as outline in the Code of Virginia, it is not subject to his Bureau’s regulation. In order to write insurance in the state, companies must have a current annual license from the Commission, and companies licensed to write these policies cannot be licensed to write any additional classes of insurance.

According to White, traditional AOLs avoid being classified as insurance “by not transferring the risk of loss related to the condition of the title to property, the status of any lien or encumbrance on property, or other matters affecting the title or right to the use and enjoyment of property.”

However, White said the Bureau of Insurance has been informed that “some entities are offering products structured like AOLs that may meet the definition of ‘insurance,’” prompting him to publish this letter.

White encourages consumers in his state that are considering purchasing an AOL instead of a title insurance policy to gain a full understanding of the different types of protection AOLs and title insurance policies provide. Additionally, he cautions companies issuing AOLs in the state to “avoid engaging in the business of insurance.”

“To the extent that an AOL indemnifies the owner or lender for losses by reason of liens and encumbrances upon property, defects in the title to property, or other matters affecting the title to property or the right to the use and enjoyment of property caused by events outside of the attorney’s control or covers losses unrelated to the opinion expressed in the AOL, then the AOL may be ‘title insurance’ and subject to the Bureau’s regulation,” the letter states.

White adds that it is up to the Bureau to decide what is and what isn’t title insurance.

Although AOLs have been around a long time, they became a hot button issue for the title industry in April of 2022, when Fannie Mae announced it would be accepting AOLs in lieu of title insurance in limited circumstances. While AOLs have not taken off in popularity, federal agencies, along with the government sponsored entities, have pushed things further by launching a title insurance waiver program. Currently, only certain refinance transactions are able to use the title waiver program.