State Halts Sale of Car Title Insurance Policies
The state Department of Insurance has issued a cease-and-desist order to halt sales of an auto title insurance program marketed by about 100 new car dealers in Southern California since October.
Meanwhile, a Department of Motor Vehicles investigator said Monday that she is continuing an investigation into allegations that some dealers have misrepresented the policies and failed to tell car buyers that they were optional.
Officials at both agencies are concerned that the policies do not appear to offer consumers any significant protection not already provided under state law.
In its order, issued late Friday, the insurance department told Cadillac Insurance Co., of Farmington Hills, Mich., to immediately stop selling, issuing or underwriting its “Vehicle Certificate of Ownership” policies in California, pending an April 15 public hearing.
But a spokesman for one Orange County auto dealership that has been selling the policies said Monday that he had not been informed of the order, either by Cadillac or by Vehicle Title Services Inc., the Westlake Village company that markets the program to auto dealers.
Sold by 100 Dealers
Insurance department officials had no tally of how many policies have been sold in California, but John Fogg, an attorney with the department, said policies sold before the cease-and-desist order took effect Monday morning will not be invalidated.
About 100 Southern California dealers were selling the title policies, a Vehicle Title Services representative said in a recent interview. And one new car dealer in Orange County told DMV investigator Claire Page that more than 90% of his customers purchased the optional service.
The so-called vehicle title insurance, which car dealers sold as part of a registration protection package at prices ranging from $45 to $95 per vehicle, was sold to dealers by Vehicle Title Services for $25, Frank Phillips, Vehicle Title president, said in an interview early this month.
Neither Phillips nor Ernest Solomon, president of Cadillac Insurance, could be reached for comment Monday.
Several consumer inquiries about the validity of the insurance--and the techniques some dealers used in selling it--also have prompted a Department of Motor Vehicles probe.
Claire Page, the DMV agent in Santa Ana who is conducting the investigation, said the insurance department action will not affect her inquiries.
The DMV regulates auto dealers, and Paige said she is checking to see if the title protection service offered any real protection to car buyers and is looking into allegations that some dealers had not been telling customers that the service was optional.
License in question
Deputy state Atty. Gen. Michael Botwin, whose office will review Paige’s report and institute any legal action that follows, said auto dealers in California already are required by law to guarantee clear title to the cars they sell. That requirement appears to make a separate title policy unnecessary, he said.
“It is outrageous in my mind for an auto dealer to charge a customer to warrant that the dealer has title to the car he is selling,” said Botwin.
The insurance department based its cease-and-desist order on a finding that Cadillac, which also underwrites auto liability insurance in California, is not licensed to write title insurance.
But knowledgeable sources said insurance department officials share DMV’s concern that the policies underwritten by Cadillac do not offer any real consumer protection.
Basically, the package offered by Vehicle Title Services provided participating auto dealers with an insurance policy, underwritten by Cadillac, that promised to indemnify the dealership and its customers from losses incurred if a vehicle became unmarketable because its “certificate of ownership or registration . . . prove to be false or erroneous.”
The full purchase price of the vehicle was to be reimbursed only if a loss occurred within the first 120 days after delivery. Beyond that, VTS promised to pay only the “actual cash value of the vehicle at the time of discovery of this loss.” The guarantee expired at the end of five years or upon resale of the car.
For the retail customer, however, a loss of that nature would normally only occur if a car purchased from a dealer turned out to be a stolen vehicle and the dealer had gone out of business before the car was impounded by police or reclaimed by the rightful owner.
Revised Name
Otherwise, Botwin said, the dealer already is required by law to reimburse the customer. Botwin also said that because dealers are required to have clear title, it is rare that stolen vehicles with altered papers wind up on reputable car dealers’ lots. Most are bought and sold in private transactions, while Vehicle Title Service’s policies weren’t available except through dealers.
Until early this month, the service was being marketed as a “Vehicle Title Policy.” But Vehicle Title Services, after a review of the program by its attorneys, revised some contract language and changed the name to “Vehicle Certificate of Ownership Policy.”
Those changes, according to Vehicle Title Service’s attorney, were designed to make it clear that the service was not a title insurance policy.
But Fogg, the insurance department attorney, said Monday that his office believes the program--by whatever name--is, in fact, a title insurance program.
He said that state law prohibits a title insurance company from selling any other type of insurance.
The April 15 hearing in San Francisco, he said, will enable Cadillac to contest the insurance department’s ruling that the auto ownership policy is actually a form of title insurance.
If that ruling is upheld, however, Cadillac would have to give up its larger liability insurance business in California, or set up a separate, subsidiary business, if it wanted to pursue the fledgling vehicle title business, Fogg said.
