The Virginia Supreme Court has given Norwest Corp. permission to sell a controversial alternative to title insurance.

The court, in a four-to-three decision, ruled that Title Option Plus is not an insurance product and is not subject to regulation by the state insurance commissioner.

Norwest and American Land Title Co. developed the product in 1992. In exchange for a fee, the mortgage company does an exhaustive title search for a borrower to ensure there are no liens on the property. Norwest then sells the loan to the secondary market, agreeing either to cure any defects in the title or repurchase the loan.

The product eliminates the need to buy title insurance and costs about 10% less than a typical title insurance policy.

The Virginia court ruled Oct. 31 that Title Option Plus is not an insurance product because Norwest is retaining the risk that the title might be defective. The company would be guilty of illegally selling insurance if it transferred the risk to a third party, the court said.

"We reject the argument that if a product looks like insurance and is sold like insurance, it must be insurance," Justice Christian Compton wrote for the majority.

In a dissent, Justice Henry H. Whiting argued that Norwest protects borrowers from title challenges. Because consumers shift risk to Norwest, Title Option Plus must be an insurance product, he wrote.

Norwest began selling the product in March 1994 to Virginia consumers who qualified for first mortgages on existing homes. Lawyers Title Insurance Corp. filed a complaint with the state in 1995, charging Norwest was selling title insurance without a license. A hearing officer sided with Lawyers Title and recommended that the state insurance commission fine the banking company and bar it from offering the product.

The commission rejected the hearing officer's report in 1996 and ruled that Title Option Plus is not an insurance product. Lawyers Title appealed to the state Supreme Court.

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