(a) Prior to the disbursement by an underwritten title company from any escrow account under Section 12413.1, each underwriting agreement between the underwritten title company and a title insurer shall contain one of the following written procedures reasonably calculated to prevent the misappropriation, disappearance, or wrongful use of funds deposited in the underwritten title company’s escrow or subescrow account:

(1) The underwritten title company shall obtain and maintain a fidelity bond or insurance policy, satisfactory to the title insurer agreeing to this option that covers losses caused by misappropriation, disappearance, or other wrongful use of escrow funds deposited with the underwritten title company. The face amount of the fidelity bond or insurance policy shall be at least 10 times the underwritten title company’s required minimum net worth under subdivision (a) of Section 12389. The bond or insurance policy shall name as an additional insured, co-insured, or joint-loss payee each of the title insurers agreeing to this option in the underwriting agreement. The bond or policy may not exclude coverage due to acts or omissions of any officer, director, employee, or principal of the underwritten title company. In the event of cancellation or nonrenewal of the bond or policy, a title insurance company named as an additional insured, co-insured, or joint-loss payee shall be given advance written notice by the underwriter of the bond or policy. The underwritten title company shall submit a copy of the bond or policy to the title insurer named as an additional insured, co-insured, or joint-loss payee within 14 days of the effective date of the underwriting agreement.

(2) Disbursements of escrow funds shall be reviewed and approved by an employee of the title insurer. Title insurer employees who review and approve disbursements of escrow funds shall be physically located at the place of business of the underwritten title company and shall be on the title insurer’s payroll. Before review and approval of any disbursement, the employee shall sign an affidavit to be filed with and on a form approved by the commissioner. The affiant shall attest that the affiant has read, is familiar with, and agrees to comply with the title insurer’s approval procedures for disbursements.

(3) Account review processes and oversight and internal control guidelines, in electronic or other medium, drafted by a title insurance industry advisory organization, as defined in Section 12340.8, and approved by the commissioner.

(4) Written procedures approved by the commissioner that provide for the protection and control of escrow funds in a manner consistent with the purposes of this subdivision.

(b) The commissioner shall approve or deny any written procedures submitted to him or her under this section for approval within 60 days of receiving the request. If no action is taken by the commissioner within the 60-day period, the request is deemed approved.

(Added by Stats. 1995, Ch. 408, Sec. 2. Effective January 1, 1996.)