WASHINGTON - Striking another blow against expanded bank powers, a Louisiana appellate court has ruled that state regulators can prevent national banks from selling insurance.
The 28-page decision, which lawyers received Tuesday, closely mirrors a January decision by the U.S. Court of Appeals for the 11th Circuit in a case involving Barnett Banks Inc.
The Louisiana Court of Appeal for the First Circuit, ruling on an appeal by First National Bank of Denham Springs, found that the McCarran-Ferguson Act gives states the authority to regulate, and thus prohibit, bank insurance sales. The court rejected the banking industry's argument that the National Bank Act supersedes state law to allow insurance sales in towns with fewer than 5,000 residents.
"Bankers should be concerned about this," said Louisiana Bankers Association general counsel Mary Ann Arceneaux. "States shouldn't be able to completely prohibit the exercise by a federally chartered entity of its powers. Regulation is one thing; complete prohibition is another."
Ms. Arceneaux said the bank will appeal the case to the state's supreme court.
Insurance industry supporters were elated. "It is fantastic," said Phil Anderson, senior Washington representative to the Independent Insurance Agents of America. "To the extent that there is any kind of contagious element from these decisions, it is running in our favor."
"We are delighted," agreed Karen Addis of the American Council of Life Insurance. "We believe strongly that insurance products should be regulated at the state level because federal regulators don't have experience in regulating insurance products."
Banking advocates said they had several problems with the court's decision.
"It is an astonishing ruling," American Bankers Association deputy general counsel Michael F. Crotty said. "The internal inconsistencies just leap out at you."
For example, the court said a state law can be located in a banking statute, and still regulate insurance, but a federal law cannot.
"The court has it both ways," Mr. Crotty said. "You can't do that."
Banking lawyers said they expected to lose the case, noting that the trial court ruled against the industry.
"I'm not surprised by the decision, considering how the original decision had gone," said David Roderer, a partner at Winston & Strawn who represents nearly a dozen trade groups on insurance issues.
The Louisiana bank that brought the appeal also took exception to the ruling.
"First National Bank of Denham Springs regrets the unfortunate decision of the court of appeals which continues to deny insurance agent powers to national banks," First National president Robert Easterly said. "We feel this decision is wrong."
The case began when First National applied to the Office of the Comptroller of the Currency in 1989 to sell insurance. The OCC approved the deal. But the state insurance commissioner refused to license the bank, prompting the 1991 suit. The trial court affirmed the insurance commissioner's decision in December 1993.
The ruling is one of four major insurance decisions issued during the past three months. Three of the cases have gone against the banking industry. In the fourth case, Owensboro National Bank v. Stephens, a federal appeals court ruled in December that the National Bank Act supersedes local laws banning bank insurance sales.
The split among courts has left many banking lawyers convinced that the U.S. Supreme Court ultimately will decide whether states can prevent national banks from selling insurance.
