Docket: 2 Big Battles Still Ahead In Fight to Sell Insurance

The industry's long-running legal battle to sell insurance is far from over.

Lawyers representing banks and insurance agents said the Supreme Court's decision last week in the Barnett Banks case will ignite at least two fights.

The first will erupt when banks try to start selling insurance from offices in large cities. Several banking lawyers said large-city sales are a natural extension of the Supreme Court's Barnett decision, which gave the industry the right to sell the product from towns with fewer than 5,000 residents.

The lawyers argue the Barnett decision requires only that the bank headquarter the insurance operation in a small-town branch - and that only some of the insurance agency's employees need work there. The lawyers contend that banks can establish offices anywhere.

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The lawyers use two recent federal appellate decisions to support their views. The courts involved, which include the influential U.S. Court of Appeals for the District of Columbia, ruled that the National Bank Act doesn't restrict small-town bank insurance sales to local residents.

"There is no reason why a national bank could not have its employees acting as dual employees of a small-town insurance agency in all of its branches," said Melanie Fein, a partner at the Washington law firm of Arnold & Porter.

The insurance industry, anticipating this move, has vowed to fight big- city expansion.

"I read the prior decisions as saying the main agency operation has to be in the small town," said Ann Kappler, a partner at the Washington law firm of Jenner & Block and chief lawyer for the agents. "I interpret that to include sales offices."

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The second battle is likely to be a far greater nuisance.

The Barnett decision is ambiguous on which state insurance regulations apply to national banks.

Julie Williams, the Office of the Comptroller of the Currency's chief counsel, interprets the decision as giving her agency the authority to determine which state rules banks can ignore. She said the court drew the line at state rules that discriminate against banks or impair or interfere with the right banks have to sell insurance.

But Ms. Kappler said the court's decision is not nearly that straightforward. "I don't think the decision addresses at all how disputes will be resolved and how rules will be applied to banks," she said.

She conceded that the Comptroller's Office can invalidate state laws that prohibit national bank insurance sales. Those clearly fall within Barnett's scope, she said.

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But licensing and consumer protection rules aimed at protecting bank customers from coercion are a different matter, she said. Any effort by the OCC to attack these rules would likely prompt legal action by the insurance industry, she said.

For example, Texas requires each business unit of a corporation to be separately licensed. Banks should have to follow this cumbersome regulatory process, she said.

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