A wave of court decisions allowing national banks to sell insurance continues, but it looks like the dispute is far from over.
More state insurance commissioners are expected to try to enforce state restrictions on insurance sales powers granted by the federal government.
Still, a spate of recent court decisions, including one in Mississippi two weeks ago, suggest that banks are on solid ground in most jurisdictions.
"At least you know what the rules are, and if you have to go state by state, you're going to win," said Kathleen W. Collins, counsel for the Financial Institutions Insurance Association, a trade group advocating banks' right to sell insurance.
On Sept. 30 the U.S. District Court for the Southern District of Mississippi said Deposit Guaranty National Bank has the right to sell insurance as outlined in the National Bank Act and in previous rulings such as the Valic and Barnett cases.
In its July 1995 ruling in the NationsBank v. Valic case, the Supreme Court upheld the Office of the Comptroller of the Currency's decision that banks may sell annuities. In March 1996 the Supreme Court ruled in Barnett v. Nelson that national banks may sell insurance from small towns.
The Southern District Court in Mississippi found that because of those decisions, the state insurance commissioner could not interpret or enforce state laws "in any manner which interferes with a national bank's right to sell insurance."
However, the court rejected Deposit Guaranty's arguments that the commissioner should also be barred from overseeing state chartered banks' insurance activities.
That surprised Martin Simmons, the counsel for First American Corp., Nashville, which acquired Deposit Guaranty this year. But he said he was pleased with the decision nonetheless.
"The Barnett rule has been applied to another state," Mr. Simmons said.
Courts in Connecticut, Massachusetts, New York, and Texas have made similar decisions.
The Mississippi court's finding on state-chartered banks, however, will not hamper their ability to sell insurance, said Mississippi Insurance Commissioner George Dale. The state has a "parity" law that gives state banks an equal footing with national banks, he said.
Such "parity" or "wild card" laws are common, Ms. Collins said. "Most states are not going to disadvantage their state banks."
If they did, Ms. Collins said, many more state banks would apply for national charters.
Mr. Dale has already established a statewide committee of bankers and insurers to address issues of banks in insurance. However, he said, he did not expect the state to be held liable for Deposit Guaranty's legal bills. He said he will negotiate that point with the bank.
Mr. Dale said the federal court decision underscores that banks are on solid ground in insurance. Furthermore, "I think you're going to find most decisions made by Congress and made by the courts are going to come down on the side of banks," he said.
Ms. Collins said that gains in the courts should not be surrendered in Washington. She said the string of court decisions should "give banks backbone as they negotiate on the Hill."
