Files Appeal of Supreme Court Decision on Insurance Powers
More national banks will relinquish their federal charters for state ones if they are not allowed to enter the annuities market, the American Bankers Association said in a brief filed Friday with the Supreme Court.
ABA lawyers John J. Gill 3d and Michael F. Crotty wrote that three New York banks already have given up their federal charters because New York state allows its institutions to sell annuities while a federal appeals court has ruled that national institutions cannot.
If the 5th Circuit Court of Appeals decision in NationsBank vs. Valic stands, other banks will follow in order to remain competitive, they wrote.
A Differing Interpretation
The ABA brief argued that the circuit court misinterpreted the National Bank Act in reaching its decision.
The ABA lawyers wrote that annuities - an investment contract in which customers make regular payments for a set number of years before receiving a return - are not insurance products. They said annuities more closely resemble investment products that banks always have sold.
If annuities are not insurance products, then banks can sell them, the brief contends.
And, even if annuities are insurance products, the banks should still win the case because the "incidental powers" clause of Section 27 of the act allows banks to sell insurance.
Five Join in Brief
In addition to the ABA, the brief was filed on behalf of the Association of Banks in Insurance, The Bankers Roundtable, the Consumer Bankers Association, the Louisiana Bankers Association, and the New York State Bankers Association.
Variable Annunity Life Insurance Co., or Valic, has 30 days to file a brief answering the ABA's arguments.
The association said the appeals court improperly relied on Section 92 of the act, which allows banks to sell insurance from an office located in a town of fewer than 5,000 residents.
They wrote that Section 92 provides an additional power to banks. As such, it doesn't prevent banks from engaging in insurance sales provided they are incidental to their traditional business. The courts define incidental as a "generally adopted method" of banking.
Annuities fit this definition because 34 states allow their chartered institution to sell them, the ABA lawyers wrote.
They also argued that as more banks sell insurance, more insurance companies, such as Allstate, are acquiring banks.
This case began when the insuror sued the Office of the Comptroller of the Currency and NationsBank, saying the comptroller lacked the power to give NCNB the right to sell fixed- and variable-rate annuities through its securities subsidiary.
The U.S. District Court ruling in favor of the OCC and Nationsbank was overturned by the appeals court, which held that annuities are insurance items because all 50 states treat them as such.
Annuities Ruled Not Necessary
The court also declared that selling annuities is not necessary to conducting traditional banking, so banks cannot sell annuities under the incidental powers clause.
Both the bank and the OCC asked the appeals court to rehear the case. When it refused, the two petitioned the Supreme Court for review. The high court agreed last month to hear the case this fall.
