WASHINGTON -- The U.S. Supreme Court and a host of lesser federal judicial panels will confront several cases during the coming months that could determine what role insurance sales will play in the banking industry.

The most important of these cases is NationsBank of North Carolina v. Variable Annuity Life Insurance Co., a case questioning whether national banks can sell annuities.

Coming up a close second are a smattering of federal appellate and district court cases that challenge the authority of states to prevent national banks from selling insurance products to people who live outside towns with fewer than 5,000 residents.

These insurance cases are coming to a head now because banks are desperately seeking the fee income associated with insurance sales, said Michael Crotty, deputy chief litigator for the American Bankers Association.

"Insurance is fun," Mr. Crotty said. "It's a no-risk operation because they are agents, not underwriters."

That means banks can pocket he commission and fees while passing on the liability to the underwriters, he said.

Ronald R. Glancz, a banking attorney at Venable, Baetjer, Howard & Civiletti, said this area will remain in the spotlight even after these cases end, because the courts are the only forum left to the insurance companies.

The companies have already failed in their efforts to get Congress or the banking agencies involved, he said.

The lawyers can taste victory in the Variable Annuity case, which is scheduled for oral arguments in late November or early December.

"I'll be smiling the day after the Valic decision, because we've won," Mr. Crotty said. "The only question is how big we are going to win."

The case questions whether variable- and fixed-rate annuities are insurance products. The Office of the Comptroller of the Currency said they are not, giving NationsBank permission to sell them.

Valic, an annuity underwriter, disagreed. It sued the bank, saying it was illegally engaging in insurance sales. The U.S. Court of Appeals for the Fifth Circuit sided with Valic, setting up the high-court battle.

The parties raise several key disputes in their briefs, any one of which could provide the basis for a high-court decision. Bui the hope of Mr. Crotty and other banking lawyers is that the justices will decide all of these issues in the bank's favor.

First, what kinds of products are annuities securities or insurance? The banks and the OCC argue that annuities, which are instruments requiring a person to make fixed payments before receiving a return, resemble securities and thus are permissible.

The insurance industry and the appellate court argued that annuities are insurance products, noting that all 50 states treat them as such.

If the court sides with the OCC., the case could end without addressing whether banks can sell insurance, said L. Robert Griffin, director of the litigation division at the OCC.

Second, what is the meaning of a bank's statutory authority in the National Bank Act to exercise "all such incidental powers as shall be necessary to carry on the business of banking?"

NationsBank, the Comptroller, and the American Bankers Association all argue that this phrase gives banks broad authority to carry out their business. They also say banks have traditionally served as an intermediary to assist customers with their investment decisions.

"If annuities are investments, then acting as an agent for their sale is certainly part of, or incidental to, the business of banking," the .OCC wrote in its Supreme Court brief.

Third, how does the town-of-5,000 role apply? That rule, found in section 92 of the National Bank Act, allows banks in towns with fewer than 5,000 residents to act as agents for "fire, life, or any other insurance company."

The banking industry and OCC argue that the section only applies to casualty insurance and that it doesn't restrict powers banks have in other sections of the law that allow them to sell annuities.

Valic also could 'impact the credibility of the administrative proceedings of the Comptroller's office. The fifth circuit's decision challenged the deference, or attention, a court must give the Comptroller's decision in a case.

If the high court were to similarly ignore the deference issue, the OCC could lose credibility.

"I think it is critical to the ability of a regulatory agency to operate," OCC chief counsel Julie Williams said of the notion of deference:

While the banking lawyers do predict victory, they are not guaranteeing it. David Roderer, a banking attorney at Winston & Strawn, said if the industry loses it will have to rely on section 92 for future efforts to sell insurance.

"It's just more cumbersome," he said of section 92. "But banks are still going to do it."

Mr. Roderer said the possibility that banks could lose the Valic case is one reason why several section 92 cases, pending before the U.S. courts of appeals,for the sixth and 11th circuits, are so important. The cases directly challenge the town-of-5,000 rule found in section 92.

These cases, Barnett Bank of Marion County v. Gallagher in the 11th circuit and Owensboro National Bank v. Stephens in the sixth circuit, question the ability of state authorities to regulate the insurance activities of national banks.

"It has ramifications far beyond these cases, because if the states were to prevail, there is a potential to do damage to a bank's insurance power," the OCC's Mr. Griffin said.

The damage would come because some state regulators claim they can prevent nationally chartered institutions from selling insurance. They rely on their general ability to regulate the insurance industry. Federal banking regulators and national banks, however, claim the National Bank Act preempts state law, making it illegal for states to regulate.

The trial courts in these cases have taken opposite positions, with the court in Owensboro siding with the banks and the court in Barnett agreeing with the state regulators.

If the two circuits reach similar decisions, this question may end at the appeals court level. But, if the circuits disagree, a Supreme Court showdown is inevitable, attorneys interviewed agreed.

The case also will affect a number of cases at the federal trial courts, including ones involving Shawmut National Bank and National Bank of Detroit.

Nothing should happen with these lower court cases, Mr. Crotty said. "Why would a U.S. district judge want to decide this when it is pending before a U.S. court of appeal?" he asked.

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