WASHINGTON -- A coalition of banking groups is trying to head off an insurance sales dispute in Indiana before it can spread to other states.

The groups filed a brief last month with the U.S. District Court for the Southern District of Indiana.

They asked the court to rule that Indiana Insurance Commissioner Donna D. Bennett must allow NBD Bank to sell insurance products throughout the state as long as the institution headquarters the business in a branch in a town with fewer than 5,000 residents.

The state has refused to allow the bank to sell insurance to anyone living outside Corydon, a town of fewer than 2,700 residents where NBD Bank headquartered its insurance business.

Deputy Indiana Attorney General Terry O. Dogs, who represents the state in the case, declined to comment. But, he has filed to dismiss the case, saying the dispute is a state's fight issue that is of no concern to the federal government.

He also claims the bank failed to exhaust all state remedies before filing its federal suit.

Federal officials are not a party to the suit. But, Peter J. Rusthoven of the Indianapolis law firm of Barnes & Thornburg said on behalf of NBD Bank that the state's rights issue is bogus.

He said the bank doesn't have to appeal within the state system because the commissioner is usurping the federal government's power.

Also, Mr. Rusthoven said the Indiana commissioner seeks to circumvent the federal law and keep banks out of the insurance field because no entity could make a profit if it only has access to fewer than 5,000 potential customers. "No one would get into the business," he said.

Richard M. Whiting of The Bankers Roundtable said the dispute in NBD Bank v. Bennett is a simple question of federal law.

OCC's View

The National Bank Act gives banking associations authority to operate insurance units in towns of fewer than 5,000, Mr. Whiting said. The Comptroller of the Currency, as recently as May 26, reaffirmed its view that banks only need to headquarter the insurance operation in the town to qualify for the right to sell insurance throughout the state, he said.

Because this dispute involves a federal law and decision by a federal regulator, the Indiana insurance commissioner lacks the authority to intervene, Mr. Whiting said.

"It is important to us because we are starting to get signals that insurance commissioners are taking it upon themselves to deny licenses for no legal reason," Mr. Whiting said. "I think this is a pattern that may be developing." Other banking interest groups agree. Michael E Crotty, chief litigator for the American Bankers Association, said in a court filing that the case has enormous precedential value because other banks will be bringing similar challenges in their home states.

"It is this statewide and national perspective, broader than the interests of the immediate parties to this litigation, that the associations seek to bring to the attention of the court in this case," Mr. Crotty wrote.

Arguments in the case are expected to be scheduled for this fall.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.