A federal judge in Connecticut has ruled that the state must let Fleet Financial Group Inc. operate an insurance agency in a small town there.

Last week's decision by Judge Janet Bond Arterton of U.S. District Court in Hartford was the first instance of a federal court's overriding state law by applying the U.S. Supreme Court's landmark decision that affirmed the right of nationally chartered banks to sell insurance from towns of less than 5,000 population.

Judge Arterton's ruling, however, does not affect Connecticut's state- chartered banks, which are still barred from selling insurance.

Home to many insurance companies, Connecticut is one of eight states that continue to bar banks from selling insurance. Last week's ruling covers not only Fleet but also other national banks within the state that want to offer customers insurance.

"Any bank that has a significant operation in Connecticut is looking at this case closely," said Robert Evans, managing director for insurance services at Fleet.

Bankers are now also hopeful that the Connecticut decision will influence federal judges in other states where similar cases are pending, including Louisiana and Mississippi.

Boston-based Fleet and its New England competitors aren't charging into the Connecticut insurance market yet. They await a decision by Judge Arterton regarding whether the bank can sell insurance beyond the small town where its insurance agency is headquartered.

In March, the Supreme Court ruled in Barnett Bank of Marion County v. Nelson that states cannot bar nationally chartered banks from operating insurance agencies in towns with fewer than 5,000 residents. But the court did not clarify whether sales should be limited to the small town. In other cases, however, federal courts in Indiana and the District of Columbia ruled such sales have no geographic limitations.

Fleet and Connecticut's insurance commissioner, Robert Coogins, have until Saturday to present arguments on the issue to Judge Arterton. Mr. Coogins did not return phone calls.

If Judge Arterton's decision favors broad sales, Fleet will launch a statewide marketing and advertising campaign 30 days later, Mr. Evans said.

The bank is currently selling insurance in a pilot program in Massachusetts, New York, New Jersey, and Rhode Island. Branch employees in those states refer customers to a toll-free telephone number linking them to agents in an office in Worcester, Mass.

Mr. Evans plans to train employees in Connecticut to refer customers to the Worcester agents.

Fleet inherited the Connecticut case from Hartford-based Shawmut National Corp., which it acquired last year. In 1994, Shawmut bought an agency, Insurance Associates of New Haven Inc., which it moved to Chester, a town in the eastern half of the state with fewer than 5,000 residents.

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