WASHINGTON -- The Supreme Court declined Monday to review a decision barring Chase Manhattan Bank from selling title insurance.

Though few banks are affected, Supreme Court's move is seen as a setback to banks' efforts to broaden their powers. Just a week earlier, the court had handed banks a victory by ruling the can sell insurance from branches in towns with fewer than 5,000 people.

The Chase Manhattan Corp. unit will have to stop selling title insurance in the U.S. Court of Appeals for the Second Circuit, which consists of New York, Vermont, and Connecticut. The decision does not prevent, insuranse sales in other states, said Ford Barrett, assistant director of litigation at the Office of the Comptroller of the Currency.

Lower Court's Order

Now that the Supreme Court has ruled, a lower court is expected to issue a final order prohibiting Chase form selling title insurance and directing the Comptroller's office to rescind its approval of two bank subsidiaries that sell title insurance.

Chase formed those companies in June 1989, but few banks are believed to have followed suit due to the legal uncertainties.

Cases pertaining to bank insurance sales have churned through the courts since the 1960s, when the Comptroller first allowed the practice. Different courts have focused on different points of law, and their diverse rulings have resulted in widespread confusion.

In the farther-reaching case that was decided June 7, the Supreme Court asked the U.S. Court of Appeals for the District of Columbia Circuit to decide whether banks can market insurance from small towns to customers in larger cities. A decision is expected to take about nine months.

A Different Perspective

The Chase case took the opposite angle. The Second Circuit Court of Appeals in New York ruled June 15, 1992, that if banks may sell insurance in small towns then banks in larger towns may not sell insurance.

The Comptroller's office disagreed, arguing that insurance is an activity "incidental" to banking and therefore permissible for a national bank no matter where it does business.

The Supreme Court did not address this question, dismissing Chase's appeal withou comment. Chase spokesman Kenneth Mills said the bank is disappointed but that the decision will have not material effect on its operations.

"We are concerned anytime when avenues are closed to us that might allow us to better serve customers," Mr. Mills said. "But it just was not something we were depply involved in."

Decisiveness Looked for

Banking industry sources were surprised the Supreme Court did not take the case, known as Chase Manhattan Bank v. American Land Title Association, in order to resolve conflicting appellate-court insurance rulings.

Edmund Browne, general counsel at the American Land Title Association, was pleased that the high court rebuffed Chase's appeal.

"We're hoping [the Second Circuit orders] a change in policy at the OCC," Mr. Browne said. Specificaly, he wants the OCC to ban banks in towns with more than 5,000 people from sellinginsurance.

Mr. Barrett of the OCC minimized the reach of the Chase case. "The decision here represents the view of only one circuit," he said, "and the Supreme Court's refusal to review the case does not set a precedent."

Resurrection Predicted

"The issue will come up again," said Michael Crotty, chief litigator for the American Bankers Association. The Supreme Court turns down 95% of petitions for hearings, he said -- not necessarily to "bless what happened in the lower court."

Mr. Barrett agreed, adding that the court may want to see more appellate decisions before addressing the issue.

In another bank insurance case, the Fifth Circuit Court of Appeals in New Orleans heard arguments Dec. 1 on whether NationsBank Corp. may sell variable-rate annuities.

"I'm sure today's decision and last week's decision will make a difference to the Fifth Circuit," Mr. Crotty said Monday. "But what will they do with it? Your guess as is as good as mine."

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.