THE U.S. Supreme Court's recent decision to reverse the U.S. Court of Appeals for the District of Columbia regarding the statutory authority for national banks to sell insurance in small towns left much yet undone.
In a unanimous 24-page opinion penned by Justice Souter in U.S. National Bank of Oregon v. Independent Insurance Agents of America, the court reached back over 75 years to "repunctuate" a 1916 act of Congress so as to preserve that provision, commonly known as Section 92, in the federal statutes.
Section 92, among other things, authorizes national banks located in communities with populations of less than 5,000 to act as agents for insurance companies.
Enacted in 1916, the provision, formerly codified as Section 92 of the Title 12 of the United States Code, has been omitted since 1952 by the codifiers. The Congress, the Office of the Comptroller of the Currency, and most courts have, however, continued to presume the validity of the provision.
In 1992, the U.S. Court of Appeals for the District of Columbia in the USNB case ruled that Section 92 had been inadvertently repealed in 1918.
American Land Title Case
Subsequently, the U.S. Court of Appeals for the Second Circuit disagreed in American Land Title Association v. Clarke.
Unfortunately, the second circuit also found that, inasmuch as Section 92 is an explicit grant of statutory insurance authority to national banks, no other implied or incidental authority exists for national banks to engage in such activities.
The appeals court in the latter case ruled against the proposed sale of the insurance by Chase Manhattan Bank as being incidental to its mortgage lending activities.
The Supreme Court has delayed acting upon the petition for review in the American Land Title case, presumably pending resolution of the predicate question presented in the now-decided USNB case.
The new decision in the USNB case dealt only with the existence and continued validity of Section 92. Justice Souter gave no indication about the consequences of the Supreme Court's ruling as to the authority of national banks to export insurance products to nonresidents of the small communities. Nor did he give any indication as to the asserted additional statutory authority for national banks to offer insurance and insurance-related products as "incidental" to the business of banking under Section 24 (seventh).
In resolving only the conflict between the two appeals courts over the existence of Section 92, the Supreme Court left looming the threat of the second half of the second circuit's opinion: that no other statutory basis exists for national banks to offer insurance products.
The essential flexibility given to national banks by the incidental powers provision of the National Bank Act to develop and offer innovative financial products and services is at risk in the American Land Title case.
New York Court Ruling
In contrast to that restrictive federal appeals court decision is the wisdom ably articulated last month by Judge Crew of the New York Supreme Court Appelate Division, in New York State Association of Life Underwriters, Inc. v. Considine.
Judge Crew stated "that the |incidental powers' clause was intended to permit banks to expand their banking services over the time consistent with evolving practices and their customers' needs."
The state court thus unanimously ruled that New York chartered banks possess "incidental" authority to sell annuities under state law that is essentially identical to the federal statute.
The justices' refusal to take note of that wisdom, by accepting the Chase petition and dispatching the faulty legal reasoning of the second circuit in the American Land Title case leaves the job begun in the USNB case only half done.
Litigation elsewhere is likely to entail these same issues as bank and insurance interests continue to struggle to redefine financial services. With no congressional resolution likely to be forthcoming, the lower courts are again left to redefine the future of financial services with seemingly little or no consideration of the benefits to consumers of expanded competition. Maybe next time up, the Supreme Court will get it right.