Though the Supreme Court's 1996 Barnett decision solidified the industry's right to sell insurance, bankers are still in court trying to fend off limits being placed by state regulators.
"This is as annoying as hell," said Michael F. Crotty, deputy general counsel for litigation at the American Bankers Association. "Insurance commissioners around the country are not paying attention to the Supreme Court."
David W. Roderer, of counsel to the Washington office of Goodwin, Procter & Hoar, said the Barnett case told states they could not ban all bank insurance activities outright, "but it didn't say what was permissible." Consequently, Mr. Roderer said, "we are still struggling with what is and is not appropriate, and banks are forced to fight these cases out one by one."
The latest case was filed last week in New York. The bankers association there and Canandaigua National Bank and Trust Co. sued the state insurance commissioner for refusing to let banks sell property and casualty insurance.
The New York State Bankers Association and Canandaigua charge that the National Bank Act explicitly authorizes banks in places with fewer than 5,000 people to "act as the agent for any fire, life, or other insurance company" that does business in the state.
The plaintiffs also note that the Supreme Court ruled in Barnett v. Nelson that states may not prevent national banks from exercising their right to sell insurance in small towns.
New York's insurance law directly contradicts that decision, they charge. In particular, they object to a state ban on bank sales of insurance for real or personal property that serves as collateral for a loan made by the institution.
"The restrictions in the insurance law are especially costly for community banks ... because many potential customers for property and casualty insurance have also borrowed from the bank to finance the purchase of their homes, boats, and automobiles," they added.
The trade group and bank asked the court to overturn the state law and bar New York insurance regulators from punishing national banks that offer property and casualty insurance to their borrowers.
The New York suit joins a growing number of post-Barnett cases that are beginning to pile up in federal courts.
In First and Peoples Bank v. Commissioner, a Kentucky bank is challenging a state law that bars banks from selling insurance, while in Independent Insurance Agents of Kentucky v. Lander, agents are challenging the right of a state-chartered bank to use a wild-card statute to sell insurance in small towns. Wild-card laws allow state-chartered banks to engage in any activity permissible to a national banks.
Then there is Deposit Guaranty National Bank v. Dale, which challenges a Mississippi law severely limiting the ability of banks to sell insurance and annuities. "This is a case where both sides are testing the limits of the Barnett decision," Mr. Crotty said.
In Texas Bankers Association v. Bomer, the trade group and the insurance commissioner are battling over the right of the state to bar banks from the market. Although banks won at the trial court level, the state is expected to appeal.
In American Council of Life Insurance v. Ludwig, the trade group for life insurers is suing the Office of the Comptroller of the Currency for allowing Magna Bank of Missouri to retain all of its insurance offices- including those in large towns-after converting from a state to a national charter.