Bankers and their attorneys couldn't have been happier in January, having just won two pivotal insurance cases.

Unfortunately, the good tidings were doomed to be squelched.

The cause for celebration came when the U.S. Court of Appeals for the Sixth Circuit ruled that states cannot regulate bank insurance sales.

Then the U.S. Supreme Court handled down a unanimous decision in the Valic case, ruling that the Comptroller of the Currency has the authority to let banks sell annuities.

With these two victories in hand, bankers and their attorneys predicted a surge of interest in the fee-rich field of annuity and insurance sales. They boldly said banks would grab larger and larger chunks of the market.

But the U.S. Court of Appeals for the 11th Circuit brought the party to an abrupt halt. In a decision directly contradicting the Sixth Circuit ruling, the court said states can regulate, and even ban, bank insurance and annuity sales.

Within a few hours, banking advocates had replaced their grins with war paint, saying they would appeal the 11th Circuit decision to the U.S. Supreme Court to resolve finally whether states can regulate insurance sales by banks.

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Until the Supreme Court decides the issue, bankers must accept that their authority to sell most insurance and annuity products is tenuous.

David Roderer, a partner at Winston & Strawn who has represented several trade groups on insurance questions, said the spate of decisions leaves bankers practically where they were after the U.S. Court of Appeals for the District of Columbia's 1989 decision in American Insurance Association v. Clark, also known as the AMBAC case.

In that case, the judges gave the industry permission to sell municipal bond insurance. Mr. Roderer said bankers remain free to sell municipal bond insurance, credit life, and debt cancel contracts.

"The key is, these products relate to the lending transaction, and they protect the bank," Mr. Roderer said.

For example, a borrower may buy credit life insurance to ensure that his heirs will have the money to pay his bank debts, or a person may pay a bank a fee to agree to forgive a debt if the collateral is destroyed or the borrower dies.

Also, bankers still can rent space in their branches to, and enter into cooperative agreements with, independent insurance companies. These agents, who do not work for the bank, can sell life, auto, and home insurance.

Everything else, from annuity sales to casualty insurance, is in doubt, Mr. Roderer said.

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Take annuity sales. The Supreme Court said banks can sell these tax- deferred investment vehicles under the incidental powers clause of the National Bank Act.

But the justices also said that annuities may be defined as insurance for state regulatory purposes. And the 11th Circuit then ruled that, if a state can regulate insurance sales, it can ban insurance sales.

"Just because you have the authority to do it, doesn't mean you can get a license to do it," Mr. Roderer said.

The same is true for national bank insurance sales in small towns. Under the 11th Circuit's decision, states can prevent small-town sales - though the National Bank Act expressly permits them. The judges said Congress overrode the National Bank Act's provisions when it approved a different federal law.

Melanie Fein, a partner at Arnold & Porter, said bankers must learn whether their state has an anti-affiliation statute, a law preventing insurance companies from affiliating with banks. Currently, 17 states have such laws.

"They can sell annuities comfortably in a state that doesn't have an anti-affiliation statute," she said. "And they can sell insurance in a town of 5,000 if a state doesn't have an anti-affiliation statute. It all boils done to state law."

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