Removing the last barrier to nationwide bank insurance sales, the U.S. Supreme Court ruled Tuesday that states must allow national banks to sell the product from small towns.

Justice Stephen J. Breyer, writing for a unanimous court in the Barnett Banks case, said the National Bank Act supersedes state laws limiting bank insurance powers.

The ruling strikes down a Florida law that barred Barnett from selling insurance from towns with fewer than 5,000 residents. It also knocks out similar bank insurance sales restrictions in 20 other states, including Louisiana, Pennsylvania, Massachusetts, New Jersey, and Texas.

This is the banking industry's third major Supreme Court victory on insurance powers since 1994.

"We just won 98% of the insurance battle," said Philip S. Corwin, a partner at Washington lobbying firm Federal Legislative Associates. "This means every bank in every state can sell insurance. This is going to have incredible ripple effects."

The case, however, left one issue unresolved. The justices did not decide who will regulate bank insurance sales. Banking advocates said the decision gives this duty to the Office of the Comptroller of the Currency, while insurance industry supporters said the justices reserved this power for state officials.

OCC Chief Counsel Julie Williams, however, said the court took a middle road. She reads the decision as allowing states to regulate bank insurance sales providing the rules are not discriminatory and do not impair the institution's ability to compete with nonbanks.

This question could spur more lawsuits, according to both sides.

The ruling's political aftershocks begin today, when House Republican leaders meet to plot the future of banking legislation. A House Banking Committee spokesman said the court's decision will have a bearing on that meeting, although he said it is too early to know the effect.

Phil Anderson, director of government affairs at the Independent Insurance Agents of America, said the ruling will be a catalyst that forces Congress to pass sweeping banking legislation unveiled last week by Rep. Jim Leach, R-Iowa.

That bill subjects bank insurance sales to state regulation and places a five-year hold on the OCC's authority to grant new insurance powers. The legislation also includes other items, including a rescue of the thrift insurance fund.

But banking industry supporters said the ruling will have little impact on Capitol Hill. Kenneth Guenther, executive vice president of the Independent Bankers Association of America, said the court's decision solidifies banking industry opposition to any bill restricting insurance powers.

Republican leaders, confronted with a "blood bath" between two of its constituencies, would be loathe to bring the issue to a vote, Mr. Guenther said.

"I don't see much impact because of election year politics," Mr. Guenther said. "Why would the House leadership bring something to the floor that would force the freshmen Republicans to choose between the banking and insurance lobbies?"

Mr. Anderson, however, noted that Congress passed a telecommunications bill despite widespread opposition. "This Congress won't be shy about stepping up and passing this bill," he said.

The Barnett case began in 1993 when the bank bought an insurance agency in Belleview, Fla. State officials immediately ordered Barnett to stop selling insurance. It appealed to the U.S. District Court and the U.S. Court of Appeals for the 11th Circuit, losing at both levels.

"We are obviously extremely pleased by the court's decision," Barnett Banks spokeswoman Jerri Franz said. "It is a victory not just for the banking industry, but for the consumer as well. It will increase the availability of insurance and competition for business in the market."

Florida Insurance Commissioner Bill Nelson put a positive spin on the ruling. He urged banks to start selling homeowners insurance policies, which have become difficult to obtain since Hurricane Andrew in 1992. "I choose to view obstacles as opportunities," he said.

Bankers already are devising ways to take advantage of the ruling. Louis M. Daniels, senior vice president for insurance services for United Jersey Bank, Princeton, N.J., said the decision clears the way for his bank to expand its insurance operations in Pennsylvania.

"What this does is give more options than we ever had before," Mr. Daniels said.

This is the Supreme Court's third crack at bank insurance powers in as many years. It ruled in January 1995 that banks can sell annuities, and it decided in January 1994 that Congress did not accidently repeal the section of the bank act permitting small-town insurance sales.

William Plasencia contributed to this report.

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