Washington - The Justice Department on Monday appealed a federal court ruling that barred NationsBank in August from selling annuities in Louisiana, Texas, and Mississippi.

NationsBank also asked that the full U.S. Circuit Court of Appeals for the 5th Circuit in New Orleans review the Aug. 26 decision, which was handed down by three members of the court.

Justice is acting on behalf of the Comptroller of the Currency's office. Robert Griffen, director of litigation at the OCC, said the government was appealing because the court erred when it said annuities are insurance.

A Look at the Laws

The OCC considers an annuity to be an investment product that national banks are free to sell anywhere to anyone.

Mr. Griffen said that longstanding precedent requires the courts - when there is no clear law prohibiting a practice - to defer to a regulatory agency's judgment.

The laws governing whether banks may sell insurance can be confusing. Section 92 of the National Bank Act allows national banks to sell insurance from towns with fewer than 5,000 people.

In addition, the Comptroller is allowed to grant national banks any power it considers "incidental to banking."

Besides ruling that annuities are insurance, the court said annuities are not incidental to banking. OCC also plans to rebut this finding in its appeal.

Changing with the Times

Michael F. Crotty, chief litigator at the American Bankers Association, said the 1864 National Banking Act could not have foreseen the changes that have occurred in banking. So Congress purposely gave the Comptroller's office great leeway to define what banks can do, he said.

"Either you're going to cram the industry into the 1864 mold or you're going to recognize that the world is different now," Mr. Crotty said. "Banks have to change with the times."

The NationsBank case was brought by VALIC, which stands for Variable Annuity Life insurance Company.

Insurers worry that if annuities are not insurance they will be subjected to a whole slew of tax and securities regulations, he said.

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