Legal Battles, Legislation Threaten Insurance Powers

Chase Manhattan Corp. is poised to take advantage of insurance powers affirmed this week by a federal court, but it may be blocked by legal battles and federal legislation to reform the banking industry.

Insurance groups vow to appeal the ruling. And the Federal Reserve Board, the lead defendant in the case, said Tuesday it was considering an appeal.

The decision, handed down Monday by the U.S. Court of Appeals for the Second Circuit in New York, reaffirmed a Delaware law that permits state-chartered banks to sell and underwrite insurance.

Lengthy legal battles are only part of the problem. Chase and other industry observers say Congress may sweep away the newfound powers in broad reform of the banking industry.

Delaware Law Menaced

"I'm sure insurance groups have already drafted legislation that would wipe out the Delaware law," said Kevin A. McCabe, group executive for insurance products at Chase. "They will try to undo at the federal level what has been done at the state level."

Facing these obstacles, Chase said Tuesday it was weighing when to begin insurance activities. "We're going back to the planning process, seeing what makes sense and when we should start doing what," Mr. McCabe said.

The only other banking company approved to expand its insurance business in Delaware is Citicorp, the victor in Monday's court ruling. But the bank declined to comment on its immediate insurance plans.

Some insurance officials contend that the banking bill now moving through the House is sufficient to render the Delaware law meaningless.

An amendment sponsored by Rep. Frank Annunzio, D-Ill., and recently adopted by a House subcommittee, would prevent Citicorp and other banks from taking advantage of the Delaware law, said Gene Grabowski, a spokesman for the American Council of Life Insurance, a Washington-based trade group.

The amendment would allow a bank to affiliate with an insurance company only through a structure known as a diversified holding company.

Other observers noted that the diversified-holding-company proposal, created to allow banks to affiliate with nonbank companies, is under serious attack. John Dingell, D-Mich., the powerful chairman of the House Energy and Commerce Committee, voiced his problems with the measure on Monday.

Another amendment, expected to be submitted by Rep. James Leach, R-Iowa, could seal the fate of banks. It would prevent banks from affiliating with insurance companies, no matter what the structure.

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