WASHINGTON -- The Supreme Court yesterday agreed to review a case that could undermine the authority of the Office of the Comptroller of the Currency to allow national banks to offer municipal bond insurance and other products deemed "incidental" to banking.
At issue in the dispute is whether Section 92 of federal banking law, which authorizes national banks located in towns of 5,000 or fewer residents to act as an agent for insurance companies, was repealed by Congress in 1918.
The cases to be reviewed by the court are U.S. National Bank v. Independent Insurance Agents of America Inc., and Steinbrink v. Independent Insurance Agents of America Inc. Both cases stem from a Feb. 7 ruling by the U.S. Court of Appeals for the District of Columbia Circuit that the comptroller's office had no authority to allow banks in small towns to sell insurance because Section 92 had been repealed. The cases were consolidated by the court and will be heard as a single case.
A ruling by the justices that Section 92 is still on the books could pave the way for the court to rule on whether the law prohibits the comptroller's office from authorizing banks in larger towns to offer insurance products.
Section 24 of federal banking law gives the comptroller's office discretion to allow "all such incidental powers as shall be necessary to carry on the business of banking."
Relying on that authority, the comptroller's office over the years has given national banks permission to offer municipal bond insurance, debt cancellation contracts, mortgage life insurance, credit disability insurance, and other products.
Because Section 92 expressly authorizes only insurance sales by banks in small towns, insurance agents have argued, and at least one federal appeals court has agreed, that Section 92 "impliedly bars" the comptroller's office from allowing national banks not located in small towns to engage in insurance activities generally.
On the other hand, a ruling by the court that Section 92 was repealed would appear to remove any legal restrictions on the ability of the country's roughly 4.500 national banks to offer insurance products.
But such an outcome could prove to be a short-lived victory for bankers, an industry lawyer said.
"This could be one of those cases where if you win, you lose," said Charles Horn, a partner with Mayer, Brown & Platt in Washington.
A ruling that Section 92 was repealed likely would "prompt congressional reaction," Horn said, noting that in the past Congress has been more sympathetic to insurance interests than to the banking industry.
Congress could, for example, decide to impose a complete ban on bank insurance activities, especially if lawmakers fear that bank involvement in insurance is too risky and could lead to bank failures and a subsequent drain on the Bank Insurance Fund.
The question of whether Section 92 was repealed arises because of confusion engendered by punctuation marks used by Congress in drafting revisions to banking law during the early 1900s. Because of the way lawmakers used quotation marks, it is uncertain whether section 92 was repealed 1918 or was inadvertently dropped.
The confusion is furthered by the fact that Section 92 appeared in the United States Code, a compilation of U.S. laws, through 1946. It has since been left out, with a notation that the provision was omitted in a 1918 amendment.
However, federal courts, Congress, and the comptroller's office generally have continued to act as if the provision exists.
But the U.S. Court of Appeals for the District of Columbia Circuit on Feb. 7 ruled that Section 92 had been repealed, setting the case up for high court review.
"We're delighted that this has occurred, because we think the appeals court decision was wrong and we think we will prevail at the Supreme Court," a spokesman for he comptroller's office said yesterday.
The spokesman acknowledged that the agency's authority potentially could be limited by an adverse ruling on its Section 24 powers, but said the office would argue strenuously against any erosion of its authority when the proper time arose.
No date has been scheduled for oral arguments in the case, but they are likely this spring, with a ruling expected by the end of June.
In other action yesterday, the justices: * Ruled 8 to 1 that states cannot require employers who provide health insurance to provide the same level of insurance to workers who get hurt on the job. * Rejected an appeal by the Public Employees' Retirement System of the state of California challenging pension benefit cuts prompted by the state's fiscal problems. * Agreed to review whether a federal law restricting broadcasts of state-run lottery advertisements violates the Constitution's First Amendment, which guarantees free speech rights.
In the health insurance case, the court in an opinion delivered by Justice Clarence Thomas said the federal Employee Retirement Income Security Act of 1974 preempts a District of Columbia requirement that employers offering health insurance provide equal coverage for injured employees eligible for workers' compensation benefits.
Thomas said the federal law's broad sweep requires a finding or preemption. The law's preemption provision states that the retirement income act "shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan."
Concluding that the district law is related to employer-sponsored health insurance programs covered by the retirement income act, Thomas said the district law "must yield to [the Employee Retirement Income Security Act]."
Justice John Paul Stevens, the lone dissenter in the case, said the court has entered "uncharted territory" with its ruling and has interpreted the law's preemption provision more broadly than Congress intended.
In other developments, the court yesterday refused to review a California appeals court ruling upholding the validity of benefit changes in the state's pension plan.
The Public Employees' Retirement System challenged the changes as a violation of the Constitution's contract clause, which forbids states from passing any laws that impair the obligation of contracts.
The benefits changes, prompted by what state officials described in their legal brief as "an unprecedented fiscal crisis in 1991," were designed to save the state money. The state's brief says about 11,000 state workers would have been laid off if the changes had not been made. Moreover, the state argued, the changes resulted in comparable coverage for retirees.
The retirement system, in asking for high court review, warned in its brief that "numerous states and localities currently face substantial deficits, thus heightening the political temptation to raid well-funded public employee pension plans."
Also yesterday, the court agreed to review the validity of a federal law governing the right of television and radio stations to broadcast lottery advertisements.
The law in question allows stations broadcasting from states with a state-run lottery to broadcast advertisements about any state lotteries.
But it bars stations in state's without a state-run lottery from broadcasting advertisements about any state lotteries.
Lotteries have become a lucrative revenue stream for many state governments, generating billions of dollars annually.
The court is being asked to decide whether the law violates the First Amendment or whether it is a permissible regulation of commercial speech.
In general, the Supreme Court has held that the Constitution provides fullest protection to political speech, with lesser protection accorded to communications designed to further commercial transactions.
