Ruling Puts Insurance Sales on Road to Supreme Court

Article excerpt

A federal appeals court in Cincinnati set the stage this week for Supreme Court action on a crucial case involving insurance sales by national banks.

The U.S. Court of Appeals for the Sixth Circuit refused to reconsider its Owensboro National Bank decision, in which it held that states cannot bar national banks from selling insurance in towns of under 5,000. Parties to the case were notified of the decision Thursday.

"At a minimum, this sets up the possibility for Supreme Court review," Bankers Roundtable general counsel Richard Whiting said. "At a maximum, its sets up a precedent that can be used by other states."

Meanwhile, banks may be making progress on a second front. Industry sources said they expect the Comptroller's office to override a series of proposed annuity sales rules that limit the ability of banks to offer the insurance product.

The Florida insurance and banking commissioners are considering the rules at a hearing today.

The stakes are high for banks. A Supreme Court ruling in the industry's favor would open the door to widespread insurance sales, potentially providing banks with many millions of dollars a year in fee income.

Comptroller Eugene A. Ludwig, who intervened in the case on behalf of the bank, praised the appeals court decision to let its own ruling stand.

"This decision lets national banks continue to provide their customers with the financial services and products they want," he said in a prepared statement.

Insurance industry advocates said they were disappointed. "We were hopeful the Sixth Circuit would review the decision," said Ann Kappler, a partner at Jenner & Block who represents the major insurance trade groups in the case. "But it may just be a reflection that the court realized that the issue ultimately is going to be resolved by the Supreme Court."

The ruling in Cincinnati contradicts a decision by the U.S. Court of Appeals for the 11th Circuit, which said in late January that McCarran Ferguson Act gives states the right to regulate, and thus ban, bank insurance sales.

The 11th Circuit is deciding whether to reconsider its decision. But banking advocates, who have vowed to appeal a loss to the high court, are not hopeful.

"If the 11th Circuit does not turn around, then we will have a conflict in the circuits," said Michael Crotty, deputy general counsel at the American Bankers Association. "The Supreme Court will take it up on cert, and we will win there."

Banking industry attorneys feared that the Sixth Circuit, which decided the case with a 2-1 split, would reverse itself. That would eliminate the split between the circuits and seriously jeopardize the industry's push for Supreme Court review. …