IIAA Hails Decision On Regulation Of Bank-Insurance
In Deposit Guaranty National Bank vs. George Dale released recently, Judge Henry T. Wingate of the U.S. District Court for the Southern District of Mississippi denied the plaintiff's request to preempt state regulation of bank-insurance sales activities, ruling that state oversight authority is not preempted by federal statutes. Further, Wingate ruled that states cannot prohibit national banks from selling insurance under the small town provision of the National Bank Act or selling annuities—a decision consistent with previous legal precedents.
Primary issues at question in the lawsuit were whether Mississippi law prohibiting bank sales of insurance is preempted by the National Bank Act's Section 92 small town provision and whether national banks can sell annuities in the state. Those issues were essentially resolved by the Supreme Court's 1996 decision in the so-called Barnett ruling and in NationsBank vs. Variable Annuity Life Insurance Company. Judge Wingate cited these legal precedents in his decision.
But Deposit Guaranty took their legal challenge a step further, contending that the federal preemption principle contained in Section 92 also extends to state regulatory oversight of bank-insurance activities and state laws barring holding companies and state-chartered banks from engaging in insurance practices.
"The district court's decision bolsters our belief that while states cannot prohibit national banks from selling insurance or annuities, the states have the authority and power to regulate bank-insurance sales activities," says Greenwood, who is president of Lawton Insurance, Central City, Kentucky. "This ruling, while similar in many regards to previous cases, nonetheless is an important reaffirmation of state responsibility to oversee the conduct of all insurance business being conducted within their borders—no matter what entity is engaged in the undertaking."
IIAA Executive Vice President Robert A. Rusbuldt says the decision continues the trend in the courts and on Capitol Hill toward shoring up the states' role in regulating bank-insurance practices. "A different outcome would have thrown the entire financial services modernization effort on Capitol Hill, particularly proposals reaffirming the states' regulatory authority regarding national banks, into turmoil," he says.
"We believe the court correctly interpreted the preemptive scope of the National Bank Act by upholding the sovereignty of state insurance regulatory powers."
Rusbuldt says the decision validates the recently announced agreement on bank-insurance oversight that IIAA reached with the American Bankers Association. "Congress needs to look no further than the IIAA-ABA deal to see that state regulation of national bank-insurance sales activities is the right course on this important public policy issue. But if they need further confirmation, the Deposit Guaranty decision will answer any questions they may have," says Rusbuldt.