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NAIC Joins Suit Against OCC

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NU Online News Service, March 20, 11:02 a.m. — Reno, Nev.

The National Association of Insurance Commissioners, Kansas City, Mo., will file a supporting brief in a court case challenging the right of the U.S. Office of the Comptroller of the Currency to preempt state laws regulating bank sales of insurance.

The decision to submit an NAIC amicus brief in support of the West Virginia suit in U.S. District Court in Washington was made during the NAIC’s spring meeting here, after the OCC moved against another state, Massachusetts, for regulating bank insurance sales.

A March 18 OCC bulletin preempting Massachusetts state law found that provisions in the statute “frustrate the ability of national banks to solicit and cross-market products.

The West Virginia suit was filed by the Independent Insurance Agents of America and the National Association of Professional Insurance Agents, both based in Alexandria, Va.

The amicus brief, which must be filed by April 3, will address the issue of preemption standards and not specific provisions in the law, according to Nat Shapo, NAIC secretary-treasurer and Illinois insurance commissioner.

The discussion was held during a meeting of the NAIC’s Functional Regulation Working Group.

The differing interpretationof the preemption standards is just “a cordial professional disagreement,” Shapo said.

The OCC opinion of federal preemption standards quotes extensively from a U.S. Senate report that misconstrues the Supreme Court Barnett Bank decision, Shapo added.

One of the issues, according to Shapo, is that the Senate report minimizes the significance of Barnett by implying that it is just another legal case that addresses the issue of preempting state laws that interfere with a national bank’s privileges. Barnett is a “seminal case,” Shapo said.

The courts have used Barnett as a standard, and Congress has used the phrase in the Barnett decision, “prevent or significantly interfere” with a bank’s ability to sell insurance, when it crafted the Gramm-Leach-Bliley Act Financial Services Modernization Act of 1999, Shapo said.

The report “twists the common understanding of the codification and legal understanding of the issue,” Shapo said.

In a review of the OCC opinion, Shapo said he believes the OCC’s preemption standard is “too low and does not conform with the controlling law.”

The letter, he said, narrowly preserves state laws that have “only a small effect on national banks’ exercise of power,” and that “broadly preempts state laws that condition or confine the exercise by a national bank of its express or incidental powers.”

The “broadly preemptive” language is inconsistent with the language “significantly interfere” in the Barnett case, Shapo said.

In the analysis, he added that the opinion letter’s conclusion that GLB brings in any language in Barnett related to preemption is subject to another interpretation: that Congress meant only to address the standard of “prevent or significantly interfere.”