OCC Upheld On Pre-emption Of

West Virginia Bank-Insurance Law

By

A three-judge panel in Virginia has become the first federal court to uphold the right of the Office of the Comptroller of the Currency to pre-empt state law governing the sale of insurance in banks.

On Nov. 19, the U.S. Court of Appeals for the Fourth Circuit, Richmond, Va., ruled 2-1 that the OCC could pre-empt part of a West Virginia law limiting bank sales of insurance.

It dismissed a petition from West Virginia Insurance Commissioner Jane L. Cline to strike down the OCCs pre-emption of part of a state law that forbids banks from selling insurance to a loan customer until after the loan is approved and stops banks from sharing customer information with their insurance affiliates.

The ruling also lifted a state requirement that banks isolate insurance sales from other bank functions.

The OCC cited provisions of the Gramm-Leach-Bliley Act of 1999 that authorized it to pre-empt state statutes it believes substantially limit national banks ability to sell insurance.

The National Association of Insurance Commissioners, the Independent Insurance Agents and Brokers of America and the National Association of Professional Insurance Agents supported West Virginia in the case.

On the other side, the American Bankers Association in Washington and its affiliate, the American Bankers Insurance Association and the West Virginia Bankers Association supported the OCC.

The courts ruling may not be the last word on the issue, however.

In an interview, a state regulator held out the prospect that the commissioners office may continue to fight OCC pre-emption. Calling the split decision “muddy,” West Virginia Deputy Insurance Commissioner Bill Kenny says the decision “doesnt mean too much, because we have no case [involving a banks sale of insurance] in front of us. If theres something presented to us with respect to banks in the future, we will try to enforce [the state law]. But by no means are we looking to pick a fight.”

Mike Crotty, deputy general counsel for litigation for the ABIA, takes issue with Kennys contention.

“The decision says the [states] law is pre-empted,” Crotty observes flatly.

However, the decision is unpublished, meaning it is not a binding precedent within the Fourth Circuit.

Two other pre-emption cases are pending in the U.S.

One, involving a Massachusetts statute, is awaiting a decision from the First Circuit Court of Appeals.

“If the First Circuit upholds the OCC and the soundness of its reasoning, the handwriting will be on the wall” against state challenges to OCC preemption, says Crotty.

The OCC has reserved decision on another case, involving a Rhode Island law.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 25, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.