Court to rule on bank sales of insurance Justices also strike D.C. law down

December 15, 1992|By Lyle Denniston | Lyle Denniston,Washington Bureau

WASHINGTON -- The Supreme Court, taking on a nationwide banking controversy that has its origins in a tiny town named Banks, Ore., agreed yesterday to rule on the legality of national banks selling insurance policies to their borrowers.

The outcome of the dispute depends on the court's view of a 76-year-old law that has been used by federal officials to allow national banks to act as agents to their customers for insurance, over the protest of independent agents nationwide.

A federal appeals court has ruled that the 1916 law was no longer on the books, because Congress wiped it out during World War I.

Thus, the appeals court declared, the government has no authority to permit national banks to sell insurance.

But another appeals court has ruled that the old law was still valid, though it only allows national banks in small towns to act as insurance agents.

The Supreme Court is expected to settle that controversy with its ruling on appeals by the U.S. comptroller of the currency, who regulates national banks, and by the United States National Bank of Portland.

Those appeals contend that Congress had no intention of wiping out the 1916 law, and thus it stands as authority for insurance dealings by national banks -- at least when the insurance they sell was related to their banking business.

In 1984, the comptroller relied upon the law to authorize United States National to sell a wide line of insurance to customers through one of its branch banks in the town of Banks, population 489.

Under the 1916 law, Congress authorized banks in communities with a population of less than 5,000 to act as agents for "any fire, life, or other insurance company." Although Congress never said explicitly that it was wiping out that provision, it omitted that language in 1918 when it amended the law to ease existing debt limits on banks to help finance World War I.

This omission, according to the federal appeals court ruling in the Oregon bank case, amounted to a repeal of the insurance authority.

The comptroller not only takes the view that the 1916 law was still valid for insurance dealing by national banks in small communities, but that the law also should allow banks in larger cities to act as insurance agents when they make loans.

Based on that broader view of the law, the comptroller has authorized Chase Manhattan Bank of New York City to sell title insurance to its real estate loan customers.

The Supreme Court order agreeing to review the issue was confined to the Oregon case, and the core issue of whether the 1916 law has been repealed.

The court order was one of several actions it took on business-related cases yesterday.

In an 8-1 ruling, the court struck down a 1991 District of Columbia law that would have forced employers in the nation's capital to upgrade the health insurance for workers who already were eligible for workers' compensation benefits.

That law, the court declared in an opinion written by Justice Clarence Thomas, was barred by the federal benefits law: the Employee Retirement Income Security Act of 1974.

It also agreed to rule on the constitutionality of two federal laws that bar a radio or television station from broadcasting state lottery advertising if the station is located in a state without a lottery.

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