Court extends banks' rights as insurers Small branches can deal nationally

June 08, 1993|By New York Times News Service

WASHINGTON -- A unanimous Supreme Court yesterday resurrected a 77-year-old provision of federal banking law that forms the basis of the comptroller of the currency's policy permitting national banks to sell insurance from their small-town branches to customers nationwide.

The decision did not address the actual validity of the comptroller's policy, which has been bitterly contested by the insurance industry and will now be the object of resumed proceedings in the federal appeals court here. Rather, the question yesterday was whether the 1916 law that the comptroller relied on in issuing the insurance-sales policy in 1986 was still on the books.

Last year, the U.S. Court of Appeals for the District of Columbia Circuit startled both the banking and insurance industries, as well as the federal regulators, by ruling that Congress had actually repealed the law in 1918, only 19 months after its passage.

No party to the dispute over the comptroller's policy had even raised that issue, and although the law had somewhat mysteriously vanished from compilations of the U.S. Code issued after 1946, nearly everyone had assumed that the law was still valid.

The law, known as Section 92, for its initial codification in the master list of federal laws, authorized national banks "located and doing business in any place the population of which does not exceed 5,000 inhabitants" to act as agents for "any fire, life, or other insurance company."

Section 92 was of only passing interest for much of its existence. But in 1986, the comptroller gave it a new, much broader reading, as authorizing banks in small towns to conduct a general insurance business serving not only the residents of those towns, but also customers anywhere in a state in which the bank does business.

More than 100 national banks are using the authority of Section 92 to operate essentially as insurance agencies, offering a range of insurance products.

Because 37 states have laws permitting state-chartered banks to exercise the same powers as national banks in the states, the practice has spread even wider.

Both the comptroller and the banking industry appealed the circuit court's conclusion that Section 92 itself no longer existed. That conclusion had been based on a missing pair of quotation marks that made it appear that Section 92 had been included in a portion of the code that Congress repealed as part of the War Finance Corporation Act in 1918.

But writing for the Supreme Court, Justice David H. Souter concluded that the missing quotation marks were merely a "simple scrivener's error, a mistake made by someone unfamiliar with the law's object and design."

In fact, he said, Section 92 had never been part of the repealed law, but was itself an amendment to the Federal Reserve Act of 1913, which Congress did not repeal.

Justice Souter said that the interpretation of statutes should be seen as a "holistic endeavor," with the job of courts to make sense of the overall design and not be misled by or fixated on a vTC single facet.

Justice Souter's opinion, United States National Bank of Oregon vs. Independent Insurance Agents of America, No. 92-484, was unusual in its minute examination of punctuation and syntax.

The ruling essentially returns the issue to where it was before the Court of Appeals ruled last year: with Section 92 in existence, and with an open question as to whether the section authorizes the broad interpretation that the Comptroller of the Currency has given it.

The court ordered the Court of Appeals to take up that question now.

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