Court to Hear Insurance, Bank Dispute

The Supreme Court agreed Monday to decide whether national banks may continue selling insurance.

The justices said they will review an appeals court ruling that threatens to strip nationally chartered banks of such authority.

The big-money controversy pits the Bush Administration and the banking industry on one side against the insurance industry on the other. A decision is expected by July.

National banks generally are forbidden to sell insurance, but in 1916 Congress provided an exception to that rule for banks in towns of 5,000 or fewer residents.

And in 1986, the comptroller of the currency ruled that banks in qualifying towns could “export” their insurance, selling it nationwide.

The National Bank of Oregon, based in Portland, received the comptroller’s permission to sell various forms of insurance to customers nationwide from one of its branch offices, located in the small town of Banks, Ore.

The Independent Insurance Agents of America and other insurance industry representatives sued, contending that the branch in Banks should be limited to selling insurance to customers in Banks.

The U.S. Circuit Court of Appeals for the District of Columbia last February went even further than the insurance industry had hoped, ruling that the 1916 exception allowing small-town banks to sell insurance had been repealed by Congress in 1918.

The National Bank of Oregon and the Bush Administration filed separate Supreme Court appeals.

The government’s appeal told the justices, “National banks located and doing business in small towns have for three-quarters of a century relied on the comptroller’s view that (the 1916 exception) is in effect and permits them to sell a broad range of insurance products.”

The appeal said the District of Columbia court’s ruling “does violence to the settled expectations of those banks.”

Government lawyers said about 100 national banks now engage in general insurance agency business.