Banks Win Costly Fight Over Insurance Sales

Banks won a multibillion-dollar fight against insurance agents Tuesday, as the U.S. Supreme Court struck down a Florida regulation that barred insurance policy sales by most national banks.

The high court, deciding in an appeal brought by Barnett Banks Inc., unanimously ruled that the state regulation conflicts with an 80-year-old federal law that allows banks to sell insurance in small towns.

The decision in effect opens the way for large bank holding companies to use small-town outposts as launching pads from which to pitch insurance policies to customers across the country.

The decision could affect similar restrictions in at least 15 states, and continues a string of legal setbacks for insurance industry groups in their effort to keep banks out of insurance sales.

“The federal statute authorizes national banks to engage in activities that the state statute expressly forbids,” Justice Stephen Breyer wrote for the court. “We conclude that the federal statute means to grant small-town national banks authority to sell insurance, whether or not a state grants its own state banks or national banks similar approval.”

Barnett Banks shares were down 50 cents at $62.25. The Standard & Poor’s index of 23 major regional banks rose 0.66 point on news of the decision to 259.78. The S&P; index of seven large money-center banks rose 0.61 point to 266.65.

Shares of insurance underwriters also rose, as the decision could open up new marketing avenues if banks are permitted to act as agents to sell their policies. The S&P; index of six life insurance companies rose 75 points to 1,689.13; the S&P; index of four multi-line insurers fell 71 points to 112.51.

Insurance and banking interests have had a long-running feud over the ability of banks to compete with insurance agents for policy sales.

The decision could spark movement on legislation to grant sweeping new powers to U.S. banks. Plans to overhaul the nation’s 60-year-old banking laws have languished in Congress as all sides waited to see how the Supreme Court would rule in the Barnett Banks case.

The high court dispute centered on a 1916 federal banking law that permits insurance sales by national banks in towns of fewer than 5,000 people. Barnett Banks challenged a Florida insurance regulation that bars even those small-town banks from selling insurance if they are owned by large bank holding companies.