NAII Decries W.Va. Court Ruling on Banks Selling Insurance

November 25, 2002

The U.S. Court of Appeals for the Fourth Circuit has given deference to the Office of the Comptroller of the Currency (OCC) in a dispute over regulatory authority with the West Virginia Insurance Commissioner’s challenge to the authority of the OCC to issue a preemption letter involving the insurance activities of banks. The question ultimately goes to which regulatory agency controls the insurance activities of banks.

In the case of Cline v. Hawke, West Virginia Insurance Commissioner Jane Cline challenged an opinion letter issued by the OCC stating that federal law preempts several provisions of the West Virginia Insurance Sales Consumer Protection Act. In this battle over regulatory control, the Appeals Court dismissed Cline’s challenge, ruling that the OCC had the authority to interpret the federal Gramm-Leach-Bliley Act (GLBA) and claim that state law was preempted.

“The court’s ruling is disappointing,” said Mike Koziol, senior director and counsel for the National Association of Independent Insurers (NAII). “The court incorrectly applied the legal standards for preemption laid out by the U.S. Supreme Court in the Barnett Bank case. The Barnett test sets a very high standard of proof. To be preempted the provisions of the West Virginia Act must ‘prevent or significantly interfere’ with the bank’s ability to engage in insurance sales. Based on the plain meaning of the words prevent or significantly interfere, the Act should not be preempted by GLB.”

NAII joined the Independent Insurance Agents and Brokers of America and the National Association of Professional Insurance Agents in filing a brief in a related case.

“The OCC and the Court used too soft a test for prevent or significantly interfere in issuing the opinion. All regulation to some degree is ‘disruptive’ and ‘increases operating costs.’ Those test clearly do not prevent or significantly interfere with bank operations. Nor is ‘subtantively affect(ing)’ a bank’s ability to solicit and sell insurance products. Even assuming the correctness that West Virginia law did ‘substantively affect,’ this is not ‘significantly interfere.’ This ruling presents a threat to functional regulation of insurance by the states and could disrupt regulatory activity and consumer protections in other states that have similar laws,” said Koziol.

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