Amicus Curiae Brief — NationsBank of North Carolina, N. A. v. Variable Annuity Life Insurance

IN THE 994 :

Supreme Court of the Gnited States er

OCTOBER TERM, 1994

NATIONSBANK OF NORTH CAROLINA, N.A., et al.,

Petitioners,

Vv.

VARIABLE ANNUITY LIFE INSURANCE CoO.,

Respondent.

EUGENE LUDWIG, et al.,

Petitioners,

Vv.

VARIABLE ANNUITY LIFE INSURANCE CO.,

Respondent.

On Writs of Certiorari

To the United States Court of Appeals

for the Fifth Circuit

BRIEF OF THE AMICI CURIAE

AMERICAN BANKERS ASSOCIATION, et al.,*

IN SUPPORT OF PETITIONERS

JOHN J. GiLt III

Counsel of Record

MICHAEL F. Crotty

AMERICAN BANKERS ASSOCIATION

1120 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 663-5026

Attorneys for Amici Curiae

July 29, 1993

*Complete list of sponsoring organizations and counsel

pear on inside cover.

a a ET

PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. 1-800-347-8208

JAMES T. MCINTYRE

McNair & SANFORD, P.A.

1155 15th Street, N.W.

Suite 400

Washington, DC 20005

(202) 659-3900

Attorney for Association of Banks

in Insurance

RICHARD M. WHITING

BANKERS ROUNDTABLE

805 15th Street, N.W.

Washington, DC 20005

Davip L. GLass

New York STATE BANKERS ASSOCIATION

485 Lexington Avenue

New York, NY 10017

(212) 949-1155

i

QUESTIONS PRESENTED

1. Whether the court correctly construed Section 92

of the National Bank Act as a limitation on the incidental

powers of national banks as determined by the Comptroller,

notwithstanding that in the Act Congress expressly conferred

on national banks in small towns insurance agency powers

that are “in addition to the powers now vested by law in

national banking associations."

2. Whether the court below correctly overturned the

determination by the Comptroller of the Currency that 12

U.S.C. Section 24 (Seventh) permits national banks to

broker annuities, notwithstanding that the Comptroller’s

interpretation was reasonable and the court’s exceptionally

narrow construction of the incidental powers of national

banks is contrary to the great weight of authority throughout

the United States.

i

TABLE OF CONTENTS

Page

QuasTions PRESENTED .....cccccscesessuse

TABLE OF AUTIOORETMIR 2. wc cccccccssscses

INTEREST OF THE AMICI CURIAE ......---2+005

SUMMARY OF THE ARGUMENT .......-2+2+005

ARGUMENT ...ccccccnessessne ee eee

I. Section 92 of the National Bank Act

Is Not a Limitation on the

Incidental Powers of National Banks ...

Il. The Sale of Annuities Is Incidental

to Basking ow. wc cc ce esecsseues

COMCEIMBONM . ccc ccc see esees bese eee

TABLE OF AUTHORITIES

CASES:

American Bank & Trust Co. of Opelousas v. Drake,

No. 93-5040 (Sth Cir. 1994) (unpublished) ......

American Insurance Association v. Clarke,

ee eee Ow Cis Gl. EOE cw ccc ccc cees

American Land Title Association v. Board of

Governors of the Federal Reserve System,

892 F.2d 1059 (D.C. Cir. 1989) ............

American Trucking Association vy. Atchison,

Topeka & Santa Fe Railway Co., 387 U.S. 397

NS ESSE SEE T CETERA

Board of Governors of the Federal Reserve System

v. Dimension Financial Corp., 474 U.S. 361 (1986) .

Busic v. United States, 446 U.S. 398 (1980) .....

Calfarm v. Deukmejian, 48 Cal. 3d 805 (1989) ....

Citicorp v. Board of Governors of the Federal

Reserve Sysiem, 936 F.2d 66 (2d Cir. 1991), cert.

denied, 112 S. Ct. 869 (1992)..............

Colorado National Bank v. Bedford, 310 U.S. 41

DPCM EEEEG RUS ee Se ececcccccces

Page

iv

Page

Crawford Fitting Co. v. J. T. Gibbons, Inc.,

OR 8 ae ee eee 9

Curtis v. Leavitt, 1S N.Y. 9 (1857) ........... 11

Douglas v. Dynamic Enterprises. 315 Ark. 575,

fe FT ) PTTL TT Tee 14

First National Bank of Eastern Arkansas v. Taylor,

907 F.2d 775 (8th Cir.), cert. denied, 498 U.S.

ff eee errs ee eee ce Cee 14

The Glastonbury Company v. Gillies, 550 A.2d 8

oo DP err rer ere Th rete eee 15

Independent Insurance Agents of America v. Board

of Governors of the Federal Reserve System,

890 F.2d 1275 (2d Cir. 1989), cert. denied,

og SS S006 EAS TT ee eee 15

Independent Insurance Agents of America v. Board

of Governors of the Federal Reserve System,

835 F.2d 1452 (D.C. Cir. 1987) .......... 13, 15

Independent Bankers Association of America v.

Heimann, 613 F.2d 1164 (D.C. Cir. 1979), cert.

denied, 449 U.S. 823 (1980) ...........206. 14

Independent Insurance Agents of America v. Ludwig,

See Seas See Nae Ge DED cw cc eecccccnce 14

Page

Independent Insurance Agents of Ohio v. Fabe,

63 Ohio St.3d 310, 587 N.E.2d 814 (1993) ...... 14

Ludington Service Corp. v. Commissioner of

Insurance, 444 Mich. 481, 511 N.W. 2d 661,

reh’g denied, 444 Mich. 1240 (1994) .......... 14

M&M Leasing Corp. v. Seattle First National Bank,

563 F.2d 1377 (9th Cir. 1977), cert. denied,

GE SP Soceeaeee Swed teocsecs 12

National Association of Casualty and Surety Agents

v. Board of Governors of the Federal Reserve System,

856 F.2d 282, on denial for petition for reh’g and

reh’g en banc, 863 F.2d 351 (D.C. Cir. 1988), cert.

denied, 490 U.S. 1090 (1989) ............... 15

New York State Association of Life Underwriters

v. New York State Department of Banking,

SD CR Ua GE bee ete e woke eee. 13, 11, 14

Saxon v. Georgia Association of Independent

Insurance Agents, 399 F.2d 1010 (Sth Cir. 1968) ... 12

Securities and Exchange Commission v. Variable

Annuity Life Insurance Company, 359 U.S. 65

Dt cketieeebhen abe ee eee ves eccuss 10

Variable Annuity Life Insurance v. Clarke,

oe ee ff ere passim

Page

Willis v. Eastern Trust & Banking Co., 169 U.S.

EN er ee ee ee a ee ee ee Q

STATUTES:

Act of June 3, 1864, 13 Stat. 99 §8............ 8

Act of Sept. 7, 1916, c. 461, 39 Stat. 753 ........ 7

ee ED b'6 oe eb We ese woes passim

PTT TTL ETT LEE passim

La. Rev. Stat. Ann. 6:242(A)(16) ............. 4

MISCELLANEOUS:

Symons, The “Business of Banking” in Historical

Perspective, 51 Geo. Wash. L. Rev. 676 (1983) ..... 4

Webster’s New Collegiate Dictionary (1980) ....... 8

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1994

Nos. 93-1612, 93-1613

NATIONSBANK OF NORTH CAROLINA, N.A., ET AL.

Petitioners,

Vv.

VARIABLE ANNUITY LIFE INSURANCE CO.,

Respondent.

EUGENE LUDWIG, ET AL.,

Petitioners,

Vv.

VARIABLE ANNUITY LIFE INSURANCE CO.,

Respondent.

On Writs of Certiorari

To the United States Court of Appeals

For the Fifth Circuit

BRIEF OF THE AMICI CURIAE

AMERICAN BANKERS ASSOCIATION, ET AL.,

IN SUPPORT OF PETITIONERS

2

The American Bankers Association, et al., hereby

respectfully submit this brief as amici curiae in support of

the Petitioners in accordance with Supreme Court Rule 37.3.

All parties have consented to this filing, and their written

consents are filed with this brief.

INTEREST OF THE AMICI CURIAE

The American Bankers Association is the principal

national trade association of the commercial banking industry

in the United States, representing banks located in each of

the fifty states and the District of Columbia, banks of all

sizes and both national and state-chartered banks. Assets of

ABA member banks comprise over ninety percent of the

domestic assets of all commercial banks in the country.

The Association of Banks in Insurance, Inc. ("ABI")

is a national trade association of financial institutions with an

interest in insurance activities. The ABI was organized to

protect and further bank insurance powers. Its members

include insurance companies, banks, and bank holding

companies owning national and state banks, and other

companies engaged in the insurance business.

The Bankers Roundtable is a national association

whose membership is open to the nation’s 125 largest

banking companies, which are represented in the Roundtable

by the CEOs and highest officers of the companies.

Members hold approximately seventy percent of the

country’s commercial banking assets, operate in virtually

every state and employ almost one million individuals. The

mission of the Roundtable is to promote the business of

banking, to encourage the development of sound banking and

financial policies and practices, and to advocate the interests

3

of its member companies in federal legislative, regulatory

and judicial bodies.

The Consumer Bankers Association ("CBA") was

founded in 1919 to provide a progressive voice for the retail

banking industry. CBA represents approximately 750

federally insured bank and thrift institutions that hold more

than eighty percent of all consumer deposits, and more than

seventy percent of all consumer credit held by federally

insured depository institutions.

The New York State Bankers Association ("NYSBA")

is the principal trade associations for the banking industry

within that state. The NYSBA participated actively in New

York State Association of Life Underwriters v. New York

State Banking Department, 83 N.Y.2d 353 (1994)

("NYSALU"), a case in which the state Court of Appeals

unanimously upheld the right of state-chartered banks to sell

annuities. Indeed, the litigation arose directly from a

NYSBA initiative. The NYSBA thus is uniquely well

situated to elucidate the issues decided by NYSALU and their

relevance to this case. The decision of the Fifth Circuit, if

affirmed, would upset the balance between the powers of

state and federally-chartered banks in New York, the largest

banking market in the country and in those other states in

which state chartered banks are authorized to engage in

annuity sales and brokerage. It casts a cloud over the power

of national banks in New York, including some of the largest

banking organizations in the United States, to sell annuities,

at the same time that their State-chartered brethren (also

some of the nation’s largest banking organizations) now are

free to do so without limitation. This result is all the more

anomalous because the two governing statutes are identical

for this purpose, and indeed the state law served as the

4

model for the National Bank Act.' Rules of statutory

construction provide that the meaning of a predecessor

statute is instructive in interpreting an adopting statute as

well.”

Even more significant, the continuing vitality of the

national bank charter, in New York and other states, will be

brought into question if the decision below stands. The Fifth

Circuit’s narrow construction of the National Bank Act’s

"incidental powers" clause stands in stark contrast to the

progressive, forward-looking reading of the identical

language under New York law by the New York Court of

Appeals--a difference that cannot fail to be noted by national

banks in the highly competitive New York market. Indeed,

within the past year at least three New York institutions have

surrendered their national charters in favor of a state charter.

In Louisiana, a state statute expressly ties the

authority of state-chartered banks to sell annuities to the

outcome of this case--and does so by name. La. Rev. Stat.

Ann. 6:242 (A)(16). The authority of state-chartered banks

to engage in some fashion in the insurance agency business

is likewise dependent, in large part, upon the ability of

national banks to do so under Sections 24 (Seventh) and 92

of the National Bank Act. The matter has been in litigation

in Louisiana for four years with no resolution yet in sight.

(See American Bank & Trust Co. of Opelousas v. Drake, No.

93-5040 (Sth Cir. 1994)(unpublished)). Finally, soon after

(and as a direct result of) the decision below, the Insurance

' Symons, The “Business of Banking” in Historical

Perspective, 51 Geo. Wash. L.Rev. 676, 689 (1983).

? Willis v. Eastern Trust & Banking Co., 169 U.S. 295,

308 (1898).

ee eee

5

Commissioner of Louisiana began an inquiry into the

insurance and annuities sales activities of all national banks

in the state, clearly with a view toward moving to disrupt

and preclude those lawful national bank activities.

SUMMARY OF THE ARGUMENT

This case involves what the Fifth Circuit wrongly

perceived to be a conflict between two provisions of federal

banking law. On the one hand, Section 24(Seventh) of the

National Bank Act grants to national banks the power to

engage in the business of banking and to exercise "all such

incidental powers as shall be necessary" to carry on that

business. On the other hand, Section 92 of the Act provides

that national banks located and doing business in small towns

may act as the agent in the sale of any insurance. Where a

particular insurance product is “incidental” to banking,

Section 24(Seventh) would seem, in the abstract, to allow all

national banks, wherever located, to market that particular

product. Section 92, in the abstract, is said to limit the

marketing of insurance products--even those “incidental to

banking"--to national banks in small towns, to the exclusion

of national banks in larger places.

In point of fact, there is no conflict between these

two provisions of law. By its own explicit terms, Section 92

directs that its provisions should give way to pre-existing

statutory grants of power to national banks and that they are

granted “in addition to" those pre-existing powers. Since

Section 24 (Seventh) predates Section 92 by over a half-

century, and since, properly construed, nothing in Section 92

derogates powers granted by Section 24 (Seventh), it is clear

that the “incidental powers" clause of the statute must take

precedence here.

6

Whether or not Section 92 limits the sale of

"insurance" by national banks, the second question the Court

must address is whether the sale of annuities, as approved by

the Comptroller of the Currency in this case, fits within the

grant of “incidental powers" to national banks or within the

explicit grant of power to national banks to purchase and sell

securities, without recourse, solely upon the order, and for

the account of, customers. 12 U.S.C. § 24 (Seventh). The

court below dismissed this issue in a one-sentence analysis,

limited to the “incidental powers" clause of the statute. The

court held that even if “the power to sell annuities would be

one incidental to banking, by no stretch of the imagination

can that power be deemed “necessary.” Variable Annuity

Life Insurance Company v. Clarke, 998 F.2d 1295, 1302

(Sth Cir. 1993) (hereinafter "VALIC").

The Fifth Circuit below characterized annuities as

insurance products, as if that characterization somehow cast

sale of the product beyond the pale of proper banking

activities.’ In point of fact, however, the characterization

of an annuity as an insurance product makes it at least as

likely, and perhaps more so, that the product does fit within

the incidental powers of national banks. In our evolving

economy, the banking and insurance industries have become

increasingly intertwined since the enactment of Section 92 in

a far different era over three-quarters of a century ago. The

incidental powers clause of the National Bank Act (or any

incidental powers clause), properly understood, is designed

to accommodate evolution in the banking industry, not, as

the Fifth Circuit would have it, to freeze industry practices

> The briefs of both Petitioners in this case point out

in detail why this characterization is wrong. No purpose

would be served by our repetition of those arguments.

7

in the mold in effect at the time the applicable law was

enacted.

ARGUMENT

I,

SECTION 92 OF THE NATIONAL BANK

AcT IS NOT A LIMITATION

ON THE INCIDENTAL POWERS

OF NATIONAL BANKS

Section 92 of the National Bank Act provides that

{iJn addition to the powers now vested by law in

national banking associations under the laws of the

United States any such association located and doing

business in any place the population of which does

not exceed five thousand inhabitants, as shown by the

last preceding decennial census, may, under such

rules and regulations as may be prescribed by the

Comptroller of the Currency, act as the agent for any

fire, life or other insurance company authorized by

the authority of the State in which said bank is

located to do business in said State, by soliciting and

selling insurance...

Act of Sept. 7, 1916, c. 461, 39 Stat. 753 (emphasis added).

In the written decision of the court below, the

opening phrase was omitted when the author set forth the

language of the statute was set forth “in relevant part."

VALIC, 998 F.2d at 1298. Similarly, this language was

ignored in the court’s logic. This a serious omission, for

rather than being outside the “relevant” part of the statute,

it is critical generally to the proper interpretation of the law

and specifically to the resolution of the issue before this

Court. Its relevance is fundamental, and its exclusion was

dispositive, decisive and totally improper. In fact, excluding

the opening phrase of Section 92 was prejudicial in the exact

sense of the word (See Webster’s New Collegiate Dictionary

900 (1980)), as it led to a premature judgment and an

unwarranted opinion.

At the time Section 92 was enacted in 1916, one of

the powers then--and for the previous fifty-two years--

"vested by law in national banking associations under the

laws of the United States" was the power to exercise “all

such incidental powers as shall be necessary to carry on the

business of banking.” Act of June 3, 1864, 13 Stat. 99, §

8. It follows that the explicit grant of power in Section 92

was intended to be "in addition to" those activities that are

incidental to the business of banking. The Fifth Circuit,

however, simply chose to ignore the opening phrase with its

inclusive "in addition to" language. Instead, it determined

in conclusory fashion both that annuities are a form of

"insurance" and that Section 92 automatically raises a

negative inference regarding the power of national banks to

sell insurance products in places with larger populations.

The analysis is exactly backwards. Because Section

92 is, by its very terms, an additional power, the court

below should have determined first what powers national

banks possessed already, to which the small town insurance

power would be an addition. In 1916, as today, banks

possessed “incidental powers." As we show below, that is,

and was intended to be, an evolving concept. No Congress

can foresee events decades or centuries in the future. But

the Congress is often wise enough to realize this shortcoming

and to account for it by deeding to a regulator the authority

9

to determine, from time to time, what has become

"incidental." The plain language of the statute is controlling,

Board of Governors of the Federal Reserve System v.

Dimension Financial Corporation, 474 U.S. 361, 373-75

(1986), and the plain language of Section 92 says that it is an

additional power, not a limitation. No mere interpretive

maxim can explain away so plan a Congressional command.

We do not claim that the grant of power to national

banks to engage in the business of banking and to exercise

all incidental powers necessary thereto could overcome

explicit federal statutory prohibitions against banks engaging

in a particular business or in a particular way. But there is

no such prohibition here. Even if there were a conflict

between Section 92 and Section 24 (Seventh), which there is

not, there still would have to be some principled way to

choose which of the two sections actually governed the

outcome of this case. The Fifth Circuit purports to’ follow

the rule of statutory construction that a specific statute

controls over a general one.* However, there is no reason

to hold (and the Fifth Circuit recites none) that the term “act

as the agent for any fire, life, or other insurance company”

found in Section 92 is any more (or less) specific than are

the terms “carry on the business of banking" and “purchas[e]

and sell {] securities and stock" found in Section 24

(Seventh).

Indeed, if the Fifth Circuit is otherwise correct, the

"insurance" provision is even broader and more general than

contemplated by the Congress that enacted it. According to

the Fifth Circuit, the term "insurance" is general enough to

* VALIC, 998 F.2d at 1302 (citing Crawford Fitting

Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 445 (1987) and

Busic v. United States, 446 U.S. 398, 406 (1980).

10

include--without saying so--a form of annuity that did not

even exist until thirty-six years after Section 92 was

enacted.’ If the Fifth Circuit is otherwise correct, the

"banking" provision is less general, less broad than

contemplated insofar as it does not (according to the court

below) include the ability to sell something that this Court

has already held to be a “security."®

Il.

THE SALE OF ANNUITIES

Is INCIDENTAL TO BANKING

It is a subject of serious and continuing disagreement

among the parties to this case whether annuities are

"insurance" products or not. The Comptroller of the

Currency and NationsBank, supported by a host of judicial

precedents from numerous jurisdictions (including this

Court), both contend that annuities more nearly resemble

traditional banking products or investment products that

national banks are specifically authorized to broker by virtue

of Section 24 (Seventh) of the National Bank Act. On the

other side, VALIC argues, and the Fifth Circuit held, that

annuities are historically the product of insurance companies

and are regulated as insurance products under the insurance

laws of the fifty states. If, however, annuities are not

insurance products, then the alleged negative inference

* This Court has pointed out that variable annuities--

covered by the Fifth Circuit decision below--did not come

into existence until 1952. SEC v. VALIC, 359 U.S. 65, 69

(1959).

© Id., at 67-68.

—————e ——— ee

11

drawn from Section 92 is wholly irrelevant to the outcome

of this case.

The Petitioners argue in their briefs, and we concur,

that the sale of annuities, however characterized, is

incidental to the business of banking without regard to

restrictions on the sale of insurance, whether embodied in

state or federal law. In this regard, the recent unanimous

decision of the New York Court of Appeals, construing

identical language under New York law, stands in stark

contrast to the Fifth Circuit’s narrow and antiquated notion

of “incidental powers." NYSALU, supra, 83 N.Y.2d 353

(1994). As previously noted, the "incidental powers” clause

of the National Bank Act was derived directly from and is

identical to the provision of New York Banking Law at issue

in NYSALU. Compare 12 U.S.C. Section 24 (Seventh) with

New York Banking Law Section 96. The approach of the

New York Court is thus particularly instructive.

In language strikingly similar to that of the Fifth

Circuit below, the lower court in New York had held that

"the incidental powers language must be construed as

allowing only such activity as is necessary to put into effect

the express powers authorized by the statute...the selling of

annuities is not such an activity.” On appeal, the Appellate

Division, Third Department, of the New York Supreme

Court unanimously reversed that reading, and on March 30

of this year, the Court of Appeals unanimously affirmed the

Appellate Division. Noting that it had consistently rejected

such a narrow reading since its landmark decision in Curtis

v. Leavitt, 15 N.Y. 9 (1857), the court held that "...the

business of banking is not static but rather must adjust to

meet the needs of the customers to whom banking

organizations provide a valuable service...care should be

taken not to cripple [banks] by a narrow and unreasonable

12

construction of the statutes which will unwisely limit their

usefulness in the transaction of business under modern

conditions (citations omitted)."

Even assuming, for purposes of argument only, that

annuities are insurance products, that does nct mean, ipso

facto, that they are not “incidental” to banking. Indeed,

quite the converse is the case.

According to the Fifth Circuit, "[pJrior to the 1916

enactment of Section 92 it seems to have been universally

understood that no national banks possessed any power to act

as insurance agents." VALIC v. Clarke, 998 F.2d at 1303

(citing the Fifth Circuit’s own opinion in Saxon v. Georgia

Association of Independent Insurance Agents, 399 F.2d 1010,

1013 (Sth Cir. 1968)). What may have been true in 1916 is,

however, not true today. If the banking industry had not, by

1916, evolved to the point where selling of some form of

insurance was included within the “incidental powers" of

national banks, those banks have, since then, evolved past

that point. The incidental powers clause of the statute allows

for such evolution, and national banks did, of course,

possess “incidental powers” in 1916 and had for over fifty

years. As the Ninth Circuit has held, the National Bank Act

"did not freeze the practices of national banks in their

nineteenth century forms....[TJ]he powers of national banks

must be construed so as to permit the use of new ways of

conducting the very old business of banking." M&M

Leasing Corp. v. Seattle First National Bank, 563 F.2d

1377, 1382 (9th Cir. 1977), cert. denied, 436 U.S. 956

(1978).” If banking is not to be "frozen" in the distant past,

” In a nonbanking context, this Court has adopted a

similarly broad view of the administration, of federal

regulatory statutes: "Flexibility and adaptability to changing

atten

13

then logically there must come a time when a practice that

was once not “incidental” becomes "incidental."

Today, as many as thirty-four states allow their own

state-chartered banks to engage in the insurance agency

business in some form or another.’ That is an important

consideration in construing the incidental powers clause of

the National Bank Act, since this Court has held that a

power is incidental if it is a “generally adopted method" of

banking. Colorado National Bank v. Bedford, 310 U.S. 41,

50 (1940). The laws authorizing such powers in Indiana and

in Delaware have been upheld by the federal courts over the

objection of the insurance industry and even (in the case of

Delaware) of the Board of Governors of the Federal Reserve

System. See, Independent Insurance Agents of America v.

Board of Governors of the Federal Reserve System, 890 F.2d

1275 (2d Cir. 1989), cert. denied, 111 S.Ct. 44 (1990);

Citicorp v. Board of Governors of the Federal Reserve

System, 936 F.2d 66 (2d Cir. 1991), cert. denied, 112 S.Ct.

869 (1992). State courts have also regularly upheld laws

granting insurance agency powers to commercial banks and

needs...is an essential part of the office of a regulatory

agency. Regulatory agencies do not establish rules of

conduct to last forever; they are supposed, within the limits

of the law and of fair and prudent administration, to adapt

their rules and practices to the Nation’s needs in a volatile

and changing economy. They are neither required nor

supposed to regulate the present and the future within the

inflexible limits of yesterday." American Trucking

Associations v. Atchison, Topeka & Santa Fe Railway Co.,

387 U.S. 397, 416 (1967). The decision of the Comptroller

of the Currency is clearly consistent with this philosophy.

* See Appendix attached hereto.

14

other depository institutions. See, e.g., Calfarm v.

Deukmejian, 48 Cal.3d 805 (1989); Independent Insurance

Agents of Ohio v. Fabe, 63 Ohio St.3d 310, 587 N.E.2d 814

(1993); Ludington Service Corp. v. Commissioner of

Insurance, 444 Mich. 481, 511 N.W.2d 661, reh’g denied,

444 Mich. 1240 (1994). In upholding the power of New

York banks to broker annuities, the State’s highest court also

upheld the Banking Department’s opinion that under New

York law a New York State-chartered bank may own a

subsidiary engaged in any line of business that is not

otherwise unlawful, arguably including an insurance agency,

with prior approval of the State’s Banking Board. NYSALU,

supra, 83 N.Y.2d 353. National banks may act as the agent

in the sale of credit life insurance. Independent Bankers

Association of America v. Heimann, 613 F.2d 1164 (D.C.

Cir. 1979), cert. denied, 449 U.S. 823 (1980). National

banks may operate a subsidiary for the purpose of issuing

municipal bond insurance under the incidental powers clause

of the National Bank Act. American Insurance Association

v. Clarke, 865 F.2d 278 (D.C. Cir. 1989); National banks

may offer debt cancellation contracts to their customers,

First National Bank of Eastern Arkansas v. Taylor, 907 F.2d

775 (8th Cir.), cert. denied, 498 U.S. 972 (1990), even

though such contracts constitute “insurance” for purposes of

the relevant state law, Douglas v. Dynamic Enterprises, 315

Ark. 575, 869 S.W.2d 14 (Ark. 1994). National banks have

and exercise the powers granted by the law under

consideration here to act as agent in the sale of insurance

from small town offices to customers wherever found.

Independent Insurance Agents of America v. Ludwig, 997

F.2d 958 (D.C. Cir. 1993).

Many banks, both state and national, are affiliated

with insurance agencies by virtue of common ownership by

a bank holding company. Bank holding companies may

15

engage in the general insurance agency business in small

towns so long as they have a lending office there.

Independent Insurance Agents of America v. Board of

Governors of the Federal Reserve System, 835 F.2d 1452

(D.C. Cir. 1987). Prior to the enactment of amendments to

the Bank Holding Company Act in 1970 and 1982, a number

of bank holding companies were engaged in the insurance

agency business; those companies were allowed by law to

remain in the business and, in some cases to expand their

insurance agency businesses, after the amendments to the

Act were passed. Bank holding companies retain their

"grandfathered" rights to operate insurance agencies after

acquisition by non-grandfathered holding companies.

National Association of Casualty and Surety Agents v. Board

of Governors of the Federal Reserve System, 856 F.2d 282,

on denial for petition for reh’g and reh’g en banc, 862 F.2d

351 (D.C. Cir. 1988), cert. denied, 490 U.S. 1090 (1989).

A bank holding company with a grandfathered insurance

agency business may offer title insurance even if it was not

offering that product on the grandfather date. American

Land Title Association v. Board of Governors of the Federal

Reserve System, 892 F.2d 1059 (D.C. Cir. 1989). A

grandfathered insurance agency can be reinstated even if it

had been allowed to lapse. The Glastonbury Company v.

Gillies, 550 A.2d 8 (Conn. 1988).

Nor is the growing coalescence between the banking

industry and the insurance industry by any means a one-way

street. A considerable number of companies already

engaged in the insurance business in some form have, within

the last several years, created or acquired commercial banks.

Most prominent examples among these would include Sears,

Roebuck and Company, which has long owned Allstate

Insurance Co., and, also owned the Greenwood Trust

Company of New Castle, Delaware, a $7.5 billion asset bank

16

which issues the Discover Card. American Express, which

owns the Fireman’s Fund Insurance Companies, likewise

owns three commercial banks--IDS Trust Co., Minneapolis,

American Express Bank International, New York, and

American Express Centurion Bank in Newark, Delaware.

Beneficial Corporation owns a dozen insurance companies

directly or indirectly, which are engaged in both

underwriting and selling of insurance as agents. It also owns

Beneficial National Bank of Wilmington, Delaware. Control

Data Corporation, with eleven insurance subsidiaries, owns

Primerica Bank of Newark, Delaware. Prudential Insurance

Company owns Prudential Bank & Trust Co. of Atlanta.

All of the above developments are of more recent

vintage than 1916. What was or may not have been

"generally adopted" at the time of enactment of Section 92

of the National Bank Act has been “generally adopted" in

large measure by the banking industry of 1994.

The briefs of the Comptroller and NationsBank have

elaborated upon the similarities between annuities and

various other banking products in order to show that annuity

sales are a part of the business of banking or are that they

are incidental to that business. To the extent that annuities

may resemble “insurance” products, that factor, too,

supports a finding that the sale of annuities is incidental to

the business of banking as it is practiced in a modern

economy, regardless of whether it would have been included

in the business of banking as it was practiced before the First

World War.

17

CONCLUSION

For all of the reasons above, your amici respectfully

urge the Court to reverse the decision of the Fifth Circuit

below.

July 29, 1994

Respectfully submitted,

/s/

John J. Gill II

Counsel of Record

Michael F. Crotty

AMERICAN BANKERS ASSOCIATION

1120 Connecticut Avenue, N.W.

Washington, D. C. 20036

(202) 663-5026

Attorneys for Amici Curiae